Remortgages May Cause Negative Equity
New research from a nationwide survey on the mortgage market reveals that UK mortgage borrowers may be in for a rough period. There are fears that higher repayments and declining financial options may become the norm. Especially to one third of the UK population who have become key targets of their lenders and who are now repaying mortgages worth much more than three-thirds of their annual salary.
The researchers found that more than 30 per cent of these people were unsure whether they have proof of their income when they apply for a remortgage with a new lender.
Most borrowers will find it difficult to remortgage this year. The days of easy borrowing may be something of the past and very few lenders are prepared to offer deals to people whom they consider high-risk. These borrowers may have to accept whatever their present lender can offer them when their existing deal ends.
There has been an all-around tightening of lending criteria in the UK mortgage market. This is due to the global credit crunch that has had financial markets in a crisis during these last several months.
Some 30 per cent of respondents have borrowed more than 80 per cent of their home’s value. This is a big cause for concern. Another 15 per cent of respondents have borrowed more than 90 per cent of the home’s value, meaning that these borrowers would be very vulnerable to negative equity should house prices fall even more. Negative equity refers to an asset’s value that is less than the outstanding balance on the loan.
The Department for Communities and Local Government (CLG), Royal Institution of Chartered Surveyors and the Financial Times did research that all point to one thing: house price growth has been slowing down. Mr Richard Brown believes that “these figures shouldn’t be interpreted as scaremongering”.
A small percentage of respondents admitted they might miss mortgage payments during the coming year. A bigger portion – 22 per cent – are prepared to use credit if it means they will be able to meet the mortgage payments.