Friday, 20 March 2009

Truly Staggering Statistic

This news on the BBC website has to be a truly staggering statistic if true:

"Half of Northern Rock's mortgage loans will be in negative equity if house prices fall by 10% this year, figures from the National Audit Office show."

So house prices have to drop by only 10 percent (and no-one can guarantee that won't happen) and half of the assets covered by Northern Rock mortgages will be worth less than the value of the mortgage.

But thats a 10 percent drop. I just wonder what percentage of mortgages will be in negative equity with a (wholly believable) 5 percent drop in house prices? Is it a linear increase in negative equity, or is there some exponential curve?

I'd love to see that graph.

I'd also love to see how exposed other mortgage lenders are under the same circumstances.

Doesn't look good at all.

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