Negative equity afflicts 'half a million households'

Houses in Clapham Only 1% of mortgage-holders in London are in negative equity, compared with 41% in Northern Ireland

Nearly half a million UK households are still in negative equity - meaning their homes are worth less than the mortgages on them, figures show.

There is wide regional variation, with 41% of borrowers in Northern Ireland - 68,000 homeowners - in negative equity at the end of 2013, the figures from mortgage group HML show,

In north-east England and Cumbria the figure is 16%.

But in London, where house prices have surged, only 1% are in negative equity.

negative equity map

That is actually worse than six months previously, when the figure was 14%, presumably tracking a further decline in house prices in the region.

Not far behind that is Scotland, where 13% of borrowers are in difficulties.

The figures are based on data from more than one million home loans.

Start Quote

shafiq caan

I am paying £250 a month extra, which is barely affordable - there's a lot of stress involved”

End Quote Shafiq Caan Homeowner

By contrast, only 1% of borrowers in London find themselves in negative equity, following the surge in the capital's property prices.

Overall just 8% of mortgage holders are now in that position, amounting to 463,000 homeowners, a big improvement on five years ago.

Stress

Negative equity occurs when the price of a property falls so dramatically that it is no longer worth as much as the loan that was taken out on it.

That becomes an issue for the bank or the building society, because they no longer have enough security to cover the loan.

And it becomes a real headache for an owner, because he or she cannot usually sell up without paying back the difference. Often that amounts to tens of thousands of pounds.

Shafiq Caan, for example, bought his house in West Yorkshire near the peak of the market in 2008.

He paid £115,000, with the help of a £95,000 mortgage.

But now that the house is only worth £75,000, he cannot sell it. Unless he pays back the difference of £20,000 to his lender.

So, like thousands of others, he decided to rent the property out.

But since his lender has increased his repayments, the rent he receives does not cover the mortgage.

"I am paying £250 a month extra, which is barely affordable," he told the BBC.

Tips for those in negative equity

houses in Blackburn
  • Do not sell unless you have to
  • Talk to your lender. They may help you "port" your mortgage
  • Consider renting. But beware rules and regulations
  • If you fall behind with your mortgage, your home can be repossessed
  • Get professional advice, which can be free

"There's a lot of stress involved," he added.

Falling values

Renting a home out is often the only option for those who find themselves trapped by negative equity.

One lettings agent based on Tyneside has experienced something of a boom in the business, as homeowners become accidental landlords.

He estimates that up to 25% of landlords in the area are in that position, having been unable to sell their homes.

Many have been affected by divorce, and planned to sell their home when the value went back up.

"Unfortunately they are still waiting some six years on," says Ajay Jagota, whose KIS agency is based in South Shields.

"If you're in negative equity, I do feel sorry, because it may be a decision that's out of your control," he says.

Property values in north-east England have fallen by 6% since the summer, according to the Land Registry.

And there are many other areas of the country, on Merseyside or in Scotland for example, where prices have remained depressed.

Hometrack reports that homes in 80% of the UK's post code districts are still worth less than at the peak of the market in 2007.

BBC housing calculator

Renting example
  • Let's you see where you can afford to live - and if it would it be cheaper to rent or buy
  • Enter how many bedrooms, which end of the market and how much you want to pay each month
  • As you move the payment slider, parts of the UK light up to show you where you can afford
  • Based on pricing and rental data from residential property analysts Hometrack
Advice

"Negative equity is only a problem if you need to move," says Kate Faulkner, of Propertychecklists.co.uk.

But if you do need to move, some lenders will consider "porting" your mortgage to another property.

The Nationwide, for example, says it will do its best to help.

However, "eligible customers must be in permanent employment, and be able to afford any additional borrowing", it told the BBC.

But Kate Faulkner advises people not to be put off.

"It may well be that they will allow you to take the mortgage with you, and take that loan that you owe to the next property. So it's not disastrous if that happens. The trick is to talk to your lender as early as possible."

The housing charity Shelter also has advice for anyone thinking of selling a home which suffers from negative equity.

Renting your home out is not always an easy option either.

There are more than a hundred rules the property must conform to, and landlords will need electrical checks and gas safety certificates that can cost a few thousand pounds.

All of which will come as little cheer to those, especially in Northern Ireland and the north of England, who are still stuck in negative equity.

They are being told it could take another five years before their properties reach the value they paid for them.

More on This Story

The BBC is not responsible for the content of external Internet sites

More Business stories

RSS

BBC Business Live

  1.  
    BUSINESS REACTION 09:04: World Service

    Lord Haskins, former chairman of Northern Foods, thinks there could be "consequences" for the supermarkets that took positions supporting a "No" vote. Speaking on Business Daily, he says there is a danger they could be shunned by shoppers.

     
  2.  
    BUSINESS REACTION 08:53: World Service

    Business Daily on BBC World Service, is coming live from Edinburgh and speaks to Sir Brian Souter, founder of the Stagecoach Group of bus and rail operators and a supporter to the "Yes" campaign. He says it's "unfortunate" that business became so involved in the debate. He thinks that some business leaders who spoke out "would not dream of" telling their US customers how to vote.

