A new research study by the Council of Mortgage Lenders, whose members account for around 98% of all residential mortgages in the UK, shows that at the depth of the last housing market recession in 1993, 1.5 million properties or more were estimated to have negative equity.
Most sat tight, saved, continued to pay their mortgages and eventually recovered their equity position. And this is what most of today's borrowers with reduced or negative equity are also doing.
The research by James Tatch, senior statistician at the Council of Mortgage Lenders, suggests that about 900,000 property owners currently have some degree of negative equity, although the majority of these, around two thirds, face only modest shortfalls of less than 10%.
This amounts to around £6,000 for those first time buyers with negative equity and £8,000 for other home-buyers but the report cautions against assuming there is a link between negative equity and mortgage repayments problems and describes this as a myth.
Negative equity only surfaces as a problem if households need to move or are also experiencing repayment difficulties. While reduced and negative equity are likely to constrain the ability of affected households to move house, the overall scale and impact of this for the property market as a whole needs to be kept in perspective, it says.
'Although negative equity has resurfaced as house prices have fallen, one big difference from the early 1990s downturn is that it is less concentrated among young, first time buyers and more evenly spread across wider age groups and those at different points on the housing ladder,' said Bob Pannell, CML head of research.
'Negative equity will contribute to subdued property turnover, but otherwise should have few adverse effects for the majority of households affected. Where people needs to move house for job or other priority reasons, lenders can often be flexible to existing borrowers with low or negative equity, as long as their financial position is sound and they have a good payment track record,' he added.
The CML recommends that sitting tight and building up savings or overpaying on the mortgage are the strategies most borrowers are likely to adopt. It should be easier for households to rebuild their equity position than in the early 1990s, as low interest rates on their mortgage can help them to save or overpay more quickly.
