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A Guide to Negative Equity

What is Negative Equity?

‘Negative equity’ is a term no homeowner wants to hear. But, what is negative equity and what does it mean if you find yourself hearing those dreaded words?

Since the recession, the term has become commonplace. The mere mention of negative equity can fill homeowners with fear and confusion. But, it doesn’t have to.

Negative equity is a term that’s used to describe the financial situation some homeowners find themselves in, when the amount they owe on their home, surpasses the current market value of the property. Once an infrequent situation, this scenario is becoming more common.

Example of Negative Equity

Imagine purchasing a house for £200,000 with a 10% deposit, £20,000. (This means you owe £180,000 on the property)
After a few months, properties in the area start to decrease in value and drop and the property is now worth £160,000 but, you still owe just under £180,000.
This deficit results in you being in negative equity of just under £20,000 as you owe the mortgage company more than the value of your property.

So, who does it affect?

Generally speaking, anyone who purchased at the height of the property market boom in 2007, will have suffered the greatest levels of negative equity. Despite soaring prices in the South, 53 percent of properties in towns and cities in Britain are still below 2007 prices, according to statistics.

It’s important to understand that negative equity only affects those who own their own home with a mortgage. So those in rented accommodation need not worry, while those who own their home outright – with no mortgage – won’t be affected either.

Moreover, those who purchase properties with large deposits may not be as affected. But, as most homeowners buy their property with high loan-to-value (LTV) ratios, such as 85-90% loan after paying a 10-15% deposit, negative equity could be a concern.

Negative Equity is only an issue if something provokes a sale

If you purchased at the height of the property boom and find yourself in negative equity, it’s vital that you don’t panic. All in all, negative equity is generally only an issue if you find yourself needing to make a sale. For example, if you:

desperately need to upsize or downsize
are unable to afford the repayments, are in arrears, or at risk of repossession
find yourself at the end of interest rate rises, making repayments now unaffordable
are in the midst of personal circumstance changes, such as a relationship breakdown, unemployment, or moving overseas.

If you decide to wait and hope that property prices recover, patience is key. House prices may take some time to recover, if ever. If you’re uncertain what the best option for you is, we advise you to seek realistic and impartial advice from. This will enable you to make an informed decision about your future.

What can I do if I find out I’m in Negative Equity?

In the short-term

Negative equity is only an immediate problem if you need or want to sell your property. Strategies must be put in place to minimize the risk and/or debt in a sale situation. This involves liaising with the lender to discuss the options available to you. Your lender may agree to a consensual sale via a third-party purchaser and settle the debt on a full and final basis. It’s important not to panic, as there are options.

In the long-term

It’s vital you don’t rush into anything if you’re in a position of negative equity. In this case, we advise seeking realistic advice from professionals to discuss your long-term options.

Negative Equity specialists can help you:

devise a long-term plan based on future goals.
base your options on realistic and up-to-date comparable property valuation.
keep up-to-date and informed on property prices in your area and be realistic on whether they will reach the pre-crash levels.
assess how long it may take to recover from a negative balance – and estimate whether that will ever happen.
prepare for an interest rate rise and assess affordability in that circumstance.

Again, it’s vital you do not panic as there are options.

Can I sell my house?

In short, yes – as long as you have correct advice from professionals. Getting impartial and relevant guidance, and mediation from professionals will ensure you will effectively present yourself and your circumstances to the lender.

With the correct representation, the lender may allow you to sell in negative equity, with the remaining agreed debt settled post-sale. Nevertheless, the outcome is very much dependent on your circumstances and how the case is presented.

This is what makes it all the more important to speak to professionals.

If you need help with dealing with negative equity

Call us on 0330 159 5820,read our Negative Equity Solutions brochure or visit our website.

Negative Equity Solutions

Across Ireland, Northern Ireland and the rest of the UK, homeowners are as vulnerable as ever to negative equity.

The Guardian reported that a couple from Northern Ireland paid c£700,000, for a luxury home when the property market was at its peak.

