Loans -
Negative Equity
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Due to falling house prices there is now around over 23,000 people who are now at risk of slipping into negative equity. This is because they decided to take out 100% mortgages. What this could mean is that people may end up in a position where what they have borrowed is worth far more than the property that they own.
Data that has been collected by the council of mortgage lenders shows that the housing market is slowing down. Figures collected by the Royal Institution of Chartered Surveyors (RICS) are showing that the number of transactions carried out by estate agents have now hit a 30 year low. They also found that banks are now placing stricter requirements on borrowers because of the current credit crisis.
Although those who have taken out 100% mortgages represent only 2.5% of the total mortgages that have been given out during the past year, it is a much smaller percentage than what every one thinks. If a house loses its value it is not really a problem unless the person who has the mortgage needs to either move, or are unable to keep up with the payments.
In a rising market banks are prepared to give out 100% mortgages as there is little risk of them not getting their money back. But as the house prices keep falling, the risks have increased and lenders are now turning borrowers away if they do not have a deposit saved.
There are now fears that the situation may deteriorate further. As the head economist at Citigroup has said that:
"House prices are down 6% in just the last five months, and the worst of the credit crisis - all that still lies ahead,"
The economist also predicted that house prices could fall by 15% in this year alone and it could drop even further come 2009. Data gathered by RICS has found that there are very few homeowners moving house, and that there have been around 17.4 transactions made per estate agent in the past three months. It has been said that is has been the lowest figures ever gathered since the RICS began collecting data since 1978.
However in the first time in ten months there appears to be a decrease in the proportion of surveyors that are reporting house price falls. The results appear to be conflicting as some statistics say that 92.9% surveyors have said that house prices had fallen during the month of May, where there some who believed that the prices have risen.
Jeremy Leaf, of RICS, said that the slowing pace of decline could point to better news for homeowners.
"Maybe we are reaching the bottom of the market," he said.
However they maybe some cheer for homeowners as a survey conducted by the Department of Communities and Local Government (DCLG) which assessed sale completions, showed that the house prices in the UK have risen by 0.7% since April, despite the annual house price growth was down from 5.2% to 4.9%.
The survey also showed that UK house prices fell by 1% in the three months to April. It also found that he average cost of a home in England in April was £226,194, in Wales it was £164,994, in Scotland £165,546, and in Northern Ireland £224,664. A DCLG spokesman said it was important to keep in mind that UK house prices were 44% higher than five years ago the spokesperson also said:
"The current issue affecting the market is fundamentally about the supply of credit - a very different situation to the early 90s which was about high interest rates and unemployment,”
But cost of borrowing money still is continuing to rise. The Bank of England figures show that the average interest rate for a two-year fixed-rate mortgage, with a 25% deposit, was up to 6.27% which is the highest level since September 2000.
The DCLG spokesman added: "The long-term demand for housing remains high and the fundamentals of the economy are sound with low unemployment and historically low interest rates."
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