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Negative equity knocks on the door of 1.7m

It's not a nice thought being in negative equity, but for 1.7 million homeowners, the prospect of having a mortgage that's bigger than the value of your house is very real.

Laissez-faire lending before the recession, plus the value of property plummeting mean that currently 7.3 percent of all borrowers find themselves in this sorry state. And if the value of property falls another 10 percent, twice as many could be affected.

Mortgage administrators Homeloan Management Ltd analysed 250,000 mortgages around the country to come out with the figures. Their chief finance officer Neil Warman said: 'This analysis show just how vulnerable UK households are to a continuing fall in house prices. Since their peak before the onset of the credit crunch, house prices have fallen by nearly 18 per cent and, although there’s considerable variation in future forecasts, a number of analysts are saying we need to brace ourselves for further falls.'

Data from the Land Registry showed that house prices are declining in every region bar London, with a year-on-year decline of 2.6 percent. Mr Warman added: 'HML’s data shows that even if house prices dip by just a 2.5 per cent, more than 1m UK households will have a mortgage debt that is larger than the value of their home. For many regions, negative equity could hinder the free movement of labour, especially among younger borrowers, which will inevitably contribute towards a delayed economic recovery.'

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