One in six homeowners in the UK will fall into negative equity by the end of next year if house prices fall by a further 17 per cent, according to new research.

At least 70,000 homeowners already have mortgages worth more than the value of their home, following a decline in house prices by more than 10 per cent since September last year.

If prices fall by a further 17 per cent, this number of people in negative equity could rise to 1.7 million, according to Standard & Poor's (S&P), the credit ratings agency.

Some analysts have forecast that house prices could fall by a further 20 per cent by 2010.

Negative equity is a problem for borrowers who want to move home or who fall behind with their mortgage payments as they could be forced to sell their property at a loss.

People with blemished credit records are most vulnerable to falling into negative equity, as they have the highest loan-to-value on their mortgages, S&P said.

However, even homeowners with clean credit records will also be affected, with around 13 per cent of "prime" borrowers also being pushed into negative equity.

Buy-to-let borrowers tend to have higher deposits but S&P said there is a "tipping point" at which many landlords would fall into negative equity.

A 17 per cent fall in house prices would cause around 19 per cent of buy-to-let borrowers to owe more on their property than it was worth.

"As an approximate rule of thumb, for every further percentage point decline in house prices, a further 0.5 per cent to 1.5 per cent of borrowers, or around 60,000 to 180,000 people, could enter negative equity," the S&P report said.

However, the threat of negative equity differs around the country.

A 17 per cent fall in prices would force only 6 per cent of Scottish homeowners into negative equity after recent price rises in the country, while 21 per cent of borrowers in the East Midlands would be affected.

In an additional blow to the mortgage market, which has ground to a halt in the wake of the US sub-prime crisis as investors shy away from mortgage-backed securities on which lenders rely to fund new mortgages, S&P said the increasing threat of negative equity could force ratings on some securities to fall.

"Rising risk increased the default risk on all related notes, potentially leading to downgrades across the whole capital structure."

This could lead to investors, who have already purchased securities, being left with assets that are worth less than they thought.

County-by-county: Completion prices as a percentage of asking prices