Published: Tuesday June 03, 2008 on Sky Money

A quarter of a million homeowners now owe more to their mortgage lenders than their properties are worth, according to a shock new survey. Find out how you can prevent yourself slipping into negative equity

The spectre of negative equity has returned to the housing market this week following the publication of a new report from investment bank Citigroup. The bank's figures reveal that over the past year 250,000 homeowners have seen the value of their homes fall below what they still owe on their mortgages.

Further Citigroup research reveals that house prices have dipped 7% since the autumn, the Observer reports - and Citigroup chief economist Michael Saunders predicts that prices could fall by as much as 15% by the end of 2009. Such a fall would drag more than one million households in negative equity.

Negative equity cast a huge shadow over the economy during the early nineties, prompting 75,500 repossessions in 1991 alone - and fears of a similar crash have emerged in recent weeks. This week alone has seen a major slump in home loan approvals and a profit warning from Bradford & Bingley.

So, should we be worried? Probably not, say the experts. There are several reasons why homeowners shouldn't be too concerned about owing more on their property than it's worth.

First, the economy is completely different to that in the late '80s/early '90s, when negative equity last led to a raft of repossessions. Interest rates are comparatively low and there is not mass unemployment like there was 20 years ago.

Second, although prices have fallen slightly in the past couple of months this does not affect all parts of the country and every type of property. Some locations and properties will still be seeing month-on-month price rises.

Third, only a relatively small group of people will be affected by negative equity. People who bought near the top of the house price cycle with loans of 90% or more of the property's value are most at risk. Even if you fall into this group, negative equity only really matters if you either want to move house, cannot afford your mortgage repayments or need to remortgage.

Finally, bear in mind that the national average house price remains slightly higher than it was a year ago - and short-term setbacks are unlikely to reverse the long-term upward trend because demand for housing in Britain exceeds supply.

However if you do find yourself worried about negative equity there are a number of things you can do to lessen your exposure.

1. If at all possible, try and reduce your debt. Most mortgages these days allow you to repay up to 10% of the loan without penalty. Using any savings to pay off a chunk of your mortgage can help you ensure your property remains worth more than the loan on it.

2. If you are due to remortgage soon, prepare yourself for higher monthly payments. Find out how much extra you are likely to have to pay and put that difference aside in a savings account - a tax-free cash individual savings account (Isa) is the best place to keep it.

3. Stay put. If you can afford your mortgage repayments then negative equity is really only an issue if you want to move house. Chances are house prices will eventually go up again so it's a case of riding out the storm.

4. Think of mortgage payments as if they were rent and your property as a home rather than an investment; you have to pay for somewhere to live and mortgage payments should mean you eventually own an asset.

Read the full article at Sky Money

© 2008 BSkyB Ltd All Rights Reserved

Published: February 2008 on Sky Money

More than one million homeowners will struggle to meet their mortgage repayments this year and could be at risk of repossession, according to a new Government report. Here's how to make sure you keep hold of your home

Homeowners are facing a bleak New Year. Government watchdog the Financial Services Authority (FSA) has warned that more than one million mortgages are a "cause for concern" - which means that those homeowners could experience problems meeting their monthly repayments over the coming 18 months.

For first-time buyers on a tight budget, such increases could be lethal - bringing about a real chance of having their homes repossessed. And more people could be at risk if the economic situation worsens - lenders could reduce the amount they were willing to lend to 2.5 times annual income and also reduce the maximum loan-to-value ratio to 85% or even 80%.

That would see first-time buyers finding themselves being kicked off the property ladder completely. The nightmare scenario would see a house price crash. First-time buyers with loans worth 90% of the value of their home could find themselves in the dreaded 'negative equity' situation, owing more than the value of their property - and at dire risk of repossession.

Time to take action
So, what can you do to protect yourself? First, try to cut back on expenditure and build up a small savings pot before your fixed-rate offer period comes to an end. Pay particular attention to trying to pay off any expensive credit card debt.

It also pays to plan ahead - use an online mortgage calculator to work out how much more you're likely to have to pay when your fixed-rate offer reverts to your lender's standard variable rate (SVR).

Read the full article at Sky Money

© 2008 BSkyB Ltd All Rights Reserved