Positive to homeowners in negative equity

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Being an estate agency service to the North Staffordshire area, every once in a while we speak to a homeowner from the region that bought during the house price peak of 2007 and is concerned about the potential impact of negative equity.

Yet we at Heywoods more often than not find that these people have little or no cause for concern.

And when you put their situation into perspective and compare it with the market conditions of the early 1990s then it's easy to see why.

The first thing to point out is that negative equity and home repossession are not one and the same. As a general rule, it is only when you cannot afford to keep up with mortgage repayments and are threatened with repossession that negative equity becomes a real issue.

And this is where the contrast between the early 1990s and the present couldn't be much greater.

During the previous recession of the nineties, interest rates were exceptionally high and rarely dipped below 10% at any time during the first half of the decade.

Fast-forward to today and we have the lowest Bank of England base rate on record.

So the top and tail of it is that the majority of today's homeowners are comfortably able to afford their mortgage repayments and far fewer are living under the threat of repossession.

Not only that, but on a relative scale far more was wiped off the value of homes during the previous market slump than the current housing market slowdown.

In fact, after the initial sharp drop in prices during the onset of the credit crunch, the value of people's homes has subsequently remained relatively stable, with just slight fluctuations from month to month.

And there is something else to bear in mind.

Those people who bought their first house in 2007 may well have lost out in terms of the value of their homes. But at the same time, all-time low interest rates mean that they have far more money left in their pockets at the end of each month than their predecessors.

What's more, if they considered the alternative and started renting, by contrast they'd be paying out more in monthly rent that they'd ever have had to do before.