'Negative equity to affect quarter of London's mortgage holders'

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About 165,000 mortgage-holders in the capital - or 21.9 per cent - will have properties worth less than their mortgages by the end of next year, despite having excellent credit ratings and being deemed "low risk" by lenders.

Ratings agency Fitch said 60,000 London mortgage-holders, or eight per cent, are already in negative equity.

House prices have fallen 16 per cent in London but a total fall of 30 per cent is expected before the slump is over.

The gloomy prediction overshadowed British Bankers' Association figures out today showing the number of house mortgages approved rose to a 13-month high, to 31,162, last month.

In Britain as a whole, nearly 1.1million mortgage households are in negative equity - similar to the level during the housing crash of the Nineties.Fitch forecast the number to more than double to more than two million, leaving 23 per cent of mortgage-holders in negative equity next year.

Fitch analyst Alastair Bigley said: "While London's homeowners are unlikely to default solely because the value of their house is less than the outstanding balance of their mortgage, Fitch expects default rates to be higher for those in negative equity."