House price drop will leave 200,000 in negative equity

A SLUMP in house prices next year will leave hundreds of thousands of families living in a property worth less than their mortgage, a think tank has warned.

Almost 200,000 householders will be trapped in negative equity next year if house prices fall by 8 per cent as predicted, the Resolution Foundation has warned, leaving owners struggling to sell or remortgage their properties.

The figures are based on recent property price predictions made by Lloyds Banking Group, the UK’s biggest mortgage lender, and the official Wealth and Assets Survey, conducted by the Office for National Statistics.

If house prices fall by 18 per cent, as Lloyds forecasts in its most pessimistic scenario for the economy next year, more than 600,000 households will be trapped in negative equity.

The Resolution Foundation also said first-time buyers face a doubling in lifetime mortgage interest costs because of the recent jump in interest rates to 3 per cent. Analysts said interest payments on a first property are now expected to be £153,000, up from £74,000, for people who took out their mortgage in 2017.

It brings the overall cost of a first property, including the deposit, to a record £326,000 – almost double the lifetime cost of a first property bought in 1974, after adjusting for inflation.

The Telegraph revealed this week that the Treasury is not planning any extra help for homeowners in the upcoming Autumn Statement, such as extending a cut to stamp duty, which would prop up house prices, or an initiative to help those facing mortgage defaults.

Higher interest rates will affect more than 5million mortgage-holders by the end of 2024. The costs will fall hardest on young people – with 70 per cent of first-time buyers under 35 – as interest makes up a greater proportion of recent buyers’ mortgage payments.

After record low interest rates of 0.1 per cent following the pandemic, firsttime buyers are braced for the biggest shock when they are forced to remortgage their properties. Markets now expect the Bank of England base rate to peak at around 4.75 per cent, slightly lower than previously feared.

The average two-year fixed rate mortgage deal is currently at 6.46 per cent, according to financial data provider Moneyfacts, up from 5.43 per cent at the start of October. The last time rates were above 6 per cent on average was 2008.

The Bank’s decision to raise rates by 75 basis points will have an instant impact on those on tracker mortgages, which are tied to the Bank Rate. A homeowner owing £300,000 over 30 years would see their mortgage repayments increase by £130 per month.