Negative Equity on the Rise Due to High Value Loans

Tue, 06 Nov 2007

First-time buyers are increasingly a risk of negative equity with the combination of slowing property prices and high loan to value loans. The trend of rising property prices has resulted in property being seen as a sound investment, with banks happy to offer 100 per cent mortgages, with some banks offering even more when you include extra cash incentives to cover moving costs.

Since the start of last year, over 33,000 first-time buyers took out 100 per cent mortgages. As a result, any decrease in their property value will leave them with a negative equity. Researcher Hometrack claim house prices fell in nine out of ten regions across England in October, suggesting more and more first-time buyers will be left with a negative equity.

However, since the US sub-prime crisis, credit standards have tightened considerably, whilst banks have reduced the number of loan products on offer. As a result, this trend of first time buyers risking negative equity is likely to be reduced.
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