Equity problems a millstone on the market, says Rightmove

Negative equity is a millstone on the market, Rightmove reported today.

Describing it as a ‘curse’, Rightmove said that diminished equity for home owners to trade up remains a ‘drag on market activity’.

It said that over one in five (22%) of people who had bought between 2007 and 2012 stated that their properties are now worth less than they paid.

Of those home owners whose properties have gone down in value over the last five years, 17% are in negative equity, rising to 21% among those who bought at the peak of the market in 2007. Nearly half (49%) of those who bought in 2007 say their property is still down in value, limiting their ability to move.

Nevertheless, the Rightmove report, based on a survey of more than 33,000 home movers, says that nearly one in three (29%) expect house prices to rise over the next 12 months.

The proportion is up from 22% a year ago.

But Rightmove director Miles Shipside warned that local market conditions vary, along with a patchy picture of market sentiment.

He said: “[There is nothing] to suggest that an overall housing market recovery is looming on the horizon, despite the wider economy officially emerging from the double dip recession.”

He added: “While a fall in equity is not necessarily a block to a move, with lenders demanding a substantial deposit to unlock their best rates it will deter many from trying to sell and buy again.

“As long as the sums do not add up to make a move up the market worthwhile, we are unlikely to see a substantial recovery in the volume of sales.

“Many home owners who are trapped by the falling value of their bricks and mortar will now feel as though they are prisoners of their own mortgage.

“Five or six years on, many of the first-time buyers of 2007 will be struggling to progress from starter pad to family home.”

The high loan-to-value mortgages that were handed out so freely at the time will continue to exact their punishment, although new FSA rules announced last week will ensure that lenders cannot repeat their mistakes.

He went on: “In the post-2000 free-for-all, many lenders adopted a policy that assumed negative equity was a phenomenon from a previous age. Many built strategies on the cornerstone of increasing property prices and low or no deposit lending.

“The result of this approach is a negative equity millstone around the necks of many buyers from that era which will take years to lift.”

A total of 33,278 responses were received to Rightmove’s survey in the first fortnight of this month.

In a separate ‘consumer sentiment’ survey by Halifax, 56% of people think it is a good time to buy a property, but only 9% think it a good time to sell.