Negative equity in your home sounds scary and while it can create untold financial difficulties for those experiencing it, there are solutions to getting out of it.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
What is negative equity?
Put simply, negative equity means that the current value of your home is less than the amount you owe to your mortgage provider. For example, if you bought a home worth £200,000, borrowing 90% of the value (£180,000) from a mortgage provider, if the value of your home fell quickly to £175,000, you would be in £5,000 negative equity.
How does it happen?
Usually, you can find yourself in negative equity if your property falls in value shortly after purchasing it, such as in the example above.
There can be a few scenarios where this can happen:
- When there’s a slump in the housing market
- If you bought your home when prices were unusually high
- If you take a second loan against your home on top of the mortgage, for example, to consolidate other loans.
- If you have an interest-only mortgages and missing even one payment could push the outstanding balance higher than its previous value.
You could even find yourself in more than one of these scenarios which would undoubtedly push you into negative equity.
You can find out if you’re in negative equity by requesting your outstanding balance from your mortgage provider or securing a property valuation from an estate agent.
But not to worry, there are several options to help you get out of negative equity.
Make an early repayment on your mortgage
If you have the funds available, making an early repayment will help to reduce your outstanding balance and hopefully bring you below the property value once again. If you have any money lying around in savings, it would be much better placed paying down your mortgage. Check the fine print of your mortgage though, as some providers penalise you for repaying early.
Wait it out
While it’s not a great situation to be in, negative equity is only a pressing concern if you want to sell your property. The housing market is full of ups and downs so if you can, all you need to do is wait until it turns back around again. If circumstances dictate an immediate move, you can always let out your home but if becoming a landlord is not something that appeals to you, you should consult a mortgage adviser who can help you explore other options, such as porting your mortgage. Of course, this will depend on whether or not your provider will even allow that to happen, but many lenders do have special products available for people in this situation.
Helping you through the mortgage process
No matter how you’ve found yourself in negative equity, there are always ways out of it. We understand that everyone’s situation is different and everyone will require a unique solution. If you’re in need of advice about your current mortgage or are looking to apply for a new one, our experts can guide you through the mortgage process. Get in touch with us to learn how we can help you today.
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