Over 10,000 homeowners may become mortgage prisoners

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FCA statistics show a doubling in the number of properties purchased with a mortgage representing 95% or more of the home value in the past year, while the OBR expects a 7% drop in house prices by year-end, putting these properties at heightened risk of negative equity

Over 10,000 homeowners in the UK are in danger of becoming mortgage prisoners, shows a recent data.

FCA statistics show a doubling in the number of properties purchased with a mortgage representing 95% or more of the home value in the past year, while the Office for Budget Responsibility (OBR) expects a 7% drop in house prices by year-end, putting these properties at heightened risk of negative equity.

As per a report by The Telegraph, just 2.26% of homes were acquired with a LTV ratio of 95% in 2021, but the FCA projects this figure to have increased to 4.25% in 2023.

This shift means that 10,650 homeowners could be susceptible to negative equity if house prices witness a drop.

Soaring mortgage rates, along with declining house prices, are creating a negative equity ticking time bomb, said Sarah Olney, the Liberal Democrat spokesman for the Treasury, voicing her concerns about the situation. Those falling into negative equity face becoming mortgage prisoners, trapped in their home and at risk of being hit by higher rates.

Negative equity occurs when a property’s value declines below the borrowed amount, potentially leading to individuals becoming mortgage prisoners, who face challenges in selling their property without a substantial payment to the lender. In addition, remortgaging becomes problematic, potentially compelling them on to more expensive rates when fixed rate mortgage deals expire.

Olney has called for government intervention to help homeowners facing these challenges, stressing the need for a plan to address the issue.

Ministers and the regulator need to come up with a plan to assist homeowners on the brink, The Telegraph quoted her as saying. The Conservative government crashed the economy and sent mortgage rates through the roof, they have a responsibility to assist those now paying the price.

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