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Equity position of borrowers has improved – CML

* The amount of unmortgaged housing equity held by borrowers remains broadly unchanged since last year at around £800billion, despite the weakness of house prices in the intervening period (this level of equity, compared to outstanding mortgage debt, equates to an average loan-to-value ratio of 56%);
* The number of borrowers in negative equity has declined by more than 100,000 (or 13%) since the first quarter of last year, from 827,000 to 719,000;
* The proportion of first-time buyers who have taken out loans since 2005 and are in negative equity has declined from 26% to 20%; and
* Around 90% of all borrowers taking out loans since 2005 hold some equity in their property, with more than half owning at least 30% of the value of the property and more than 80% holding an equity cushion of at least 10% of their home’s value.

The fall in house prices since their peak in 2007 has led to concerns about the amount of equity some mortgage borrowers have in their homes – particularly those who bought when prices were at or near their highest point. House prices remain some way off that peak, which has reduced mortgage borrowers’ housing wealth to £1850 billion – down from around £2100 billion in 2007.

With little change in total mortgage debt outstanding since 2007, the decline in house prices has eroded the amount of free housing equity (that is, housing wealth not subject to mortgage).

Despite the weaknesses in house prices, however, borrowers continue to hold over £800billion of unmortgaged housing wealth, with little change since the CML last published data based on the first three months of 2011. In the intervening period, house prices have barely changed – having declined by 0.3%, according to the Halifax index, and risen by 0.9% using the Nationwide measure. There have, however, been significant variations across the UK.

Unmortgaged housing equity of more than £800billion equates to an average loan-to-value ratio for all borrowers of around 56%. But, of course, this average figure masks significant variations across the market, with some borrowers holding a very small mortgage relative to the value of their home, while others have little or no equity.

Using data on individual loan accounts from its regulated mortgage survey for mortgages advanced since 2005, together with additional information about the status of these loans in later years, the CML is able to assess the equity position of more than 70% of the 10 million owner-occupied loans outstanding in the UK.
This data shows that the vast majority (90%) of loans advanced since the second quarter of 2005 and still outstanding remain in positive equity. Over half of these loans have an equity cushion of at least 30%, and more than four-fifths have equity of at least 10% of the value of their home.

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