Five Million Britons May Face Negative Equity in 2009, GfK Says

By Svenja O’Donnell

Feb. 27 (Bloomberg) -- The U.K. housing-market slump may push more than 40 percent of British mortgage holders by the end of this year into negative equity, where their loans exceed the value of their homes, GfK NOP said.

A total of five million people will be affected by the end of 2009, GfK said in a statement today, citing a survey of 60,000 people. About 3.8 million already have loans worth more or close to the value of their homes. There are 11.7 million mortgages in the U.K., according to the Council of Mortgage Lenders.

“The shift to negative equity has the potential to be a mammoth welfare disaster for the nation,” Andy Thwaites, a director at GfK, said in the statement. “If there are further job cuts, the problem will become significantly worse.”

Bank of England policy maker David Blanchflower said this week Britain’s recession will probably deepen “significantly” and predicted more than 3 million people will be unemployed by the end of the year. House prices fell the most in at least 18 years this month, Nationwide Building Society said yesterday.

GfK based its analysis on the assumption that house prices will drop a further 10 to 20 percent this year.

An index of consumer confidence rose two points to minus 35 in February, staying close to a three-decade low, GfK said in a separate report. The survey of 2,001 people was conducted between Feb. 6 and Feb. 15.

Higher unemployment may put further pressure on house prices, Blanchflower said on Feb. 25. This would increase the number of Britons unable to pay back their mortgages, threatening a “new dynamic” to the slump in the property market, he said.

Economic Situation

A gauge of the general economic situation over the next 12 months rose eight points to minus 40, while a measure of the personal financial situation remained unchanged at minus 18.

An index of the general economic situation over the past year fell two points to minus 82, the report showed.

“Consumer confidence remains very fragile,” said Rachael Joy, a researcher at GfK. “The public certainly recognize that it’s been a tough year.”

The average house price fell an annual 17.6 percent to 147,746 pounds ($211,000) in February, the biggest drop since monthly data began in 1991, Nationwide said yesterday. Home values fell 1.8 percent on the month.

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net.