One million families facing negative equity by the end of 2009

Falling house prices will push almost one million homeowners into negative equity by the end of next year, according to a report yesterday.

By the end of this year 250,000 could find the value of their home is less than the size of their mortgage, it said.

The U.S.-based bank Citigroup, which produced the report, said the number of homeowners in negative equity at the moment is a 'modest' 35,000.

However, property prices could fall by
15 per cent, or possibly more, by the
end of 2009.

Its chief UK economist, Michael Saunders, said that if this forecast is correct, almost one million homeowners will be in negative equity. 

That would mean nearly one in 12 who have a mortgage would be affected.

Citigroup's prediction is the latest warning about negative equity hitting the housing market, which is being affected by a shortage of mortgages.

In April, Liberal Democrat Treasury spokesman Vince Cable said three million families could slide into negative equity over the next 12 months.

'As house prices continue to fall and mortgage costs rise, we are in real danger of returning to the woes of the Tory recession, with large numbers of families suffering negative equity and repossession,' he said.

Yesterday, Howard Archer, chief UK economist at the consultancy Global Insight, said: 'Those people who took out 100 per cent or even 100 per cent-plus mortgages within the last 18 months or so at the tail end of the housing market boom are particularly vulnerable.'

Over the last few months, every bank and building society has axed these controversial loans. 

Negative equity is not a problem for those who have no plans to sell their home and can easily afford their mortgage. 

The biggest losers are those who are struggling to afford their mortgage, but would be left owing money to their bank or building society if they sold their home. 

Other victims are those who need to move home for family or work reasons.

Further evidence of the scale of the property market slowdown emerged last week.

Nationwide, Britain's biggest building society, said prices had dropped by 2.5 per cent, equivalent to £1,200 a week, since April to an average of £173,583. 

It is the biggest monthly drop since the index began in the middle of the last housing crash in 1991. 

In a further blow to homeowners struggling to afford their mortgages, the Bank of England's monetary policy committee is widely expected to keep interest rates on hold when it meets on Thursday.

It has cut rates three times since December to 5 per cent, but rising inflation is likely to mean rates will not change. 

Mr Archer, of Global Insight, said: 'The Bank is unlikely to trim interest rates again until August at the very earliest.'