So far, the UK housing crash has not generated large amounts of negative equity. With prices down about 5 percent from the peak, only about 2.8 percent of mortgages have loan-to-value ratios higher than 95 percent.
Of course, it is early days in this housing crash, and as prices continue to decline, we can expect the negative equity-o-meter to start to increase.
By the way, this chart, perhaps more than any other indicator, explains why the banks dived into the housing market with such reckless abandon. As house prices went up, loan to value ratios fell. It made mortgage lending look so safe. After all, there was such a hugh cushion of home equity out there to protect the banks.
However, house equity is not the same as household capacity to repay loans. If large numbers of homeowners begin to default, repossessions will to rise, prices will fall, and home equity will disappear like water on a hot stove.
Then we will begin to see some seriously large negative equity numbers. Give it a year or so, and the equity-o-meter will be the most important economic number in the UK.
(Data source: Bank of England, Financial Stability Report)