Computershare Loan Services has warned that a fall in the average UK house price of the scale seen in the last financial crisis would put nearly half a million households at risk of negative equity.
The third-party mortgage servicer, which administers more than half of all third-party serviced mortgages in the UK, has forecast that the value of 4.12% of properties – or approximately 458,000 households – would drop below the outstanding mortgage balance on the property if average house price fell by 18.72% as it did between 2006 and 2009.
The figure is lower than the proportion affected after the last financial crash, when a similar drop saw between 7 and 11% of properties fall into negative equity – an improvement that Computershare attribute to providers lending more responsibly and complying with new regulation.
Andrew Jones, CEO at Computershare Loan Services, said: “Negative equity can create serious financial problems for borrowers and their families, so a substantial decrease in the average house price could contribute to significant economic problems in the event of another crash.
“Nevertheless, it seems that better lending practices by mortgage providers since 2008 have ensured that the consequences of such a fall could be significantly less damaging than after the last financial crisis.
“Computershare Loan Services will continue to work to limit the effects of any future house price fall and the associated costs of negative equity by focusing on supporting great relationships between lenders and borrowers, helping providers meet challenging but effective regulation and helping those falling into financial hardship directly.”
Craig Simmons, acting head of Debt Advice at Money Advice Service, added: “Negative equity can go hand-in-hand with financial difficulties and it is important people plan ahead for possible changes to interest rates and house prices where possible.
“There are multiple sources of impartial debt advice available to people should they find themselves in financial difficulty and the Debt Advice Locator tool is a good starting point for finding help.
“We work closely with lenders and advice providers to ensure support is there for people if their financial situation deteriorates and I encourage the two sectors to continue building ever-stronger working relationships.”
Computershare Loan Services’ analysis suggests that the North would face an increase of 6.79% in negative equity if house prices dropped by 19%: the worst of any region.
Northern Ireland, (6.18%), Wales (6.12%) and Yorkshire & Humber (5.14%) would also experience larger than average negative equity hikes.