Homeowners who bought as recently as four years ago need not be too worried about negative equity, research from GE Money Home Lending has found.
Analysis shows that prices would have to fall by 19 per cent before a home purchased in the last year - with a deposit on an-interest only basis - enters negative equity.
According to the organisation, home owners who purchased their property four years ago, even without a deposit, have an 'equity cushion' of almost 50 per cent before the value of their home loan would exceed the property value.
For those with a sizeable deposit, or a longer time on their mortgage, the likelihood of finding themselves in negative equity is even more unlikely.
The average London property purchased in 1995 would need to depreciate by three quarters (72 per cent) for the owner to encounter negative equity, while an average home bought in 2000 with a deposit of £27,000 has provided a 58 per cent buffer, based on today's prices, GE Money claims.
Equity cushion
"Over the past decade homeownership has delivered fantastic returns for many borrowers and we would need to see unprecedented falls in property prices for the average home owner to be severely impacted," Gerry Bell, head of mortgage marketing for GE Money said.
“While we have witnessed depreciation in house prices over the last year, the fall in property values has been relatively modest compared to the significant inflation over the past decade or so.
“Ultimately the concern in the current marketplace is for the small number of borrowers who put down a very small deposit may now be feeling overstretched. However, for the vast majority of UK consumers, the historic growth in the market has provided a welcome cushion against these falls.”
