Property: Negative Equity

Negative equity has become a growing concern for many homeowners. It occurs when an outstanding mortgage exceeds the value of a property. This can be concerning for those who are just getting started with their mortgage, or even those who may be in negative equity without realising it.

Fortunately, there are ways to reduce this problem and boost the value of your property. Here’s what you need to know about negative equity and how it affects your mortgage:

What Does Negative Equity Entail?

Negative equity is the difference between your property’s current value and its outstanding mortgage. If house prices dip, homeowners risk falling into negative equity as the mortgaged amount exceeds their house’s value. A deposit paid on a purchase will help increase the homeowner's equity in a property, but this isn't always an option due to the high cost involved.

How Can You Tell If You’re in Negative Equity?

It can be difficult to tell if you're in negative equity, so the best way to find out is by getting a valuation of your property and comparing that with your remaining debt on the loan. If your outstanding mortgage is higher than what your home is worth then you'll likely be in negative equity.

Who Is Vulnerable To Negative Equity?

Homeowners more inclined to risk negative equity live in an area affected by rapidly dropping house prices with a 95 or 100 per cent mortgage. 

Additionally, those with interest-only mortgages and those who have overpaid for their house at purchase could also find themselves in trouble if prices drop suddenly.

How Does Negative Equity Impact Your Mortgage?

If you're planning to remortgage with existing negative equity then finding a lender willing to provide you with one will prove difficult. It's possible depending on what particular type of loan agreement you have however typically speaking it's necessary to resolve any existing problems before attempting such an endeavour. 

Those on fixed rate mortgages should continue making payments until they reach the end of their term, after which they can consider increasing their repayments or setting up some sort of arrangement that would help them reduce their negative equity before switching lenders or deals if necessary.

What Is A Negative Equity Mortgage?

In cases where reducing negative equity just isn't feasible right away, taking out what's known as a 'negative-equity mortgage' could be considered. 

This allows homeowners to move houses while avoiding having to pay off their existing debt right away, though early repayment fees will apply since they'll need to cancel their current loan agreement earlier than usual. 

Make sure to compare rates from different lenders before applying for such loans as fees and additional costs vary depending on who offers them (or indeed whether it proves feasible). It is important to take financial advice from a fully independent financial advisor on the product and its suitability in relation to your needs. 

Conclusion 

Being in negative equity can often start as an unexpected issue stemming from external factors like changes in housing markets or living expenses climbing faster than expected income levels, but that doesn't mean decent solutions don't exist! 

Making use of available options like overpayments or alternative mortgages can help drastically reduce any resulting problems while keeping monthly expenses manageable under regular circumstances too when done responsibly