Negative equity: the words send a chill through anyone who had a mortgage in the early 1990s. After Northern Rock, lenders are anxious. Could a new generation be affected by the problem? Owen Amos reports.

Negative equity sounds complex. It is, in fact, as simple as a sharp smack in the jaw.

You take out a mortgage of £100,000. The market slumps, and the value of your house shrinks to £90,000. You owe more than your house is worth. You have negative equity.

If you want to move, that's a problem: even with the house sold, you still owe the mortgage lender thousands. People sit tight and the market stagnates.

In 1995, it affected more than 30,000 people in the North-East; nationally, more than a million people were stuck in the "trap". In Darlington, between 1990 and 1995, nearly 2,000 people had their homes repossessed.

Rob Jones, senior lecturer in accounting and finance at Newcastle University Business School, said house prices may now fall, but that a return to the crisis of the early 1990s is unlikely.

"I think mortgages are going to be more expensive for a while," he said.

"Banks will be less keen to lend to people, and be more careful about who they lend to. That will result in a reduction in the demand for housing.

"If demand falls, and supply doesn't change, basic economics tells you prices will level off or fall, so there could be some negative equity.

"If they fall, people who have borrowed aggressively or heavily could have a problem. You have people with 100 per cent mortgages - even 110 per cent mortgages.

"If you want to buy a house, you really want to make sure you can afford it. Also, if you were pushing to buy because you think next year will be more expensive still, then maybe it's time to pull back.

"But I don't think we are looking at something like from the 1990s. Then, there were circumstances not present now that conspired to make it a big problem - high unemployment, for example."

Sarah Anderson, from the Council of Mortgage Lenders, also believes there is no impending crisis.

"It will be a couple of months before we get any hard data," she said.

"Although you can never rule it out, we are not expecting falls.

"A point worth making is, because of an unprecedented high level of equity in the housing market, people are protected. Because prices have risen in recent years, they would have to fall very sharply to reach negative equity."