Most people do not think about negative equity any more and for many, negative equity is something which was talked about a lot in the early 90s during the last recession. However, more and more people in the UK are finding themselves in negative equity now, but what does this really mean?
The BBC reported recently that there are over half a million people living with negative equity in their property and that this is a regional not a national issue. At least 41% of mortgages being paid in Northern Ireland are currently in negative equity, as the property market has struggled to recover in Northern Ireland following the downturn. However, to demonstrate how regional the problem of negative equity is, only 1% of properties in London are in negative equity.
So what, if anything can you do if you find yourself in negative equity and what does negative equity mean for you?
Negative equity is caused when house prices fall dramatically, as they did following the financial crisis in 2007. When this happens, the value of your property becomes less that the value of the mortgage you owe on it, and the difference between the two is the amount of negative equity in your property. If you want to move you will need to pay the difference to your mortgage lender, however for most, this is not a financially viable option. As a result, you may feel that you are trapped in your current home until the market improves.
However, there are other options open to you though if you are in negative equity. You may consider renting out your property. This will allow you to keep hold of the property until the value has increased enough for you to sell it without any negative equity and means that you can move to a different property without having to pay the shortfall. Whilst this does seem like a perfect solution, you should consider that you will need to buy specialist landlord insurance, have checks completed on the property and plan for periods of no income when the property is empty.
In addition to renting your property, you could decide to speak to your mortgage lender, who may be open to moving the negative equity on your current mortgage to a new property. This is an option, but if the lender agrees, you will face strict requirements and this could affect your monthly payments or perhaps not be affordable under the new affordability constraints.
What is clear is that there are options open to you, but you should seek advice before making any decisions about your negative equity.
If you have any property questions, please call us on 0800 142 2775 or reply to this email and we will be delighted to help you (there is no charge for initial telephone discussions).