Thousands of hard-pressed borrowers who could not afford a deposit for their home have been plunged into negative equity and thousands more could be at risk if house prices fall further, figures suggest.

More than 30,300 homeowners have taken out 100 per cent mortgage deals since January last year, figures from the Council of Mortgage Lenders (CML) show. Many of these borrowers are now likely to owe more on their property than it is worth after sharp falls in house prices.

Mortgage brokers say that borrowers who repay the interest and capital on a 100 per cent deal build up only around 2 per cent equity a year in their property in the initial stages of their mortgage deal - not enough to counteract the recent sharp falls in house prices in most areas.

This blow for homeowners came as Mervyn King, Governor of the Bank of England, gave warning that the risk-taking by banks and other financial institutions in recent years could have dire consequences for borrowers. Speaking at an annual meeting of British banks, Mr King said: “When the the party ends, some innocent bystanders may lose their homes altogether.”

House prices have fallen by 7.7 per cent since the market turned in September, according to Halifax. But borrowers who bought as far back as January last year have seen the value of their home dip by nearly 3 per cent, the lender said.

However official figures released yesterday showed that house prices rebounded slightly in April. The average house price rose to £218,875, up from £217,244 in March, according to data from the Department of Communities and Local Government. This is a 4.9 per cent increase on April last year.

Morgan Stanley, the investment bank, recently forecast that two million homeowners could be at risk of negative equity if house prices fell by 20 per cent before 2010. But the CML, which recently forecast that house prices would fall by 7 per cent this year, said that borrowers with 100 per cent loans accounted for only a tiny fraction of the 11.8 million borrowers in the UK.

Sue Anderson, of the CML, said that while it was reasonable to assume that some borrowers with 100 per cent deals were in negative equity, differing house price trends in regions across the country could mean that some borrowers were not affected.

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive