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Thousands of homeowners could soon be facing the prospect of negative equity, the Halifax is warning. The bank, with two and a half million customers the largest mortgage lender in Britain, said a cooling housing market will soon see many with homes worth less than the value of their loans, the Sunday Telegraph reported.
It said London would be affected first, with hotspots spreading around the South East.

There will be a ripple effect

The paper quoted one economist who suggested 500,000 homeowners could be facing negative equity by the end of 2005.

Phil Jenks, head of mortgages at the Halifax, told the paper: "There is no doubt there will be negative equity in the capital over the next year."

Mr Penks said the worst affected would be those with expensive houses bought on small deposits, a common phenomenon in the capital.

The paper cited Nationwide, which has identified Oxford, Exeter and Slough as well as 13 boroughs of London where prices are likely to fall during the year.

The lender has said that house prices across the whole country will still rise considerably during 2003.

'Severe dangers'

Negative equity was last a spectre during the early 1990s and there has been much speculation that overheating in the housing market could prompt a return.

Andrew Oswald, a professor of economics at Warwick University, told the paper prices would fall by 30% between the middle of the year and the end of 2005.

"The dangers are very severe. We can't avoid a serious drop in prices.

"There will be a ripple effect, starting in London and spreading to the Home Counties, which will be hit very hard, then the Midlands, the South West and the North."