Officials from a debt advisory service have been urging homeowners to seek advice from industry officials as early as possible if they are finding it difficult to keep up with mortgage repayments and debts. With house prices due to continue falling over the coming year homeowners are set to face a challenging time, according to the group, and this could be made worse by the fact that more recently property purchasers could find themselves plunged into negative equity, where they owe more on their property than the property is worth.

The warning came after a recent bleak prediction from the Council of Mortgage Lenders, which predicted that house prices could fall by more than 7% over the remainder of this year, and with house prices already having fallen over recent months this could spell bad news for homeowners. The CML also reported that it expected property sales to plunge by around 35% over the course of the year in England and Wales, and that mortgage lending levels could fall by around 50%. All of this could add up to real difficulties for many homeowners.

One official from the debt agency said: “The CML anticipates a 7% year-on-year drop in house prices by the end of 2008. After a decade of rapid growth, this is clearly an unwelcome shock to homeowners. If they’re thinking of moving, they may feel compelled to accept a low offer if they wish to sell their property before prices drop further. And anyone seeking to consolidate their debts with a secured loan or remortgage may have less equity to draw on. They may wish to wait for conditions to improve before they consolidate their debts – and if they can’t wait, they may well have to consider alternative debt solutions, such as a debt management plan or IVA.”

The group also said: “Naturally, people with high-LTV mortgages are particularly worried about negative equity: when a property’s value is less than the debt owed, the owner can be ‘tied in’ to their property, unable to sell it to clear their mortgage debt. Anyone in that situation should seek debt advice without delay.”

It continued: “What’s more, the current lending squeeze means that many potential first-time buyers can’t take advantage of falling prices – so today’s tighter lending criteria are depriving the housing market of the demand that could help bolster those prices.”

In fact, some industry officials have expressed concerns that the situation may be far worse than this, with some expecting house prices to fall by 20% or more, likening the situation to the days of the 1990s house price crash.

One official recently said: ‘It is tough, very tough. Buyers are looking for rock bottom bargains. The market is yet to get worse before it gets better.’

Another said: ‘If we compare sales figures this March to 2007, 2006, 2005 etc then we can only describe the market as dire.’

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