Negative equity looming

Many homebuyers who are new to the market could face a situation of negative equity, a study has indicated.

Negative equity is a situation in which the value of the home is less than the amount mortgage which is still outstanding.

Such a trend occurred in the 1990s, wreaking havoc in the property market.

In this instance, the increase in the number of new buyers taking out 100 per cent mortgages is held as being partly to blame.

Research by mform, a mortgage website, found that between January 2006 and August 2007, some 33,000 people borrowed the full value of the property they were purchasing.

But as the market levels off and prices look as if they could fall, these buyers could be left with a property which has lost value.

Francis Ghiloni, spokesperson for mform, said that in April 2007, there were 92 types of 100 per cent mortgage, but by October there were 160.

He said: "If house prices fall, as some commentators have predicted, those homeowners with these mortgages are likely to encounter negative equity."