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One in four homeowners could be plunged into negative equity as house prices fall by a quarter, a pessimistic new study warned yesterday. The housing market is in danger of consistently sinking prices - and more reposessions, according to analyst Morgan Stanley. They forecast that values could fall by 25 per cent within the next two years, in the wors-case scenario.
That would mean one in four homeowners with outstanding mortgages at the end of last year would find themselves owning more than tjeir property is now worth. The average house price would fall from £217,000 to £163,000 and home loans worth a total of £291 billion would be in negative equity. A 25 per cent fall would be the most pessimistic of possible circumstances, Morgan Stanley economists said. Their more likely scenario still sees house prices falling by 15 per cent during the same period - ten per cent this year, five per cent next. This would force one in ten families into negative equity, worth a total £164billion - butthe company did say id could still have under-estimated the dangers. The predictions come just days after government figures revealed a 1.6 per cent drop in property prices. In a seperate study last month, lenders Halifax claimed prices were actually falling by 2.5 per cen. Morgan Stanley said a continuing slump would drive up the number of reposessions, while also costing banks billions in lost repayments. David Miles, the study's co-author, said: "These figures will understate the magnitude of negative equity as we have excluded lending in 2008, and excluded future lending". But Morgan Stanley dud add that a 15 per cent fall would only restore values to those of 2006. |
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