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A million homeowners may face negative equity

25/06/2008

Homeowners who have recently agreed high loan-to-value (LTV) mortgages may soon be confronted with negative equity, according to a new report.

If house prices fall 15 per cent, a million people may be in negative equity, said Professor David Miles, managing director of Morgan Stanley Research.

However, he commented the situation would be "not apocalyptic".

Speaking at the National Institute of Economic and Social Research (NIESR) Westminster Economics Forum on Monday, Professor Miles said "there is not a terrible condition" if monthly mortgage payments are affordable, MyFinances.co.uk reported.

"The majority of people will just be in negative equity," he commented.

Professor Miles explained that house prices were often dependent on expectation, thus an expectation of a fall in house prices may create one.

Last week the Council of Mortgage Lenders (CML) claimed the situation was "not as gloomy" as many think. It stated "the vast majority of borrowers are in a strong position" as employment levels are currently high.

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