North-south negative equity divide "increasing"

The number of mortgage holders in negative equity is increasing in the north as it decreases in the south, according to a report by ratings agency Standard & Poor’s.

The report found that 1 in 7 borrowers (13.5%) in the north-west of England are in negative equity - which is when the value of a property is less than the mortgage - compared to just 0.9% in the south-east.

Standard & Poor’s also claim that this north-south divide is “getting wider”. The report estimates that, in the UK as a whole, the proportion of people in negative equity fell to 4.9% in the first three months of this year, from 5.6% at the end of 2011. In this period, the percentage of borrowers in negative equity in the south fell from 3.3% to 1.5% - but in northern regions it increased from 8.5% to 8.7%.

In the report’s regional breakdown, the north-west had the highest proportion of people in negative equity - 13.5% - with Yorkshire and Humberside coming a close second at 10%. In both the north-east and Wales the proportion was 8.5%, and in the West Midlands it was 7.3%.

The report claims that “diverging regional house prices” are to blame, along with “further public sector job cuts, which could disproportionately affect the north”. The researchers went on to say that, although employment in the north has recently improved, “we note that part-time jobs account for most of this rise...Government job cuts, to the tune of 1.2m between 2011-2018, are also likely to hit northern regions harder, in our view.”

People in negative equity may be at a higher risk of defaulting on their mortgages. Report author Mark Boyce said:

"In the case of negative equity, obviously the fact that borrowers are in negative equity doesn’t mean they are going to default, but there is a link between defaulting and the amount of equity a borrower has. If interest rates were to rise and a borrower has to sell their home, they may have to default."

The authors of the report went on to add:

“We don’t see the regional house price divide closing any time soon.”