About 100,000 poeple who bought homes last year with little or no deposit are likely to find themselves in negative equity as soon as September.

Mortgage brokers said that borrowers who bought last year with deposits of 5 per cent or less could soon owe more than their property is worth, after figures from Nationwide indicated house prices were set to fall by 5.8 per cent by the end of the year.

If the property market continues to fall at those rates, house prices will hit the 5 per cent mark in September, Capital Economics said. An estimated 10 per cent of mortgages sold through the biggest brokers in 2007 were for loans worth more than 95 per cent, according to the Council of Mortgage Lenders.

First-time buyers are most at risk, being more likely to have taken out such deals, but homeowners who have added debt from credit cards and personal loans to their mortgages are also in danger. Price falls, combined with unwillingness among mortgage lenders to offer deals for more than 95 per cent, could force people to sell at a loss and pay off their debt or face extortionate mortgage costs when their terms end. Jonathan Cornell, of Hamptons International Mortgages, said: “Those who have bought at high loan-to-values and those who have added fees or credit cards to their mortgages are in danger of falling into negative equity.”

Oil is the key to world recovery

The shock of $140 oil has created inflationary and deflationary pressures that threaten world economy and policy tools

• Former President Bush energy adviser says oil is running out

Background

• Oil is the key to world recovery

• Banks may need to pump billions into scheme

• UK economic growth weakest for three years

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• Full credit crunch coverage

Background

• Happy days are over for UK households

• Banks restrict mortgages by brokers

• Credit crunch halves lending at Nationwide

• JPMorgan to cut Bear Stearns jobs

• George Soros: Crunch will bite deeper in UK

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Several lenders have this week withdrawn mortgage deals; others raised interest rates, leaving homeowners who are trying to remortgage facing delays and higher repayments. Brokers put Halifax on “withdrawal watch”, after the bank said it had been inundated with applications. First Direct withdrew from the market because it could not cope with demand for its best-buy two-year fixed-rate deal. Lehman Brothers said that its British mortgage business had stopped accepting new customers. Cooperative Bank today withdraws its two-year fixed-rate deal.

Banks have been struggling to obtain funding for mortgages since last summer’s credit crunch. Mike Ellis, a director at HBOS, parent company of Halifax and Bank of Scotland, told a conference that the funding crisis would be a problem for the rest of the year.

One in five buy-to-let investors intends to sell properties over the coming year - a 31 per cent increase in the proportion expecting to do so three months ago, according to the Association of Residental Letting Agents.

Best buys

2-year fixed rates

Loughborough BS - Rate 5.40%; Fee £999

West Bromwich BS - Rate 5.49%; Fee £499

Stroud & Swindon BS - Rate 5.69%; Fee £99

2-year variable rates

HSBC - Rate 5.19%; Fee £999

Cooperative Bank - Rate 5.49%; Fee £999

Cumberland BS - Rate 5.66%; Fee £599

3-year fixed rates

Skipton BS - Rate 5.49%; Fee £599

Yorkshire BS - Rate 5.49%; Fee £995

Derbyshire BS - Rate 5.59%; Fee £0

3-year variable rates

Chorley & District BS - Rate 5.75%; Fee £0

Cheshire BS - Rate 5.99%; Fee £0

Cumberland BS - Rate 6.00%; Fee £0

Source: Moneyfacts.co.uk 2.4.08