About 500,000 mortgage holders already owe more than the value of their home says Bank of England

Up to 1.2 million UK homeowners could fall into negative equity if prices continue to plummet, the Bank of England has warned.

Around 500,000 mortgage holders already owe more than the value of their house following price falls of almost 15% since last summer, according to the bank’s figures.

Widely anticipated further falls in house prices are likely to put 700,000 more households in the same position, it said.

The forecast comes in the institution’s bi-annual financial stability report, which says the UK is facing the worst financial crisis since the start of the First World War and underlines the increasing impact of the downturn on the real economy.

It estimates that the losses suffered by global institutions total £1,800bn and says banks are likely to further cut back on lending in coming months.

The report indicated that new measures could be introduced to try to avoid a similar meltdown in future. There may be a “need for a fundamental rethink of how to safeguard against systemic risk”, it said.

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