Page last updated at 11:55 GMT, Wednesday, 30 July 2008 12:55 UK

Negative equity threat 'for 1.7m'

Houses for sale in Macclesfield
House prices may fall another 17%, the report predicts

About 1.7 million people could be pushed into negative equity in the next year if house prices keep falling at their current rate, a report claims.

The credit ratings agency Standard & Poor's (S&P) says house prices may fall by a further 17% in the coming year.

That means 14% of all mortgage holders in the UK would find their homes were worth less than their mortgages.

House prices have been falling amid a credit crunch that has seen lenders cut the number of mortgages they offer.

"The downward trend in UK house prices now seems well established, and we expect prices to continue falling in the near term," said S&P.

Downward trend?

Analysts at the ratings agency specialise in assessing the credit worthiness of organisations trying to raise money by issuing bonds.

They looked at a sample of two million outstanding mortgages and estimated that the average borrower has a loan worth 54% of their property's value.

But about 70,000 households, or 0.6% of all UK borrowers, are already in negative equity.

S&P expect that number to rise sharply if prices keep on falling.

The sort of borrowers who are most at risk, the ratings agency believe, are those who have borrowed to become landlords in the buy-to-let market, or who were sub-prime borrowers, before lenders stopped lending to them altogether.

Sub-prime borrowers are people who have poor or non-existent credit histories.

In June, the investment bank Morgan Stanley said that two million households were at risk of owing more than the value of their homes if house prices fell 20% by 2010.

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