If House Prices Drop Another 40% - Who’s at risk of Negative Equity?

IveSeenTheLight

MrDT wrote: »

Haha - WRONG!

A bunch of people are already in NE.

If the "if statement" is satisfied, it just means it'd be a bigger bunch

sorry, you stand corrected.

The statement is not "if people are in NE" but "if property values drop another 40%"

Naturally, "If" house priced dropped another 40% there would be more in NE.

Cleaver

brit1234 wrote: »

I can see prices falling in newbuild flats 60% due to all the gift deposits, poor quality and mortgage fraud.

But aren't all of those stats in your post based on house prices (i.e., some sort of average house price index) falling 60% from peak? If poorly built new build flats fall 60% then I don't really see a well built nice terrace house falling much more than 25%.

brit1234 wrote: »

I have no doubt about that, there has been a massive vested interest propoganda campaign in the media which was decieving people into things had bottomed out. However I prefer to look at the economics of the issue rather than what a estate agent or buy to let company says.

Sorry, I obviously wasn't clear as I wasn't refering to estate agents, 'propaganda', property programmes or anything else like that. I was refering to the fact that we have a society with a culture of wanting to buy houses and, for some reason, seeing that price go up and up. The estate agents and media didn't create the interest in people seeing money in houses, it was people seeing money in houses that created w*nky estate agents and media interest. Location, Location, Location and estate agents in minis exist because of the culture in our society, not the other way round.

Remember that you're in a small minority of people that might look at the wider issues. Most of our society think house prices go up and they want a part of the action. It's a silly way of thinking, but I reckon enough people think that way to keep our housing market well above 60% falls. Just my opinion of course.

brit1234 wrote: »

I have a degree in disaster management and have a very good understanding of risk assesment. On top of that the last 5 years I have been studying the various schools of economics too.

This is a bit of a cheap shot, but surely there is something a bit more fun to do with your time?

And to be serious for a second, did your analysis of risk and 'economic schools' lead you to a conclusion that house prices would fall on average 50% from peak by Christmas 2009? This seems highly unlikely now and possibly shows that your analysis is a touch on the pessimistic side. Do you think you could have slightly pessimistic views overall?

brit1234 wrote: »

Savings in the western world have dwindled massively, we are now reliant on savings from the east of the world.

Don't most reports show that we're saving more than ever in recent years?

brit1234 wrote: »

I have £30K for a deposit and that took years. I can't believe there will be a recovery when I represent a minority especially as the deposit conditions are relatively new and will take a long time for people to save up so the market can turn around.

I believe I read somewhere that the average UK adult has around £13,000 in savings. So yes, you'd be above average. But I don't think you'd be a minority.

brit1234 wrote: »

This spring bounce was partially caused by savers using their savings in property for what they thought would be a better return. Those savings are extremely limited and are being exhausted so the market can only go down from here. How far down, well thats another debate on here

I agree that this is a bounce as such. I think we'll see prices slide another 10% or so, but not the 40% that your headline (and therefore all the stats that your OP stated).

One really, really ominous sign in the housing market that we haven't mentioned is the fact that I sold a house last week, on the basis that I think house prices will fall further. My financial moves are TERRIBLE. I buy shares that go down, I can't be bothered to move money in to high savings accounts, I buy houses at the peak and logic suggests... I sell at the bottom. So if house prices do go down a lot further it will be the first semi-sensible financial decision I've ever made.

baileysbattlebus

brit1234 wrote: »

If House Prices Drop Another 40% - Who’s at risk of Negative Equity?


Negative equity is already playing it’s part in stifling the property market and it is set to make matters worse.


If prices do drop by another 40% (according to MoneyWeek) or more, over the next few years the number of people finding themselves in negative equity is likely to increase substantially.


The actual number of homeowners facing the prospect of negative equity is difficult to quantify because there is limited and conflicting data available.


According to the Bank of England between 7% and 11% of UK homeowners are now in negative equity a recent report suggests this equates to between 700,000 and 1,100,000 people.


If 700,000 is 7% that report suggests there are 10,000,000 homeowners in the UK.
But according to the Telegraph in 2008 the figure was closer to 14,500,000 and I’m pretty sure 4.5million people haven’t lost or sold their houses in the last year. Unless nearly 30% of all UK homeowners own their property outright?


7% to 11% of 14,500,000 is 1,015,000 and 1,595,000 respectively which is between 315,000 and 495,000 more people in negative equity than the Bank of England suggests.


The ‘NMG Research Survey’ commissioned by the Bank of England and carried out in October 2008 on a sample of just 1000 people forms the basis of the recent report and the report also suggests many of the people surveyed probably overstated the value of their homes.


This means the real number of people either in or facing negative equity, is probably much higher.


According to FSA data used in the report, approximately 75% of all homeowners have 25% equity.


That means 25% of homeowners have less than 25% equity. That means if house prices drop by another 25% then 25% of all homeowners will be in negative equity.


