Tuesday 9th October, 2007 

Financial website Fool.co.uk has released figures which make worrying reading for those who have recently taken the first step onto the property ladder.

Fool.co.uk claim that the stagnant house prices will "imprison" those who have recently taken out 100% mortgages on their first home. It predicts that a small decrease in the interest rates would plunge around 5% of first time buyers into negative equity. Negative equity is where the value of the mortgage is higher than the value of the property.

This would have a detrimental impact on those who have stretched their finances, typically first-time buyers taking out 100% mortgages. A rise in interest rates would restrict their ability to shop about for a second home due to having no equity to speak of to invest in a new property.

This prediction comes on the back of recent house price surveys which have indicated that the property market is likely to slow down in the near future, due to higher interest rates and the uncertainty of the global credit market. A survey conducted by the Halifax revealed last week that house prices in September dipped by 0.7%, the first time in nine months.

Some analysts have predicted decline in house price inflation over the next couple of years. The expectancy is that house price inflation will have dropped to around 5 % by the end of the year and then flat-line in 2008.

Debtwatchdog is concerned about the impact this will have on those who are taking out 100% just now and in the near future. According to these figures it will take at least 24-36 months for the value of the property to increase by 5%. This would mean that when their current mortgage deal was due for renewal, in 2-3 years time, there would not be enough equity in the house to purchase a cheaper 95% loan to value mortgage. Top tip from Debtwatchdog is choose a repayment mortgage and when possible make overpayments. This way reduces the mortgage and increases the equity in the property which also increases the choice of mortgage providers.

Use our Statement of Affairs to adjust your finances so you can make overpayments and lower your mortgage payments. This is a free tool.