North of England suffer greater mortgage arrears and negative equity

The Momentum UK Team 13 April 2012

More homeowners in the North of England are feeling the mortgage pinch than those in the South, suggests a recent report. The number of borrowers left facing hefty arrears on their mortgage or engulfed in negative equity has seen an increase since 2010. The report shows that the North has been affected considerably more than the South.

Since 2010, the number of UK homeowners caught in mortgage arrears has risen from 3.2% to 3.8% measured at the end of last year. Standard and Poor's (S&P) latest research concludes that with 4.4% of Northern homeowners behind on their mortgage compared to 3.4% of the South's, it is evident that 'the North is bearing the brunt of rising UK mortgage arrears'.

The report goes on to suggest that arrears are not the only mortgage problem which the North seems to be carrying the brunt of. Over the last few years as house prices have dropped rapidly, the problem of negative equity has crushed homeowners across the UK. It occurs when the value of a property falls below the value of the loan.

According to S&P's research, 5.6% borrowers in the UK are currently living in negative equity. This has risen from 3.6% recorded in 2010. The percentage recorded was particularly higher in the North with 8.5% homeowners trapped into a loan equalling more than their property is worth, compared to just 3.3% in the South. Standard and Poor's report cautioned that this could mark the beginning of a number of future problems for borrowers in negative equity.

"While decreasing equity does not immediately reduce a borrower's ability to service their debt, it tends to limit their ability to refinance, or to sell the securing property, to clear their mortgage" suggested the report. "More borrowers therefore could come under financial stress in 2012."

Mark Boyce, author of the report went on to explicate that one of his main concerns with negative equity was that after facing steep drops of their house prices, borrowers may find it difficult to acquaint themselves with a new mortgage especially with lenders typically requiring a deposit of 20% to secure their best deals.

Their research illuminates wider economic impotencies in the UK and its housing market. Since the recession struck in 2007, house prices slumped dismally with certain Northern regions have struggling to find their feet again.

In 2007, the average house price in the North East retailed at around £129,402. However in the current climate, the figure stands at £99,385 - a 23% drop and a £30,000 loss to homeowners. It is no surprise that 12% of the North East are living in negative equity.

The capital of the South, on the other hand, is seeing all-time highs with property values in London soaring up to an average of £354,300 leaving many homeowners smiling.

House prices are not the only factor contributing towards the North's negative equity. After 2 years of remaining unchanged, S&P's research demonstrates a clear distinction between the unemployment levels of both regions with the problem being 1.6% higher in the North.

"Those who have lost their jobs and face other stresses will also be faced with negative equity. These people have less flexibility." claimed Andrew South, credit analyst at Standard and Poor.

Paul Smee, the director of Council of Mortgage Lenders reiterated this by suggest that, "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."

In spite of S&P's finding, Smee believes that negative equity in the UK has taken far less of a hit this time around than it did in the recession of the early 1990s when over 1.6million borrowers were affected compared to approximately 830,500 today.