First-time buyers generally have less housing equity than movers, so recent first-time buyers would be the most exposed by a reversal of house price growth. But a new study indicates that only 1% of mortgage holders would be affected.

Rising house prices have led to a tripling in the value of housing equity over the past decade, according to research from the Council of Mortgage Lenders. And house prices would have to fall by as much as 22% before people who became first-time buyers in 2002 were exposed to negative equity.

In an article in the latest issue of the CML's quarterly journal, Housing Finance, CML economists Jennet Vass and Bob Pannell estimate the total value of unmortgaged housing equity in the UK as around £2.2 trillion. This includes homes owned outright and equity owned by individual residential landlords, as well as equity held by home-owners with a mortgage.

Among home-owners who have moved within the last five years, the average outstanding mortgage is £76,000 and the average level of unmortgaged housing equity is £81,000, according to the Survey of English Housing. Naturally, this varies dramatically across different regions. But the proportion of unmortgaged equity among recent movers is relatively consistent across the regions, lying between 46% and 54% (and with an average for England of 52%). If people who have moved less recently were included, the proportion of unmortgaged equity would be higher still.

Unsurprisingly, first-time buyers generally have less housing equity than movers. So the CML has looked specifically at those who were first-time buyers in 2003 as the group who would be most vulnerable to negative equity if house prices fell. The CML finds there were around 359,000 first-time buyers in 2003. 27% of these, or 97,000, took out loans with less than a 5% deposit. An additional 40,000 had a deposit of 5-10%. In total, this suggests that the most vulnerable group of borrowers equates to only about 1% of all mortgage holders.

The authors emphasise that they do not expect house prices to fall. However, even if they did, the numbers of people likely to experience negative equity would be modest compared to the 1.7 million of the early 1990s.

And, as the authors point out, lenders have become more experienced at dealing with negative equity problems since the experience of the 1990s: "Lenders have developed policies and procedures to enable households with negative equity to have portable loans. As a result, any future period of negative equity should have a lesser impact on the operation of the housing market."

The latest issue of Housing Finance also includes articles on the impact of interest rate rises on household borrowing; the role of mortgage insurance as part of the safety net; the Australian mortgage and housing markets; and the market for social housing finance.