House prices are down 6% in just the last five months, and the worst of the credit crisis - all that still lies ahead

Michael Saunders, Citigroup

Negative equity: Your stories More than 23,200 people who took out 100% mortgages in the year to 31 March could face negative equity, according to figures obtained by the BBC. Falling house prices mean the amount borrowed could be greater than the value of their properties. The data from the Council of Mortgage Lenders comes as figures show the housing market is slowing down further. Separate housing figures suggest the number of transactions per estate agent has hit a 30-year low. These figures from the Royal Institution of Chartered Surveyors (Rics) come as banks are imposing stricter requirements on borrowers, in the wake of the credit crisis. However, the 23,200 people who've taken out these 100% mortgages represent only around 2.5% of the total mortgages given out in that period, and a much smaller percentage of the overall number of mortgages in the UK. Turned away If a house loses its value it is not necessarily a problem unless the owner has to move, or cannot afford to pay the mortgage. Please turn on JavaScript. Media requires JavaScript to play. In a rising market banks are prepared to lend 100% mortgages as there is little risk of them not getting their money back. But as prices have been falling, the risks have increased and lenders are turning borrowers away if they don't have a deposit. There is a warning that the situation may deteriorate further. "House prices are down 6% in just the last five months, and the worst of the credit crisis - all that still lies ahead," said Michael Saunders, head economist at Citigroup. He had predicted that house prices would fall by 15% in 2008 and 2009 but now he says that drop could be even greater. Record low The Rics survey showed that very few homeowners were moving house, with only 17.4 transactions per estate agent made in the three months to the end of May. This was the lowest figure since Rics started collecting the data in 1978. But, for the first time in 10 months, there was a decrease in the proportion of surveyors reporting house price falls. Some 92.9% more surveyors said house prices had fallen during May, compared with those who thought they had risen. This showed a slight fall from the record 94.7% more who reported falls in April. But Jeremy Leaf, of Rics, said that the slowing pace of decline could point to better news for homeowners. "Maybe we are reaching the bottom of the market," he said. Government survey There was further cheer for homeowners with the publication of a house prices survey by the Department of Communities and Local Government (DCLG) which is based on sale completions, unlike other surveys. The current issue affecting the market is fundamentally about the supply of credit

DCLG spokesman That showed that UK house prices rose by 0.7% in April compared with March, although annual house price growth was down from 5.2% to 4.9% over the same period. The survey showed that UK house prices fell by 1% in the three months to April. The average cost of a home in England in April was £226,194, in Wales it was £164,994, in Scotland £165,546, and in Northern Ireland £224,664. A DCLG spokesman said it was important to remember that UK house prices were 44% higher than five years ago. "The current issue affecting the market is fundamentally about the supply of credit - a very different situation to the early 90s which was about high interest rates and unemployment," he said. The cost of borrowing is continuing to rise. Bank of England figures show that the average interest rate for a two-year fixed-rate mortgage, with a 25% deposit, was up to 6.27% at the end of May - the highest level since September 2000. The DCLG spokesman added: "The long-term demand for housing remains high and the fundamentals of the economy are sound with low unemployment and historically low interest rates."



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