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Cushioned from negative equity

7th July 2008 | back to article listings BACK    print this article PRINT

Many things from the 1980s have made a raging comeback in recent years - perms, leggings, leg warmers and Rayban sunglasses have all enjoyed renewed success in recent times. It seems today's youngsters are enjoying a renaissance of the decade which triumphed flamboyant fashions and yuppie culture. However, there is one defining moment of the 80s that no one wants to see return. No, not dearest Maggie but something much worse - negative equity.

This demon of the property market caused nightmares for homeowners 20 years ago and it seems that history could be about to repeat itself. As house prices drop around the country, negative equity poses a real threat to property owners. Fortunately Nationwide released figures earlier this week that house prices only slipped by 0.9 per cent in June - half the rate it fell in May. And what is more comforting for those investing in property is that GE Money Home Lending has produced a reassuring picture of the chances of negative equity affecting homeowners.

In fact, GE stated that many householders are somewhat immune to the lurking threat of negative equity. According to the firm, properties bought in London in 1995 would have to see price drops of 72 per cent to endanger mortgage holders. And homeowners who purchased their house in 2000 have a 58 per cent cushion (provided they had a deposit of £27,000) to sit on before the value of the property becomes less than their mortgage. Gerry Bell, the head of mortgage marketing with the company, suggested that despite the morbid predictions from many property commentators the reality is not so threatening. "As house prices soften many commentators understandably warn of the potential of negative equity in some parts of the market.

"However, it is also important to look at the broader picture. Over the past decade homeownership has delivered fantastic returns for many borrowers and we would need to see unprecedented falls in property prices for the average home owner to be severely impacted. Homeowners who purchased their property just four years ago for instance, even without a deposit, have an equity cushion of almost 50 per cent before the value of their home loan would exceed the property value," he said.

Landlords should clearly be heartened by this news as it seems many shrewd buy-to-let investors will be cushioned from the unforgiving blow of negative equity, especially if they have a portfolio that dates back to the original era of brick mobile phones and power suits.

This is a press release by Assetz also available at http://press.assetz.co.uk/articles/4269.html. Alternatively, please see our full press release archive.

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