ROOF Blog

With a growing number of Americans facing negative equity and becoming ever more pessimistic about the prospects of house prices recovering to make up that difference, they are surrendering to foreclosure even though they can still meet the repayments, according to reports. The trend is clear in recent rates of non-payment, or delinquency, on mortgages. In January, delinquencies on outstanding ‘jumbo’ mortgages - big loans granted to people with good credit histories - rose to 9.6 per cent, according to Fitch Ratings. Many of these problem loans, which have gone unserviced for 60 days or more, were taken out after 2005. And nonpayment is increasing not just in hard-hit states such as California: in New York, Florida, Virginia and New Jersey they are all on the rise too.

Nationwide has launched a new 125 per cent mortgage, for those in negative equity and wanting to move house. The building society described the product as a ‘niche’ offer and said that the new mortgage would only be available to existing mortgage holders and would allow homeowners to ‘carry over’ their negative equity. Experts say it could help people stick in their homes who need to move, and expect other lenders will launch their own versions in the coming months.

Falling house prices have forced 900,000 mortgage borrowers into negative equity, research by the Council of Mortgage Lenders has found. Three in four have an average shortfall of between £6,000 and £8,000, nearly a quarter of a million have a shortfall close to £20,000 and a further 13,000 are in negative equity to the tune of £37,000. Homeowners in the North are worst affected with 9.2 per cent of owner occupiers in negative equity, while in the South East the figure is 5.7 per cent of households. Scottish homeowners are the least affected with only 1 per cent of borrowers suffering from falling prices.

Kate Barker, a government adviser on housing and member of the Bank of England’s rate setting committee, has said that mortgages which leave buyers with a risk of negative equity should not be banned and banks that demand huge deposits may have been ‘overdone’. She said that banks over-reacted to the credit crunch by withdrawing so many mortgages for borrowers with small deposits. She also indicated that targeting inflation alone was not sufficient to ensure economic stability.

One in three Britons is worried their home may be repossessed, with three-quarters of people claiming the government should do more to help struggling homeowners. Consumer group Which? found that 35 per cent of people with a mortgage say they are worried to some degree that they may lose their property, while six in 10 workers said they were concerned they or their partner may lose their job, with 43 per cent saying they would be unable to keep up with their mortgage. A further quarter is fearful of going into negative equity during the year. Which? also argues that the government should force lenders to take part in it homeowner mortgage support scheme.

The number of Northern Rock borrowers more than three months in arrears on mortgage repayments has risen fivefold in the previous 12 months. More than 17,000 out of its 585,000 borrowers were in arrears, and a further 170,000, a third of customers, were in negative equity, as the bank confirmed yesterday a £1.4 billion loss for 2008. Chief executive Gary Hoffman said it was affordability rather than negative equity that was the key factor in determining how many more loan defaults the bank would suffer.

The number of Lloyds mortgage holders trapped in negative equity has increased to half a million, the bank revealed over the weekend. Lloyds Banking Group, which controls 28 per cent of the mortgage market and is 43 per cent owned by the taxpayer, said that 16.8 per cent of its homeowners in negative equity were customers of HBOS, which Lloyds took over recently, compared with 15 per cent of Lloyds customers. At the end of 2007, only 0.1 per cent of customers of each bank – less than 4,000 households – were in negative equity.

As many as five million homeowners could be in negative equity by the end of this year if house prices continue to fall research by GfK NOP found. An estimated 3.8 million people either already owe more on their mortgage than their home is worth, or are very close; and a further 1.2 million homeowners are expected to be in negative equity by the end of the year if house prices drop by 10 to 20 per cent. Single people aged 25 to 34, young couples and younger families are most likely to find themselves in negative equity.

Coventry building society has become the first lender to offer re-mortgage deals worth 100 per cent of a property’s value to customers in negative equity. Customers who took out loans of up to 125 per cent who are coming to an end of their mortgage deal can now get a five-year fixed rate deal worth 100 per cent of a property’s loan-to-value, with no booking or arrangement fees.

Banks have warned Gordon Brown that the £1 billion scheme to underwrite mortgage holidays for cash-strapped homeowners could result in a wave of lawsuits if house prices continue to fall. Homeowners will have to make higher payments once the holiday ends, or face negative equity, leading to fears that banks could be sued by homeowners whose properties had plummeted in value. Treasury officials believe that such fears can be allayed by legal warnings and an insistence that anyone taking up the scheme must take independent advice.