Some 15% of
homeowners are trapped in negative equity, according to a new report.
Fitch Ratings warns that the figure could soar to 23% if its prediction of a 30% peak-to-trough fall in house prices is correct.
Negative equity means that the value of the house is less than the outstanding loan owed.
With many homeowners taking advantage of cheap mortgages at the peak of the housing boom, thousands of householders could find themselves losing their homes if they are made unemployed.
The report collated loan information from 2.7m borrowers.
It found that Northampton, Nottingham and Derby in the East Midlands were the worst affected cities with the highest proportion of loans in negative equity (21.8% by value and 15.1% by number of borrowers).
Scotland has the lowest proportion of negative equity (5.4% by value and 3.6% by number of borrowers) and London is also relatively unaffected.
Philip Walsh, managing director of Fitch Ratings, told Sky News that the 1990s saw the peak-to-trough last three years.
The current drop in prices started 18 months ago.
"There could be some bad to news to come," he said.
Amongst the mortgage lenders, there is a wide variation of exposure to negative equity.
Up to the end of April 2009, using the Nationwide Building Society (NBS) House Price Index, Fitch estimated that Northern Rock's master trust RMBS programme, Granite, with 32% of loans (by value) in negative equity, had the highest proportion.
Barclay's Gracechurch pool, with only 2% of loans in negative equity, had the lowest proportion.
"Even assuming that house prices see a modest recovery from their lowest levels, most RMBS transactions are likely to have a sizeable proportion of borrowers in negative equity for some time to come," says Alastair Bigley, head of RMBS for UK and Ireland at Fitch.
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