ORE than 300,000 homebuyers could be plunged into negative equity* if property prices fall as fast as experts predict.
Analysts at Capital Economics believe prices will drop 20% over the next three years to bring them back in line with wages.
The firm’s managing director is a former Government adviser. Roger Bootle was on the Bank of England’s committee of ‘wise men’ under the Conservatives. His team’s report claims that buyers could find they collectively owe a massive £3.4bn more than their homes are worth.
The study says young people are most at risk, with up to 40% of those buying in early 2004 likely to fall into the trap.
Negative equity – in which more is owed than a property is worth – created misery and hardship during the last property crash in the early 1990s.
As many as 1.2m families were effectively locked into homes which they could not sell without generating a massive debt.
This meant they could not move to find a job or accommodate more children. Meanwhile, couples whose relationships had failed were forced to stay under the same roof because they could not afford to sell. Thousands of people, unable to meet mortgage repayments, simply handed back the keys to their homes to banks.
CE says that while the £ 3.4bn figure seems alarming, the situation will not be as catastrophic this time round.
If prices begin to fall by next summer, only people who have bought a home since early 2002 will be at risk of negative equity, it argues. First-time buyers who borrow up to 100% of a property’s value are the most vulnerable.
The analysts estimate that 109,000 buyers.