The housing crisis has plunged 250,000 homeowners into negative equity this year, and the number could rise to more than a million by end 2009.
The stark warning from the Citi banking group will no doubt stoke fears that a repeat of the 1990s house price crash could be on the cards.
While the situation is thankfully nowhere near as bad just yet, the recent dip in prices will have many homeowners – particularly first time buyers - looking nervously over their shoulders.
Already on the margin
In the days of easy credit, many thousands of families were able to climb onto the property ladder despite having little or no deposit to speak of, with 95%, 100% and even 125% mortgages widely available from the nation’s lenders.
This meant that, when the astronomical rise in house prices finally came to an end and prices started to dip, many were immediately plunged into negative equity.
With house prices falling for the eight consecutive month in May, the number of casualties is growing almost daily. Citigroup estimates that prices could fall by as much as 15% by next year. If so, it would leave more than a million families in the red.
Financial double whammy
As if the spectre of negative equity wasn’t bad enough, homeowners are also having to battle against rising lending rates.
Jittery lenders have been constantly increasing their rates in response to the credit crunch. The latest round of rate hikes is expected to add as much as £90 a month on repayments for a typical loan.
In other words, the value of their homes is decreasing while their mortgage costs are increasing.
Households hoping for relief in the form of a further base rate cut may well find themselves disappointed. With inflation still shifting upwards, the Bank of England will be hesitant to carry out a third rate cut this year.