     
  3.  
    CITY REACTION 08:47: BBC Radio 4

    Sir Tom Hunter, the former owner of Sports Division and Scotland's first home grown billionaire, tells the Today programme that the high turnout for the vote was "fantastic for democracy". "I think Scotland has rocked the political establishment from its roots in Westminster," he adds.

     
  4.  
    MARKET REACTION 08:34:
    Alix Stewart

    The BBC's Simon Jack is at Schroders in London's financial district. On BBC World News he speaks to market strategist, Alix Stewart. "We can go back to concentrating on the economy," she says. "It's clear rate rises will be coming," she reminds us.

     
  5.  
    LLOYDS REACTION Via Twitter Kamal Ahmed BBC Business editor
    Kamal Ahmed tweet

    Tweets: "Lloyds Bank statement on Scotland more equivocal than RBS. Keeping options open on legal domicile"

     
  6.  
    DEVOLUTION 08:23: Radio 5 live

    On Radio 5 live Simon Walker, director general of the Institute of Directors says the promised devolution of power will result in "big challenges". It should by about "enterprise and boosting competitiveness" in all regions of the UK and not "adding layers of bureaucracy".

     
  7.  
    MARKET REACTION 08:14:

    London's FTSE 100 index has opened 0.6% higher. Royal Bank of Scotland has jumped 3.3%, Lloyds Banking Group is up 2% and energy firm SSE is up 3.4%.

     
  8.  
    INTEREST RATES 08:10: Radio 5 live

    "The odds of a February rate rise should be pretty high now," says Ewen Cameron Watt, chief investment strategist at BlackRock Investment Institute on Radio 5 live. He thinks interest rates could move higher as early as November. A rate rise would have been "off the cards" for most of next year, if there had been a "Yes" vote, he says.

     
  9.  
    LLOYDS REACTION 08:07:

    Lloyds Banking Group has made this rather nebulous statement: "Lloyds Banking Group has maintained a neutral stance in this debate as we believe the decision was to be solely a matter for the people of Scotland. The group is proud of its strong Scottish heritage and remains committed to having a significant presence in Scotland. We remain fully focused on supporting households and businesses in Scotland as well as right across the rest of the UK."

     
  10.  
    STANDARD LIFE REACTION 07:55:

    We had to call Standard Life to find out what they actually meant. The insurer told us it has "shelved plans" to move operations to London "for now". "We've no plans to move any of our operations," it adds.

     
  11.  
    STANDARD LIFE REACTION 07:54:

    Standard Life, one of the companies that threatened to partially decamp from Scotland in the event of a Yes vote, now says: "We will consider the implications of any changes for our customers and other stakeholders in our business to ensure their interests are represented and protected." It adds it is "now important that we all move forward with respect and work together constructively in the best interests of Scotland and the UK". So that's clear then.

     
  12.  
    SCOTLAND POWERS 07:42:
    Prime Minister Cameron

    Prime Minister David Cameron has promised to come up with plans for new Scottish powers on tax, spending and welfare. The government is aiming to get an agreement by November. The BBC's personal finance reporter Brian Milligan is having a closer look at what that could mean.

     
  13.  
    MARKET REACTION 07:33: BBC Radio 4

    Anne Richards, chief investment officer at Aberdeen Asset Management tells Today: "A very close vote would have been a difficult one for markets." She adds: "I think we have had a reconnection between the political establishment, business and the electorate. And it would be good to see that momentum maintained going into the general election."

     
  14.  
    07:29: HEADLINES
     
  15.  
    ALIBABA SHARE SALE 07:29:
    Alibaba

    Away from Scotland's vote, shares in Alibaba start trading in New York later today. It has raised $21.8bn (£13.2bn) in one of the biggest ever stock market debuts. It is likely to use the money to expand in the US where it has a very low profile. A survey by Reuters showed that 88% of Americans had never heard of China's biggest internet firm.

     
  16.  
    RBS STATEMENT 07:21: Kamal Ahmed BBC Business editor

    Royal Bank of Scotland has given a statement to the BBC's business editor, Kamal Ahmed, it says: "The announcement we made about moving our registered head office to England was part of a contingency plan to ensure certainty and stability for our customers, staff and shareholders should there be a 'Yes' vote. That contingency plan is no longer required. Following the result it is business as usual for all our customers across the UK and RBS."

     
  17.  
    REFERENDUM REACTION 07:14: BBC Radio 4

    Patrick MacDonald former boss of John Menzies, tells the Today programme the debate over Scottish independence has changed the country forever. "Things will never be the same again," he says. There is now "a need to reform our 300 year old constitution" and the country also needs to work at reconciliation to "make sure businesses stay in Scotland".

     
  18.  
    RBS 07:08: BBC Radio 4

    A little more from Mike Amey on the referendum result. He tells Today: " I suspect there's a very large sigh of relief at RBS [over the result] They don't have to worry about where they were going to be based and how they were going to conduct their future business."

     
  19.  
    MARKET REACTION 07:07: BBC Radio 4

    Mike Amey, managing director and portfolio manage at bond trader PIMCO tells Today he expects the markets to open higher as a result of the Scottish referendum result. "It will be back to the data for our traders and what the Bank of England will do [on interest rates]."

