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Over 130,000 families sold their homes at a loss since 2007

28th February 2013 Print

Over 130,000 families have sold their homes at a loss since 2007, according to analysis of housing transactions by housing investment and shared equity provider, Castle Trust.

The initial research, which tracks the proportion of properties selling at a profit or loss, includes an analysis of properties in England and Wales which were bought and sold between January 2007 and January 2013. Of these properties, 40.7% (131,442) were sold at a loss, with the average shortfall being £24,430 (on average 11.0% of the house price). Over the same period, 55.6% (179,689) of homes sold for a profit generating an average return of £45,199 per transaction (on average 20.4% of the house price) and the remaining 3.7% (12,051) sold for the purchase price.  

Both the probability of making a loss and the size of the average loss have increased significantly since the economic downturn.  An analysis of transactions since 1995 shows 91.5% of homes sold for a profit, 7.5% for a loss and 1.0% for original sale price.

Amongst homeowners that have sold their home at a loss, the most common reason for doing so, cited by 18%, was to purchase a new home at a good price. Divorce or separation was also cited by 14% of loss-makers, the need to upscale by 13% and relocating for work by 12%. 11% of homeowners who sold at a loss say they were forced to do so because they couldn’t afford the mortgage repayments and 8% did so because of a job loss or redundancy.  

Looking forward, 13% of homeowners say they are concerned that they may be forced to sell their current home for less than the purchase price, rising to 25% for those aged 18-34.

Sean Oldfield, chief executive officer, Castle Trust said: “Since the downturn, over 130,000 families have made a loss on their home placing them under enormous financial and emotional pressures. When you take into account the costs associated with moving home, from stamp duty to solicitor’s fees, this situation becomes even worse. 

“The long-term performance of house prices shows national house price growth in line with national wage growth, but it is clear that individual house prices are really volatile and that home ownership is risky – much more risky than almost everyone appreciates.  Our shared equity loan, the Partnership Mortgage, can make a real difference to people’s lives by sharing the loss with them if they are one of the unlucky ones.”

The number of house sales in England and Wales generating positive returns also varies considerably on a regional basis. Since 2007, the number of homes sold for less than the purchase price was highest in Yorkshire & Humber, where 48.2% of properties sold for a loss, 48.0% for a profit and 3.8% returned the purchase price. In contrast, the highest proportion of homes sold at a profit over this period was in Greater London, where 71.1% of properties sold for more than the purchase price, 26.1% for less and 2.8% for the same.

Castle Trust’s shared equity loan, the Partnership Mortgage, was designed to provide people with a safer way and more flexible way to buy a home.  It’s a loan which doesn’t charge any interest – instead the homeowner shares the profit or loss with Castle Trust when they sell the home or at the end of the mortgage term.

It works as follows:

Castle Trust lends the homeowner 20% of the value of the home

The homeowner doesn’t have to pay anything on the loan until they sell the home or at the end of the mortgage (although they can if they want)

If the home has gone up in value they pay Castle Trust back, plus 40% of the profit.  In other words, for every £10,000 of profit they make, they pay £4,000. 

If the Partnership Mortgage was taken to buy a home and the homeowner sells for a loss, Castle Trust shares 20% of that loss (so the homeowner pays less than they borrowed).

Homeowners will also need to have a traditional repayment mortgage alongside the Partnership Mortgage.

Castle Trust also offers investors a safer, and more easily accessible way to invest in the housing market, via HouSAs.  HouSA are housing index trackers with extra income or extra growth that they provide investors with returns on national house prices, smoothing over regional variations.  Unlike buy-to-let investments, they can be held in a SIPP or ISA, making them a more tax-efficient way of investing in residential property.

Castle Trust’s Income and Growth HouSAs can be taken out for terms of three, five or ten years. The capital value of the Income HouSA tracks any rise or fall in the Halifax House Price Index and pays an annual income of between 2% and 3%, depending on the term of the investment.

The Growth HouSA can be taken out for the same terms and offers a gain of between 1.25 times and 1.7 times any increase in the Halifax House Price Index or a loss of between 0.75 times and 0.3 times any decline.

Both HouSAs are available for a minimum investment of £1,000 and both types of HouSA can be included within ISAs, Junior ISAs and SIPPs.