According to the National Housing Federation (NHF), the average buyer in England paid £216,800 for a home in 2007. It predicts that property prices will fall by 3% in 2011, before climbing steadily by 22% between 2012 and 2015, taking the average property price to £226,900. Only then will those who bought at the peak of the market recover what they paid for their home seven years earlier.
Many homebuyers who bought in 2007 were close to the risk of negative equity in the first place, says David Hollingworth at mortgage broker, London & Country. "Before the credit crunch it was possible to buy with much less equity - 95% and even 100% mortgages were common. This means that, unless homeowners have been able to erode the debt substantially since then, even when prices do get back to 2007 levels, many will still find themselves with little or no equity."
Negative equity knocking
But what are the consequences of this? Unless you need to sell your home and 'crystallise' the loss (meaning you are left with a debt and no asset) negative equity is more of a 'state' than a problem. In other words, so long as you can afford your monthly mortgage repayments, what your home is worth on paper is largely irrelevant.
Where homeowners can come unstuck however, is that even armed with little or no equity, they will be denied access to the best mortgage deals. Post credit crunch, mortgage lenders now cherry-pick their customers, reserving their cheapest deals for 'low risk' borrowers who have a large deposit or chunk of equity.
Those 'without' will pay
For example, on September 1, First Direct launched a new best buy two-year tracker mortgage priced at a miniscule 2.19% (1.69 percentage points above base rate). The fee is just £99 but homeowners will need at least 35% equity to qualify.
But if you can only lay your hands on 10% equity or deposit, the best equivalent deal will cost 4.49% from Newcastle Building Society, with a £694 fee. On a £200,000 repayment mortgage of 25 years, that amounts an extra £244 each month compared to the First Direct deal.
Similarly, the best lifetime tracker is courtesy of HSBC and priced at 2.19% - but applicants needn't bother applying unless they are sitting on a 40% slice of equity. The bank will charge 4.49% for borrowers with a 10% deposit. The deal is still market-leading but, again, £244 a month more expensive than for those with more equity, based on the same £200,000 mortgage.
It's a similar story with fixed rate mortgages. The cheapest deal on the market is currently from Santander. The deal is priced at just 2.75% for two years but homeowners will need 40% of the property value in equity to qualify. The mortgage costs £241 less each month than the best equivalent deal from Yorkshire Building Society, which is priced at 4.49%.
How to combat lack of equity
While no homeowner would have 'chosen' to buy at the top of the market, their timing could have bought some advantages - such as unwittingly netting some of the cheapest mortgage rates in history.
For example, if you signed up to a short-term fix or tracker deal with Nationwide or Cheltenham & Gloucester during the boom of 2007, you would have reverted onto a standard variable rate (SVR) of just 2.5% in both cases.
Hannah-Mercedes Skenfield, head of the mortgage channel at moneysupermarket, said: "If you have landed on a rock-bottom mortgage rate which will see your monthly mortgage payment fall, why not continue to pay the same amount each month? This would constitute an overpayment which will see your mortgage debt - and therefore any negative equity - erode more quickly."
Most mortgage lenders permit overpayments of 10% per annum without charging penalties, although Nationwide sets a straight £500 overpayment limit each month. If your mortgage is fully flexible you should be able to make unlimited overpayments.
Market movement towards improvement
Even if you are unable to hit back at negative equity through overpayments, the market is starting to show signs of improvement for borrowers with smaller deposits.
On September 1, Yorkshire Building Society reduced the rate of its two-year fixed rate First Time Buyer mortgage to 5.59% - a deal that's available for those borrowing up to 90% of the property value.
While this is still expensive compared to the very best market rates, and a far cry from the level of borrowing available before the credit crunch, it's an encouraging sign that cash at the 'top end' of the borrowing spectrum is becoming freer.
And home owners can seek further consolation from the fact many experts believe property is still a sound long-term bet. David Orr chief executive of the National Housing Federation, said: "House prices will inevitably increase in the long term because of huge under-supply of housing."
Please note: Any rates or deals mentioned in this article were available at the time of writing.
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