Negative equity splits the country


London property

A report has revealed that the last few turbulent years for house prices have left one in seven mortgage holders in the North West in negative equity. However, the North/South divide is gaining ground, because the figure in the South is just 1 in 111.

So what's going on?


The report, from Standard and Poor's, found that overall 4.9% of mortgage holders are in negative equity - which is down from 5.6% in late 2011.

However, the South has accounted for a huge proportion of this fall. An upswing in property prices in the South has meant that the numbers in negative equity have started to drop back, but in the North things are getting worse - and the rate of negative equity is currently running at 8.7%.

The same report also found that more of those in the North were in arrears with their mortgage (about 4.% compared to 3.5% in the South).


The report authors say that employment in the South is faring better - supporting house prices. The North continues to be hampered by declining construction and manufacturing industries, so that unemployment remains one percentage point higher than in the South.

They also recognise the enormous distortion coming from house prices in London - where demand continues to exceed supply, international buyers pile the pressure on, and house prices are rising quickly. This means that in the South, house prices have risen about 14% since mid-2009, while those in the North have risen just 2%.

As a result, in London just 0.9% of houses are in negative equity - compared to 13.5% in the North West and 10% in Yorkshire and Humberside.

They add that this divide is likely to grow still further - as the pain of more public sector job cuts is likely to hit harder in the North - where more people work for the state. Job losses will reduce demand for property, and those who cannot keep repayments up will add to the supply of those for sale - leaving prices heading south for the foreseeable future.

What it means for you

The impact of negative equity depends entirely on your position. If you have no plans to move anywhere for a while, then you might find it a bit alarming, but it doesn't have to affect you at all.

If you are trying to remortgage, it's a real headache. You will essentially be at the mercy of your lender, and the rates they agree to give you, because you aren't going to be an attractive prospect for any other lender.

If you want to move house, trade up or trade down, then you will have been left stranded by negative equity. Very few people have enough savings to pay off the shortfall and move on, so have to wait for house prices to recover.

In many cases the answer will be to hang on as long as possible. In some cases you may need to rent out your property and rent somewhere else, until the situation improves.

In certain instances, you may not be able to afford mortgage repayments and rental may not be an option. You may be in such a poor position that your best bet is bankruptcy. You walk away with nothing - but that may be a better bet than walking away with no property and tens of thousands of pounds of debt.

If you are facing this issue, then you shouldn't be going through it without expert help. A debt charity like Stepchange will be able to talk you through all the options and help you decide which one is right for you.