30 Nov HOMEOWNERS who bought a property in August are now likely to be in negative equity
HOMEOWNERS who bought a property in August are now likely to be in negative equity, a property expert has warned.
But Jonathan Rolande said claims that millions could end up trapped in poverty because their homes are worth less than what people paid for them may be misguided.
Explaining the current situation in the market Jonathan, the founder of House Buy Fast said: “Whether we once again see the unwelcome spectre of widespread negative equity depends upon how quickly and how far prices fall. The number of people falling into negative equity will be low for now thanks to low ‘loan to value’ mortgages.
“There haven’t been 100%+ loans since 2008. However, with around 100,000 transactions completing each month, those who snapped up a property in say August 2022 are likely now living in a home worth less than they paid, especially once buying costs are factored in. Not negative equity as such, but a huge chunk of personal savings will have on paper at least been lost.
“Anyone who has bought a property recently will have had to put in at least 5% and will have likely seen a small amount of growth during the first months of their ownership. For a sizable number of owners to be affected we will need to see a price drop of around 7% from the height of the market. According to Halifax’s Price Index we have seen about 0.5% off in September and October, combined.
“So we still have a long way to go before many are in negative equity. However, it is still a depressing thought for many who have bought over the summer that irrespective of the mortgage amount, their property may now be worth less than they paid.”
But Mr Rolande said there were reasons for optimism.
“As bleak as things currently look, nobody can say for sure what will happen,” he insisted.
“Brexit and Covid were both predicted to annihilate the market but didn’t. The government could well find some solutions to prevent a downward spiral.
On how best to cope if you find yourself in negative equity, Mr Rolande advised: “Remember, it is only a loss or profit, if you sell. Sit tight and the market will recover eventually. The problem comes for those who must move, or who need to change areas because of a new job or because the property no longer suits them.
“These people face selling and losing the value of their deposit and possibly having to pay the lender money over and above the sale price. One alternative would be to rent the property out but this will incur a higher mortgage rate so the figures may not stack up. Renting out also comes with risks. There’s no easy solution once prices start to fall.”
Commenting on the areas most at risk he added: “New builds come with a government incentive and once that’s stripped out, much like the value of a brand new car, prices will be less on the second hand market. So areas where lots of new builds went up will potentially suffer. Areas where prices jumped even more than the average may have the furthest to fall.”
