1 in 5 homes in negative equity?

Reports this morning that one in five home owners are in negative equity have understandably caught the headlines. 17% of those who bought between 2007-12 rising to 21% of those who bought in 2007 alone.

Just to be clear, the Rightmove survey says “17% of those 2007-2012 buyers who believe their property has declined in value since purchase also state that they are currently in negative equity, believing their outstanding mortgage balance to be higher than the current value of their property. This rises to 21% amongst those who bought in the peak year of 2007“.

Rightmove asked if people thought their house was worth more or less than it was in 2007. Those who said “less” were then asked a further question.

The headline 1 in 5 figures seems high to some but the following numbers may help;-

According to HM Land Registry 3.71m homes have sold across England & Wales since Jan 2007. HMRC says that across the UK more than 5.8m have changed hands.

We know that around 60% of buyers had a mortgage.

In addition, we know that 2.78m of all sales in England & Wales since January 2007 were for less than £200k, the most likely to have had a mortgage.

The Land Registry calculates that house prices across England & Wales are 7% below the level in Jan 2007 but this includes London and the South East. Across the whole of Wales they are -14.2% lower and in the North West the are -16% lower.

If buyers since 2007 have typically had to put down 15% and you ignore the London/South East bubble then the numbers quoted by those taking part in the Rightmove survey become plausible. If you then factor in those who aren’t necessarily in negative equity (around 1 in 5 according the the Rightmove Survey) who reckon that their home is worth less than they paid for it then they won’t have 20% deposit now required to put down for their next home. At least 1.5m home owners are trapped, prisoners in their existing homes unable to move on.

PS. In an timely note the Council of Mortgage Lenders today posted numbers of mortgage holders in negative equity. As this report on the BBC web site confirms, according to the CML there are 719,000 borrowers whose mortgages are larger than the value of their homes. This is an improvement on last years numbers which were 100,000 higher.