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The negative equity map
Hugo Duncan, City Correspondent14.04.08
The London postcodes at greatest risk from the housing crisis can be revealed today.
Tens of thousands of home owners across the capital will be plunged into negative equity this year if property prices fall by 20 per cent.
People who have taken on huge mortgages compared with the value of their homes will owe more than the building is worth.
Buy-to-let investors who tried to cash in on the housing boom will be among the worst hit, according to analysis obtained by the Evening Standard.
Experian, one of Britain's largest credit rating agencies, believes Calderwood Street in Thamesmead SE18 is the most vulnerable road in the capital.
Flats there that were selling for £250,000 last year are now being offered for £200,000 in a sign of how the market has shrunk. Next on the list are Erebus Drive, also in Thamesmead, and Queenstown Road, Battersea.
A "risk map" of London also reveals that the three most vulnerable parliamentary constituencies are all held by Labour.
Hackney South and Shoreditch tops the list, followed by Poplar and Canning Town, the seat of former minister for London Jim Fitzpatrick, and Barking, where culture minister Margaret Hodge is MP.
These are all areas where the average loan-to-value ratio tops 60 per cent. But in Calderwood Street, a favourite for buy-to-let investors, that figure soars to 91 per cent.
There are fears the high concentration of amateur landlords facing negative equity could tip the rest of the market into crisis.
Ed Stansfield, property expert at Capital Economics, said: "If you bought in the last 12 months you are far more at risk than if you bought three years ago. Anyone who bought in the last 12 months with less than a 15 per cent deposit is running the risk of going into negative equity."
Experian warned that anyone approaching the end of a fixed-rate deal was in a weak position. Matt Sherwood, senior global economist at the firm, said: "The concern is that it would only take a 10 per cent decline in house prices and we would have households in negative equity."
Experian, which holds credit information including mortgage details on millions of borrowers, rates anyone with a loan worth more than 60 per cent of the value of their property as "high risk".
It estimates that if prices fell by 20 per cent, 20,000 households in London would be in negative equity. Across Britain, that number would rise to 78,000 and could even double if prices fell by 30 per cent.
At the height of the property crash in the Nineties, an estimated 1.8 million home owners suffered negative equity.
London and the South-East were the worst hit as prices fell 27 per cent and tens of thousands of people lost their homes because they could no longer afford theirmortgages.
The Halifax, Britain's biggest mortgage lender, reported last week that prices fell last month at their fastest rate since 1992. Independent economists believe prices could fall by around 20 per cent in the next two years. The International-Monetary Fund says UK house prices are overvalued by 30 per cent.
The crisis has been prompted by a borrowing binge and rocketing house prices which have left people in debt and unable to deal with a downturn.
In a normal market, the ratio of average earnings to house prices should be no more than 1:4.
The average wage in London is £35,000 while the average house price is almost £350,000 - a ratio of 1:10.
Click here to see a list of the streets most at risk of slipping into negative equity
Reader views (7)
The press has to take their part of the blame in this. When prices were going up, there was hardly a day when we did not get the 'prices going through the roof' headlines and people rushed to buy. Now it is the other way, they seem to be hoping for a crash so they can have good stories to write. Property, like anything else, are worth what somebody is prepared to pay for it. Homes are homes not commodities.
- Beatriz, London
Arual how can you say its not bad, after losing £449,400 in 1 year!
- Laura, London
Attack indeed is the best form of defence. I've been watching the housing markets for months, and anyone with half a brain has been able to see exactly what is unfolding, and will continue to do so. Unfortunately for many people, denial is not a river in Egypt, but merely an avoidance of the truth. What we're experiencing is not a UK house price crash, but a global one. And no, it isn't all the US's fault, the UK's greed has been just as great, and the consequences will be just as severe, and deserved. Man cannot live on air alone, so living in an oxygenated and inflated housing bubble will only lead to one thing - asphyxiation by greed when the bubble bursts.
Enjoy the ride!
- Pacman, London, UK
House prices in London fell by 30%+ in nominal terms (and even more in real terms) last time around. There is no reason that London should be immune. In fact, given the excessive reliance on the City and the related multiplier effect, we are in for some very bad times.
The numbers are too optimistic as they do not take into account the high number of self-certiLIED in London. These people, along with the many who have low deposits, will see a jump from 4.5% to 6% at best...many will end up on the SVR, which is even higher.
My interpretation based on the profiles of people in these areas is that the ones in red are the people who should never have been given mortgages in the first place. The others include huge numbers who were OK getting mortgages but they were given too much and will be in trouble this year and next.
Markets fall because of what happens at the margin i.e. the 5% to 10%. Areas such as Wimbledon are most vulnerable because from anecdotal evidence many took on very high multiples because brokers told them the business cycle was dead and rates would never ever go above 5%.
There are lots of houses that have no onward chain...any area with too many For Sale signs like this is a BTL methinks. They are beginning to sell because so many subsided tenants to get capital appreciation. Now that is gone and prices fallen period on period (not yet year on year), they are seeing leverage work against them.
Peter...these things are already happening. No ifs
- Trevor, South East
This risk map doesn't relate to price drops. It doesn't seem to take into account any indicator of where prices will go down. Simply having a high LTV isn't necessarily a problem if the prices aren't falling and it won't be a flat 20% off every property in the capital will it? I may of course be missing the whole point and would love to be told otherwise...
- Ally, London
Can we please stop these silly articles which say "x and y will happen if a and b happen". Part of the general loss of confidence has to do with articles like whose argument is built in this way. "Pedestrians mauled (if buses run them over)" - might sell newspapers, but let's stay away from speculation. There's enough fear out there.
- Peter, London, UK
I am a home owner in the Shoreditch area with an EC2 postcode. I bought my flat last March for £450k and it just sold last week for £600. Although you branded Shoreditch high risk for negative equity I don't think there was one 'EC' postcode on your 11 page list of streets at high risk?
- Arual, Shoreditch
