Negative equity nightmare returns: First-time home buyers who put down just five per cent deposit are losing out as house prices plummet across the UK
- First time buyers lose out as house prices fall in 50 regions in England since 2017
- Many buyers will have taken advantage of the Government’s Help to Buy scheme
- Those on 95 per cent mortgages could find debt is worth more than property
By Samantha Partington For The Daily Mail
Published: 20:56 EDT, 16 August 2019 | Updated: 06:25 EDT, 17 August 2019
First-time home buyers who bought properties with a 5 per cent deposit just two years ago could now be in negative equity.
The popularity of low-deposit mortgages has soared, helping hundreds of thousands buy their first home, but prices have now fallen in more than 50 regions across England since 2017.
Borrowers who bought homes with 95 per cent mortgages in these regions could now find their debt is worth up to 6 per cent more than the value of their property, despite two years of repayments.
House price growth has slowed, with prices now falling in many parts of the country. London and the South East have been worst hit but other regions have also been affected [File photo]
If the debt exceeds the value of their home, they can find themselves unable to sell up or get a new loan, leaving them stuck on expensive rates once their fixed-rate deal expires.
Almost one in five mortgages issued in the first three months of 2019 – some 38,000 loans – were to borrowers with less than a 10 per cent deposit. This is the highest level since before the financial crisis struck at the end of 2007.
John Azopardi, a mortgage adviser at New Leaf Distribution, said: ‘We’re almost back to pre-2008 days, the way some banks are pricing 95 per cent deals, making them very attractive.
Almost one in five mortgages issued in the first three months of 2019 – some 38,000 loans – were to borrowers with less than a 10 per cent deposit [File photo]
‘The concern is that those making decisions at banks are blinded to how house prices can fall as well as rise, or are perhaps too young to remember a time when house prices have fallen drastically.
Any home buyer taking out a 95 per cent mortgage runs the risk of falling into negative equity.’
The cheapest two-year 95 per cent fixed rate on the market is currently 2.59 pc from Newcastle Building Society.
Many will have taken advantage of the Government’s Help to Buy scheme, which lets home buyers borrow 20 per cent of the purchase price interest-free if they can put down a 5 per cent deposit.
£17bn on credit cards in just a month
Consumers spent almost £17billion on credit cards in May, a 2.3 per cent increase on the previous year, according to the latest figures on unsecured borrowing.
The statistics from the banking trade body UK Finance showed almost 300million transactions were conducted with 62million credit cards, up by 6.5 per cent on the same month a year earlier.
The average family owes £3,900 on cards, with the total up by two-fifths since 2009, Bank of England figures show.
In April banks reported a ‘significant increase’ in customers defaulting on credit cards.
Rachel Springhall, of data analysts Moneyfacts, said: ‘Not only are consumers spending more using their credit cards but outstanding debt is rising too.’
Personal finance expert Sarah Coles said: ‘Sensible credit card spending has turned into something more worrying as plenty of people are maxing out cards.’
The average family owes £3,900 on cards, with the total up by two-fifths since 2009, Bank of England figures show
But house price growth has slowed, with prices now falling in many parts of the country. London and the South East have been worst hit but other regions have also been affected.
The average price of a house in Barnet has fallen 11.6 per cent from £544,994 to £481,824 in two years, according to the Office for National Statistics.
It means borrowers with a 95 per cent mortgage taken over 30 years would have seen their debt in relation to the value of their property rise to 106 per cent, assuming they were paying the average two-year fixed rate in 2017, according to mortgage broker Coreco.
The popularity of low-deposit mortgages has soared, helping hundreds of thousands buy their first home, but prices have now fallen in more than 50 regions across England since 2017 [File photo]
In Harrow, house prices have fallen by almost 8 per cent, and on a low-deposit mortgage homeowners here would now have just 0.6 per cent of equity in their homes.
Jane King, a mortgage adviser at Ash-Ridge Private Finance who helps families buy homes in Surrey, Berkshire, Hampshire and Central London, said she sees eight to ten examples a month where families who bought homes with a 5 per cent deposit two years ago now have around 2 per cent of their equity left.
She added: ‘I try to encourage buyers who have only saved a 5 per cent deposit to save more if they can. A 95 per cent mortgage should be an absolute last resort.’
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