     
  20.  
    MARKET REACTION 06:49: Radio 5 live

    Adam Parsons is in the City at the offices of stockbrokers IG with their chief market strategist, Brenda Kelly. She says the opening of the FTSE 100 might be quite as dramatic as some expect. That's because markets have been predicting this outcome over the last few days. However, she says, it could "break through 6930" which would be a record high.

     
  21.  
    06:42: Via Email Linda Yueh Chief business correspondent

    There are other uncertainties now for Scotland after this vote. But, for markets at least, the big uncertainty that could have lingered for a year and half over the currency and the economy is lessened and sentiment is positive as a result.

     
  22.  
    06:33: Louise Cooper, CooperCity market blog

    "So it's up up and away this morning, the question is how far does it [the pound] go before reality sets back in and other political fears begin to dominate: The rows in Westminster over devolution max which has been promised. The General Election and the UK referendum on EU membership. Party conferences season resumes next week so there will be plenty of headlines to be written about the next set of political risks."

     
  23.  
    CITY REACTION 06:27:

    The Lord Mayor of the City of London, Fiona Woolf has welcomed the outcome of the Scottish referendum. "The proposed enhanced devolution that Scotland will experience while remaining in the UK will enable its national spirit to thrive while our entwined economies and business communities prosper together," the Lord Mayor said.

     
  24.  
    YES CAMPAIGN CONCEDES 06:23: BBC Radio 4
    Scottish first minister Alex Slamond

    Scotland's first minister Alex Salmond has hailed 1.6 million votes for independence. He concedes that "we now know there is going to be a majority for the "No" campaign". Scotland has, by majority at this stage, voted not to become an independent country," he adds. He expects devolution promises to be honoured with "rapid force".

     
  25.  
    ROYAL BANK OF SCOTLAND Via Email Kamal Ahmed BBC Business editor

    With No confirmed as the winner in the referendum, we can expect the Royal Bank of Scotland to say there is now no need to move domicile to London. The bank had prepared for a "Yes" vote by saying last week that it would move its headquarters from Edinburgh. I wouldn't be surprised if Ross McEwan, the chief executive, re-iterated the bank's commitment to Scotland. I am sure RBS's executives are relieved that the upheaval of independence will now not happen.

     
  26.  
    POUND STRENGTHENS 06:12:

    A decisive win for the No campaign could lead to big spike in the Pound. Jeremy Cook, economist at World First says. The obvious risk to the currency markets was a Yes, and that would have caused a big sell off. Now the markets will go back to concentrating on the fundamentals of the UK economy," he adds.

     
  27.  
    SCOTLAND INVESTMENT 06:01:

    Simon Walker, director general of business group the Institute of Directors has given an interview to the BBC. He says he thinks the government will now give the green light to investment projects that had been previously held up because of the uncertainty caused by the independence referendum. He adds the ending of that uncertainty will be positive for business.

     
  28.  
    POUND STRENGTHENS 05:54:
    pound versus dollar

    This chart shows the pound against the dollar over the last month. You can see it dipped to a low of $1.6071 on 10 September. That was after a poll in the Sunday Times showed a lead for the "No" campaign. It is now trading at $1.65. That's a move of 5 cents which is pretty big over two weeks.

     
  29.  
    MARKET UPDATE 05:47: BBC Radio 4

    Asian markets are up nearly 2% overnight BBC business correspondent Linda Yueh, tells Today. The market indications are that the FTSE 100 will open 0.7% higher. That's not exactly a surge but it is a positive reaction.

     
  30.  
    BANK OF ENGLAND 05:42: BBC Radio 4

    Justin Rowlatt is down at the Bank of England for BBC Radio 4's Today programme: He says the lights are on and staff are busy working inside. Although perhaps not quite as frantically as if Scotland was looking on course to vote Yes in the referendum. Bank governor Mark Carney cut short a meeting to fly home overnight. "He may have had a wasted trip," Justin says.

     
  31.  
    POUND STRENGTHENS 05:36:
    Pound dollar

    This chart shows how the pound has faired against the dollar since the polls closed in Scotland on Thursday evening. As you can see it's strengthened from a low of $1.63 to above $1.65, that's its highest point since the start of the month. In currency market terms it's also a huge move in a short space of time.

     
  32.  
    05:30: Ben Morris Business Reporter

    The pound has bounded higher overnight in reaction to the Scotland vote. More reaction through the morning. Stay with us.

     
  33.  
    05:30: Matthew West Business Reporter

    Morning folks. It looks like - with 26 of 32 local authorities now having declared the result of their ballots- that the No campaign is on course to win the Scottish independence referendum. We'll bring you all the reaction from the financial markets and the business community as it comes in. As always if you want to get in touch you can email us at bizlivepage@bbc.co.uk or tweet us @bbcbusiness.

     

Features

From BBC Capital

Programmes

  • A person taking a photo of fireworks on a smartphoneClick Watch

    A look at the latest gadgets which could make it easier to take the perfect night-time picture

BBC © 2014 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.