Norwich home-owners hit by negative equity

KIM BRISCOE
08 July 2009 07:00



The average house price in Norfolk hit a high of £166,951 in November 2007.

However, the well-publicised house price crash during 2008 has now left the county's average home at its lowest for almost five years. The latest figures from the Land Registry's House Price Index puts May's average house price for Norfolk at £136,638 - a drop of 16.7pc from the year before.

Now, figures from research group Fitch Ratings show that Norwich ranks 16th in the top 100 cities with the highest proportion of loans in negative equity, by an average of £9,488.

More than one in 10 prime mortgage borrowers in the city - 11.7pc - are in negative equity,

In the postcode area of NR3, which is broadly in the north of the city, this worsens to 21.3pc of mortgage borrowers, whose homes are worth an average of £8,206 less than their outstanding mortgages.

This is closely followed by the NR1 postcode, where 17pc of borrowers would lose out if they sold up. Other areas which feature highly in terms of the percentage of borrowers in negative equity include Yarmouth's NR30 postcode, where 16.1pc have an average shortfall of £7,129, NR5 with 15.5pc and NR31 with 15pc.

However, if you suspect you are in negative equity, that does not necessarily mean you should panic, according to Alison Rolls, of the Norwich and Peterborough Building Society.

She said: "Negative equity is talked about, quite rightly, as a nasty thing people should be concerned about. But it's not really a problem for you unless you have to move.

"It only becomes an issue if you are trying to sell your property and you find that your property is worth less than the value of your mortgage."

When a mortgage customer does get into difficulties because of negative equity, the N&P will talk to them to see how it can best help. Mrs Rolls said: "The obvious solution, unless you have to move, is to stay put, but some people can use savings to find the difference while other people rent out the property and the rental income helps them with new payments on a new mortgage."

Despite the gloomy figures, Mrs Rolls said the N&P had not seen an increase in customers left with negative equity after selling a home.

She said: "People are being very cautious. Because we are in a general economic recession and not just a housing market recession people are not changing jobs and therefore not needing to move as much."

In the early 1990s, when there was a property crash, many lenders brought out a negative equity scheme which allowed borrowers to transfer the shortfall to a new mortgage.

However, with the banking system in crisis, lenders are unwilling to dish out mortgages to people unless they have a deposit of at least 10 to 15pc, let alone take on negative equity.

Across the country, Northampton, Nottingham and Derby are the worst affected cities and Fitch's analysis shows that the East Midlands has the highest proportion of loans in negative equity - 21.8pc of the value of the loans and 15.1pc by number of borrowers.

East Anglia fares little better with 19.9pc by value and 12.8pc by number of borrowers.

While borrowers are unlikely to default on their mortgage payments solely because the value of their house is less than their mortgage, experts expect default rates to be higher for borrowers in negative equity.

Ketan Thaker, of Fitch Ratings, said: "Borrowers with equity in the property have options available to them in case of financial distress that borrowers in negative equity do not: for example, sale of property, remortgaging, better availability and pricing of products, and the withdrawal of equity to fund temporary cash shortage, which could help avoid foreclosure."

Fitch is also predicting house prices to decline further, with prices bottoming at 30 to 35pc below their peak levels in 2010 and deepening the shortfall for many homeowners.

However, estate agent Abbotts Countrywide says some of its city and Norfolk offices do not have enough properties coming on the market to meet demand.

Peter Hurrell, regional manger, said: "This year isn't comparable to last year by any means. Our offices in Norwich are selling houses at a greater rate than they are bringing them on to the market, and while that won't help those in negative equity, it can do in the long run if demand starts to outstrip supply and prices go up again. One example we have had recently is of a house that had been on the market for three years with another agent. We brought it on to the market and it sold and we even had somebody come in with a higher offer."

Email A Friend

News: Latest headlines on Evening News 24