For those who are not familiar with the term “Negative Equity”, it is a situation when the loan size is much larger than the value of the property. This astonishing large number of customers depicts the misery faced by those who taken super size or very large loans during the boom period against their property.
They are being trapped in a situation where their mortgage is much larger in value, but on the other side the value of their homes is plunging down. The most affected people are those who had taken loans in the year 2007, they have seen a sharp decline in value since that time.
This is a massive problem faced by Britain, as Lloyds’ is one of the largest mortgage lenders, having a customer base of 300,000 mortgage customers. About 13.5% of its mortgage portfolio property and 5% of its customers are trapped in this problem of negative equity.
An estimated fall of about 22% in the values of property in the last 3 years have left customers trapped in those houses which were purchased on high prices at that time. Official figures show fall in the prices of property in entire England and Wales except London and the situation is expected to get worse in next five years.
One of the factors influencing the mortgage holders is the raise in base rate by the bank of England. As a result, the home owner falls for negative equity if they had not repaid the large chunk of their loans. The base rate has been at a historic low of 0.5% since 2009, and was held at the same level. But eventually, it will be raised at some point.
The Economic and Financial experts have predicted that it will remain low for some time. Lloyds’ while issuing a satisfactory note said that many of its customers have small mortgages and do not have any sort of problem due to negative equity.
A Lloyds Banking Group spokesman said, “A number of borrowers are in a position where their amount outstanding on their mortgage is greater than the current value of their home. If the prices of property rise, fewer borrowers are affected by negative equity, but if prices fall, more borrowers become affected. Many borrowers are concentrating on paying down their mortgages, but for those who do want to move we offer an Equity Support Scheme. This scheme enables our borrowers in negative equity to move without worsening their current loan-to-value position.”