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Negative Equity: What are my options?

Negative Equity: What are my options?

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For many, the term, “negative equity”, is likely to be synonymous with the political, economic and social culture of the early 1990s, and is a phrase that is likely to evoke fear in home-owners around the UK.  Put as simply as possible, it is a situation in which a mortgage exceeds the actually value of a property.

For instance, if a person takes out a mortgage of £100,000 on a property that is worth £200,000- they will have positive assets of £100,000.  When a person takes out a mortgage on a property it is generally under the assumption that it will rise in value during the life of the mortgage, and can therefore be regarded as an investment for the future, as well as providing a home.

However, if the price of the property declines below the total sum in the mortgage, the home-owner can find themselves in the midst of an un-payable debt which can ruin future home-ownership prospects and in extreme cases result in repossession-as in the early 1990s- during which alarming amounts of people found themselves in negative equity.

What impact does negative equity have on the housing market?

Widespread negative equity, can have a highly damaging impact on the housing market, as it stops home owners from being able to upgrade and move into bigger properties, which can cause a shortage of affordable properties for first time buyers. As the recession continues to bite, and there is some speculation that it may well result in a, “triple-dip”, downturn, the bleak phenomenon of negative-equity is starting to re-emerge.

How many homeowners are affected?

Recent statistics have revealed that many aspirational homeowners have been unable to move into bigger properties, as the value of their homes have declined sharply. A study recently conducted by Lloyds TSB with a sample of 500 people, demonstrated that 25% were in negative equity, with a further 61% who wished to move being restricted from doing so. Additionally, nearly 25% of the respondents felt that it was more difficult to progress further up the market, than it was to gain a foothold in the first place. The inability to secure sufficiently-sized accommodation can have a major impact on family planning, often resulting in people postponing plans to have children and extend their families, until they are able to move into homes they feel are suitable.

Negative Equity: What are my options?What are the government doing to help?

The government has been aware if a potential housing crisis looming for some time now, and until the recent budget had concentrated on the construction of new property developments, in order to provide more affordable housing, and as a means of kick-starting the flagging economy. However, in the budget, the Chancellor of the Exchequer, George Osborne unveiled a range of new initiatives aimed at first time buyers and people wishing to move up the property ladder- in the form of loans that are partly guaranteed by the treasury.

However this will not necessarily offer a solution for people presently within negative equity, and the policies are some months away from being actionable for the general public.  If you are in negative equity and wish to move, it’s always worth-while discussing your situation with mortgage advisors and brokers, as some lenders allow existing customers to transfer to mortgages that are worth more than the property they are selling-which can potentially free up funds for deposits and other fees related to the home-moving process.

Could you rent your property to enable you to move?

It may also be worth-while investigating whether you are able to retain your present property and rent it out.  You would need to seek the permission of your mortgage company first before doing so.

On a positive note

As a result of property prices being out of many people’s grasp, the rented home sector has expanded hugely, and keeping a property until it is out of negative equity can provide an excellent means of reducing debts- as well as providing a nest egg for the future.









About Miles Matthews

About Miles Matthews

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