If there are 14.5 Million homeowners in the UK then the number of people in negative equity will reach a staggering 3,500,000.


But house prices could drop another 40%.


The MoneyWeek article refers to affordability as the main contributor to the potential decline and compares the events of past crashes to predict a 40% drop.
The Bank of England report has another interesting graph showing Nominal House Prices and Real House Prices with the peak of 2007 as the 100% mark. A simple extrapolation of the Real House Prices suggests a correction being approximately 20% lower than the current point (from peak, or 25% from the current level) but as all past crashes have shown, the actual bottoming out occurs well below the target.

So a drop of 30% - 40% more is not unrealistic.


If 3,500,000 homeowners will be in negative equity if house prices drop 25%, how many will be if they drop by 40% or more?


Data from Mortgages.co.uk suggests the average mortgage size in 06 - 07 was approximately £138,000 which by now on a repayment basis could put the average around £135,000 (roughly) and the house price average is now down to approx £150,000.

That actually puts the average Loan to Value at 90%!! I think a recent survey of more than 1000 people might help to shed some light on that!
Take the survey: What’s your Loan to Value?


http://www.ukmoneypot.co.uk/if-house-prices-drop-another-40-whos-at-risk-of-negative-equity.htm

According to FSA data used in the report, approximately 75% of all homeowners have 25% equity.

Surely they mean mortgage holders not home owners - not every home owner has a mortgage. I know quite a few people who are mortgage free.

I think the overall number of homeowners in England is 14.5 million and of those over 40% are already mortgage free 6.5 million. Leaving 7.97 million mortgage holders - as the ones who could be affected by -ve equity.

We are one of the 7.97 million mortgage holders, we have lived in the same house for 16 years and have never remortgaged or mewed. I think the equity in our house is between 80 & 90% even now.

My sister is also one of the 7.97 million - but she owes less than £5k on a £200k house - they have been debating for a number of years whether to just pay the outstanding amount or just let it keep on ticking over. I thought they'd paid it off a few years ago - but found out they haven't.

My other sister is the same - she owes just a few thousand on her house.

I think most people I know - who are older - my sisters and I are all in our mid 50's are in similar positions to ourselves. Prices would have to fall by 90% or more to put us in -ve equity.

Heyman_2

0.9% up in June - that Spring bounce looks to be headed into Summer :rolleyes:

System

Change the thread title to "another 40.9%"

IveSeenTheLight

baileysbattlebus wrote: »

Surely they mean mortgage holders not home owners - not every home owner has a mortgage. I know quite a few people who are mortgage free.

I think the overall number of homeowners in England is 14.5 million and of those over 40% are already mortgage free 6.5 million. Leaving 7.97 million mortgage holders - as the ones who could be affected by -ve equity.

We are one of the 7.97 million mortgage holders, we have lived in the same house for 16 years and have never remortgaged or mewed. I think the equity in our house is between 80 & 90% even now.

My sister is also one of the 7.97 million - but she owes less than £5k on a £200k house - they have been debating for a number of years whether to just pay the outstanding amount or just let it keep on ticking over. I thought they'd paid it off a few years ago - but found out they haven't.

My other sister is the same - she owes just a few thousand on her house.

I think most people I know - who are older - my sisters and I are all in our mid 50's are in similar positions to ourselves. Prices would have to fall by 90% or more to put us in -ve equity.

CML show that there are 11.1 Million mortgage owners of which approx 900,000 were in NE.
600,000 of these are in NE for less than £10,000.
this was in a report from Q1 2009.

I don't know the source, but someone posted on here before showing roughly 50% of homeowners were mortgage free

Gorgeous_George

So, the advice is that if your house will not meet your needs for the rest of your life, move now. Otherwise you may be stuck in a house that is not meeting your needs.

I think Brit is an Estate Agent.

As for BTL remember, it's Buy to LET. There's a clue in the name. Anyone who bought to MEW the equity is stuffed.

GG

System

BTM, sounds catchy.

baileysbattlebus

IveSeenTheLight wrote: »

CML show that there are 11.1 Million mortgage owners of which approx 900,000 were in NE.
600,000 of these are in NE for less than £10,000.
this was in a report from Q1 2009.

I don't know the source, but someone posted on here before showing roughly 50% of homeowners were mortgage free

I got my figures from the Office of the Deputy Prime minister - I can't remember the name of the website now. The figures were for England only.

I think it was actually about 45% mortgage free. I didn't look for the whole of the UK.

As the figures came from a government website they are probably wrong!!

Thrugelmir

IveSeenTheLight wrote: »

CML show that there are 11.1 Million mortgage owners of which approx 900,000 were in NE.
600,000 of these are in NE for less than £10,000.
this was in a report from Q1 2009.

I don't know the source, but someone posted on here before showing roughly 50% of homeowners were mortgage free

So holds all the mortgage debt? Do we have a large number of people with £250,000 plus mortgages?