Average loan-to-value ratio is less than 60%

Research by the CML shows that, while the amount of unmortgaged housing wealth held by individual borrowers varies enormously, the aggregate loan-to-value ratio on mortgaged property in the UK is less than 60%.

The research shows that, even allowing for recent house price weakness, the vast majority of individual borrowers still have a substantial cushion of equity in their homes. Nearly half of existing borrowers have outstanding mortgage debts equivalent to less than 70% of the value of their home, while a further quarter have an equity cushion of between 10% and 30% of the property's value. This means that borrowers overall hold unmortgaged housing wealth worth around £800 billion.

The CML research shows that the number of borrowers in negative equity today is broadly comparable with 2008. Research we published in April 2009 estimated that some 900,000 home-owners had been in negative equity at the end of the preceding year, and that around two-thirds of these had negative equity of less than £10,000. 

Today's research, based on a more reliable methodology but one that is not directly comparable with the 2009 study, suggests that 827,000 households had some negative equity in the first quarter of 2011. The extent of negative equity in the current downturn, however, does not compare with the early 1990s, when it is estimated that the number of households experiencing it peaked at 1.6 million.

Some parts of the country have seen greater weakness in house prices in the current cycle and are therefore more likely to have borrowers in negative equity. Northern Ireland, Yorkshire and Humberside and the north east of England are in this category. Lower levels of equity make it more difficult for people to move home, which has contributed to lower housing market activity in recent years.

Commenting on the research, CML director general Paul Smee said: "Negative equity is much less common than in the 1990s, and in the current cycle low interest rates and a relatively stable employment market are providing more options for borrowers and lenders in difficulty.

"There is no direct relationship between negative equity and mortgage payment problems. What typically causes difficulty for households is not a nominal fall in housing value but an unexpected change in personal circumstances, like the loss of a job or the breakdown of a family relationship."