After being struck with the recession they were forced to sell their home, taking a huge loss of £410,000. Stories like this are day to day at Bell & Co, with thousands of people across the UK and Ireland finding themselves in very similar situations. Since 2008, property prices are far from what they were. In fact, in Northern Ireland and North England, properties are a fraction of the cost.

It seems like these issues are predicted to stick around for the near future. The rate of inflation raises, due to the value of Sterling declining, affecting peoples incomes. Investments are being delayed and jobs are moving out of the UK in the banking and finance sectors.

Effects of 2008 Crisis

The 2008 crisis has negatively affected the economy longer than expected and with Brexit lingering, it is premature to predict the state of the UK economy. Regarding problematic properties. Many of our clients feel like they are out of options with no way out.

Contact Bell & Company to find the best options available for you. If…

Your Mortgage is worth more than your property?
You’re working through a divorce but your home is in negative equity?
Struggling with repayments and in arrears?
You’re Wanting to downsize?

The options available

Our specialised debt strategists team deal in all aspects of property debt.

We pride ourselves on providing options for our clients who, at times, find it hard to make an informed decision, when burdened with debt. Negotiating with Banks is our specialty and our methods in doing so are second to none. We assess your situation and provide tailored options to get you the best outcome possible.

Our Debt Strategists team provide impartial and tailored advice to suit your circumstances.

Call us today on 0330 159 5820 or contact us, where we can quickly review your case and point out your options.

For further information on options & solutions for negative equity please read our Negative Equity Solutions brochure

Economists warn of ‘time bomb’ on mortgage arrears

A MORTGAGE arrears time bomb is ticking, due to a squeeze on the repayments of a large numbers of investors who bought rental properties. –

These investors signed up to interest-only deals when they bought their buy-to-let properties during the boom. They did this because it costs much less every month than making full interest and principal repayments on the mortgages. But four out of 10 of those who took out an interest-only mortgage to buy a rental property face having to make full repayments in the next two years, research has found. This risks pushing up mortgage arrears, the study carried out by Central Bank economists warns. There is a big risk that these borrowers will be pushed into arrears, as rents are unlikely to cover the cost of making full interest and capital repayments.

Central Bank calculations estimate that moving from making interest-only to meeting interest and principal repayments will result in a four-fold rise in monthly mortgage costs.

This will typically see repayments go from around €400 to €1,700 a month, the Central Bank academic study found.

However, rents vary from €400 a month in Leitrim to €1,230 a month in Dublin, not enough to cover full capital and interest repayments.

The interest-only deals were usually for 10 years, and now 43pc of investors with this kind of deal are coming to the end of it. They are set to be forced to make full capital and interest repayments.

The study, written by Jane Kelly, Gerard Kennedy and Tara McIndoe-Calder, found that arrears for landlords with interest-only arrangements in place tend to be much higher than for mortgages where full repayments are being made. Many of those who took out the interest-only investor mortgages are on tracker rates, which means the repayments are the lowest in the market. More than four out of 10 of the interest-only deals expire in the next two years.
“The concern is that when they do, some borrowers may experience difficulty meeting the higher repayment schedule,” the Central Bank economists concluded.

Most investor mortgages were taken out between 2005 and 2008, the height of the boom.
The latest statistics from the Central Bank show that the number of buy-to-let mortgages in arrears rose in the period up to March at a time when residential arrears fell back.

There are close to 40,000 buy-to-let mortgages that are in arrears. This is a far higher proportion than the number of residential mortgages where payments are not up-to-date. Central Bank governor Patrick Honohan (pictured) has been among those who have criticised banks for failing to tackle high levels of default among mortgaged landlords.
He called for these properties to be repossessed

– See more at: http://www.independent.ie/business/personal-finance/property-mortgages/economists-warn-of-time-bomb-on-mortgage-arrears-30438283.html#sthash.WffZ78Pc.dpuf

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