Negative equity for 1.2m homeowners

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The Council of Mortgage Lenders (CML) said the drop in property values left 1.18 million people with homes worth less than their mortgage debt at the end of February.

Those who took out mortgages in the second and third quarters of 2007, when house prices peaked, are the worst affected and further falls in house prices are expected.

Three in four people have an average shortfall of between £6000 and £8000, but nearly 250,000 borrowers have a shortfall close to £20,000.

About 150,000 homeowners in the South East owe more on their property than it is worth.

The CML predicted that the number of households in negative equity will reach close to the 1.5 million level it reached in the same position at the depth of the last housing market recession in 1993.

Bob Pannell, head of CML's research, said the erosion of equity "has significantly weakened the ability of homeowners to move", adding that it was suffocating the housing market.