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First-time buyers at risk of negative equity as UK house prices fall, banks warn

Banks have warned MPs that falling house prices could leave many mortgage holders in negative equity, with first-time buyer’s particularly affected.

House prices fell at their fastest rate for 12 years last month amid Britain’s mortgage meltdown, according to Halifax Bank.

The UK’s biggest mortgage lender said the annual fall of 2.6 per cent – equating to around £7,500 being wiped off the average UK house price in cash terms – was the biggest since 2011.

Andrew Asaam from Lloyds Banking Group told MPs on the Treasury Committee that this house price fall would have the biggest impact on first-time buyers, who typically had much higher loan-to-value (LTV) rates on their homes.

“It’s a completely individual situation, but we still think owning a home for most people is better than renting, and therefore we want to keep products available at higher LTVs for first-time buyers,” he said.

“But we need to make sure that those first-time buyers are resilient – i.e. they can afford to stay in their homes through a two-year period where house prices might be falling, for example, and they are aware that they could end up in negative equity.”

Henry Jordan, home commercial director at Nationwide, said around 2 per cent of his bank’s customers had LTV rates of over 90 per cent, which means they are particularly exposed.

But he said those entering negative equity might only be in that scenario “for a fairly short period and it wouldn’t have any direct impact on them”, but others with “wider payment problems” may need additional support from their lender.

Representatives from several banks including Santander, NatWest and Skipton Building Society agreed that there was less risk of widespread negative equity than in previous financial crises due to relatively low LTV rates across the market.

Mr Assam from Lloyds Banking Group said they had average LTVs in the “high forties” while Bradley Fordham, mortgage director at Santander, said theirs was around 51 per cent.

Mr Fordham also said that customer maximum borrowing levels were typically “less than what it was a year ago or 18 months ago” because of rising household bills and increased interest costs hitting what they could afford.

“Clearly that’s going to constrain customers’ choices and what properties they can afford,” he said.

Customers were either “putting more deposit down or looking for a smaller property” as a result.

He told the Treasury Committee: “It’s been a very volatile period. The base rate has been increasing, swap rates have been increasing which is generally the funding cost to banks, and therefore there have been price increases by lenders.”

It comes as mortgage rates hit their 15-year high on Tuesday, passing a peak they reached after former PM Liz Truss’s mini-Budget fiasco.

The average two-year fixed rate now stands at 6.6 per cent, while a five-year fix is 6.17 per cent, according to data from the financial data firm Moneyfacts.

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