Negative equity affects around 2m households

Published 14th Aug 2009

• More than 3.5 million households have less than 15% equity
• Mortgage broker highlights misuse of consumer credit
records


Up to 3.5 million UK households are unable to move because they have insufficient equity in their homes or can't get a mortgage, according to a leading broker.

Analysis by John Charcol reveals there are around 2 million homeowners suffering negative equity or with equity of less than 10%, 500,000 households with equity of between 10% and 15%, and a further 1 million households with either sub-prime or self-certified mortgages.

With lenders jittery about borrowers defaulting with little or no equity in their homes, and reluctant to lend to anyone with anything less than a squeaky clean credit record, affected homeowners will find it very difficult to move, John Charcol spokesman Ray Boulger said.

"When most people move they rely on the equity in their property to provide the bulk of the deposit required for their new property, which is currently a minimum of 10% in most cases, plus moving costs, of which stamp duty land tax is often the biggest," Boulger said.

"Having such a large number of households that are currently unable to move is not only a serious problem for the people concerned, but also has important macro economic consequences."

Boulger went on to criticise financial services secretary, Lord Myners, over evidence he gave in the Treasury select committee report Mortgage arrears and access to mortgage finance, published last week.

"He demonstrated his complete failure to understand the current state of the market by his comment that there is a 'very competitive market for mortgages'. It is extremely worrying that someone who is helping to shape government policy has such a dangerously naive understanding of current conditions."

The select committee accused the Financial Services Authority (FSA) of taking a "leisurely" approach to conducting a review of how lenders handle mortgage arrears, and of failing to protect homeowners from aggressive lenders.

But Boulger said the committee missed the fact that lenders themselves are contributing to borrowers' poor credit ratings by carrying out a full credit check on those wanting to see whether they might qualify for a mortgage – known as a "decision in principle" – rather than waiting for the borrower to complete a full application.

"Lenders are required under FSA rules not to do anything to inhibit consumers shopping around, but most have been riding roughshod over this requirement ever since the FSA started regulating mortgages in 2004," Boulger said. "Avoiding contravening this rule is simple – all a lender has to do is refrain from recording a full search but instead do a quotation search, which provides the same information, until they receive a full mortgage application."

He added: "Until these issues are addressed, the issue of access to mortgage finance continues to be a very real problem for UK households."

There are 2,177 mortgage products on offer, according to product comparison site moneysupermarket.com, of which 28 are available to borrowers with a 10% deposit, seven for those with a 5% deposit, and one for those who have no deposit at all.

Source: ' Guardian '

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