By Max Clarke

The number of households with negative equity has dipped over the past 2 years to 827,000, though the change has had no direct effect on householders’ ability to repay mortgages.

Overall, negative equity- where the value of an individual or households’ loans is of greater value than the assets used to underwrite it- remains less of an issue than during its peak in the 1990s, research published today by the Council of Mortgage Lenders reveals.

The research shows that, even allowing for recent house price weakness, the vast majority of individual borrowers still have a substantial cushion of equity in their homes. Nearly half of existing borrowers have outstanding mortgage debts equivalent to less than 70% of the value of their home, while a further quarter have an equity cushion of between 10% and 30% of the property's value. This means that borrowers overall hold unmortgaged housing wealth worth around £800 billion.

"Negative equity is much less common than in the 1990s, and in the current cycle low interest rates and a relatively stable employment market are providing more options for borrowers and lenders in difficulty,” commented Paul Smee, CML director general.

Some parts of the country have seen greater weakness in house prices in the current cycle and are therefore more likely to have borrowers in negative equity. Northern Ireland, Yorkshire and Humberside and the north east of England are in this category. Lower levels of equity make it more difficult for people to move home, which has contributed to lower housing market activity in recent years.

"There is no direct relationship between negative equity and mortgage payment problems. What typically causes difficulty for households is not a nominal fall in housing value but an unexpected change in personal circumstances, like the loss of a job or the breakdown of a family relationship," continued Smee.

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