Is Your Property In Negative Equity?

Negative Equity is simply when the sale value of your property is less than the remaining mortgage. Most negative equity issues stem from the 2008 financial crash. Although many assume this problem has gone away, it still affects over 500,000 people in the UK.

Negative Equity often lies dormant for many years as it does not have the same urgency as other property debt issues. However, this does not mean it is any less serious, negative equity can be a burden on your finances. The sooner it is dealt with, the easier the resolution.

Why is Negative Equity an Issue?

Negative equity is not always a serious issue. If you plan to continue living in your house and can pay the mortgage it may not have a severe impact on you.

However, for many this is not an option. If you are struggling to meet repayments or if you want to sell your house it can bring serious challenges. This can cause you to end up ‘trapped’ in negative equity – unable to sell and unable to meet repayments.

If you sell your property, you will be required to pay the mortgage shortfall. Unless you have a large cash reserve or other assets to cover the cost, this for many, is not a feasible option.

If you continue living in your house and you’re on top of your mortgage payments, you will not face any consequences. However, there is always the risk that a sudden loss of income could leave you unable to pay your mortgage and cause a significant shortfall. As mentioned above, you are liable for the full value that is remaining.

You can attempt to wait for house prices to rise to the same level as when you first purchased your property however, this could take years. If there is a substantial amount of negative equity or you purchased pre-2008, this is unlikely to ever happen.

Selling In Negative Equity

There is a common misconception that you cannot sell in negative equity. However, this is not the case. It does make the process more complicated but it is not impossible. Before selling, you need to consider the difference between the sale value and remaining mortgage. When doing this, you need a realistic valuation of the property and, take into account sales costs.

This process involves negotiating with your mortgage lender to allow the sale of your property to a third party. This can be an option if someone you know wishes to purchase the property or you want to manage the sale yourself.

After the sale you will still have to pay the mortgage shortfall however, this can be negotiated. These negotiations require a good understanding of how banks operate, how to deal with them and the evidence required. Therefore, we always recommend seeking expert advice before attempting to contact your lender.