A report from Fitch Ratings has revealed that 15% of UK mortgages are in negative equity, with a possibility this figure could climb to 34%.
The number of prime mortgages in negative equity could hit 34% in the event of 30% peak-to-trough fall in house prices, the agency says.
Fitch analysed loans representing almost 25% of all outstanding UK prime mortgages.
The ratings agency found that approximately 270,000 prime borrowers are in negative equity.
Out of 2.7 million prime mortgages, making up ?263bn securitised through RMBS, Fitch says more than ?39bn of loans are in negative equity.
Ketan Thaker, director in Fitch’s European RMBS team, says: ?While prime borrowers are unlikely to default solely because the value of their house is less than the outstanding balance of their mortgage, Fitch expects default rates to be higher for borrowers in negative equity.?
?Borrowers with equity in the property have options available to them in case of financial distress that borrowers in negative equity do not, for example sale of property, remortgaging, better availability and pricing of products, and the withdrawal of equity to fund temporary cash shortage, which could help avoid foreclosure.?
Using the Nationwide house price index as a basis for house price falls, Fitch estimates that Northern Rock?s master trust programme Granite accounts for the highest proportion of loans in negative equity at 32% of the total value of the loans. Barclay?s Gracechurch pool is at the other end of the spectrum with just 2% of loans in negative equity.