Half a million UK homes still in negative equity

Problem is worst across Northern Ireland, Scotland and northern England, where prices are still depressed

LAST UPDATED AT 08:50 ON Sat 1 Mar 2014

NEARLY half a million households are still in negative equity – meaning their houses are worth less than their mortgages – despite rising property prices across most of the country.

The problem is worst in Northern Ireland, Scotland and northern England, where house prices have not yet recovered from the slump that started in 2008.

In north-east England and Cumbria, 16 per cent of homeowners are in negative equity. “That is actually worse than six months previously,” the BBC reports, “presumably tracking a further decline in house prices in the region.”

Negative equity results when house prices fall sharply, reducing the value of the property to less than the value of the mortgage attached to it. It is hard for people affected by the problem to sell their homes, as the money they receive will not be enough to pay back the loan.

Northern Ireland has the highest rate of negative equity: 41 per cent of borrowers in the province are affected, according to data from the mortgage group HML.

In the south-east of England, house prices have recovered more quickly and the picture is very different. In London, for example, just 1 per cent of homeowners are in negative equity.

The figures were released as Britain’s biggest building society warned that a whole generation of borrowers face unexpected financial pain when interest rates begin to rise.

"People should start to consider the impact higher mortgage costs might have on their household budgets," Graham Beale, chief executive of Nationwide, said on his blog.

David Hollingworth, of brokerage London and Country, told the Daily Telegraph that borrowers who have stretched themselves to get onto the housing ladder could face a shock.

“After five years of record low interest rates it is easy to for people to feel that this is a normal borrowing environment, but it is far from normal,” he said. “People must start preparing for a rate rise now by building up savings, scaling back their spending or boosting their income.” · 

For further concise, balanced comment and analysis on the week's news, try The Week magazine. Subscribe today and get 6 issues completely free.

Read more about