Collapsing house prices are plunging 60,000 homeowners a month into negative equity, making the figures worse than the housing crash of the 1990s. At the current rate, by the end of this month 335,000 homes will be worth less than their mortgages, a rise of 260,000 in four months. If the trend continues two million households will enter negative equity by 2010, outstripping the 1.8 million affected in the last slump.
The news comes as chief secretary for the Treasury Yvette Cooper has said banks will face new curbs on their powers to repossess homes. In an interview with the Observer newspaper Ms Cooper said that the government would act to prevent a rise in evictions during the expected recession, and lenders would have to prove that homeowners could not pay off their mortgages under alterative payment schemes. Lenders applied to repossess 80,000 homes during the first six months of this year, a figure that equates to the property crash on the early 1990s, with more than 19,000 properties already seized, a 40 per cent increase on the previous six months.
Banks and courts, however, are resisting pressure to show leniency towards homeowners struggling to save their homes. Drafts of the first pre-action protocol for mortgage arrears, which set out the guidelines for settling disputes before the matter is taken to court, have not ruled on the right of borrowers to request a ‘reasonable’ extension to their loan and repayment of arrears.
Labour MPs have been urging the government to nationalise parts of the house building industry, saving thousands of jobs and solving the shortage of social housing at a relatively low cost. Jon Cruddas, who recently declined the post of housing minister, said that with builders’ share prices ‘disintegrating’ and the price of land falling it was time to consider radical policies.
Chancellor Alistair Darling has already said he plans to bring forward billions of pounds of public money in an emergency boost to the UK economy, and is expected to announce details in next month’s pre-budget report. He has warned cabinet colleagues to live within spending limits, but has told aides he wants to ‘reprioritise’ spending in key areas.
Half of all first time buyers and key workers have either never heard of shared equity schemes or are confused by them, while a further 13 per cent were convinced they would not qualify for help in buying a property, according to a survey. However, information from website propertyfinder.com found that 97 per cent of first-time buyers would qualify for the schemes.
Meanwhile if further proof was needed, the latest figure from the Council of Mortgage Lenders (CML) has shown the slump in mortgage lending continued in September. Total lending was £17.7 billion for the month, down 10 per cent from August, and 42 per cent lower than a year earlier. The CML predicted that new lending for the year would be only 37 per cent of the level during 2007.
But an affordability index undertaken for the Daily Telegraph indicates that houses have become ‘significantly’ less overvalued in recent months. The index, which takes into account the costs of mortgages as well as householders’ disposable income, shows that prices were unlikely to fall much more than 20 per cent, and should stop falling mid to late next year. However it warns that housholds should not expect prices to bounce back as fast as they did in the past.
But property website Rightmove has warned that the property market is unlikely to ever be the same again, even though its figures show a rise of 1 per cent in the asking price of homes in the past month. An annual drop of 4.9 per cent is the largest year on year fall recorded. The small monthly increase is thought to be due to sellers hoping for higher prices in the run up to christmas; and according to Righmove many people are simply falling to price their homes realistically.