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negative equity

A Guide to Negative Equity

When you’re looking for a house or are in the early stages of homeownership, you tend to hear a lot of terminology being thrown around that might seem alien to you. We dissect negativity equity, in this article.

Mortgage jargon can be frustrating to hear when you’re not really sure what it means. Terms are passed around so quickly, that there’s no time to stop and ask what it means. One of these terms is 'negative equity'. Carry on reading to find out what it is and whether it could have an impact on you in the future.

What is negative equity? 

Negative equity is basically a term which is used for financial situations where the value of your home is less than the amount that you have to pay on your mortgage. Ok, we know that might sound slightly confusing…

So, here’s an example. Imagine that your house is worth £250,000 and you have a mortgage which is worth £230,000. Then, god forbid, your house value drops by 15% to £212,500, your mortgage balance would still be £230,000. You would then be in negative equity because if you were to sell your property this would be for a lower amount than your total mortgage balance. Sounds nasty, doesn’t it?

How can it be overcome?

We know that makes for grim reading. And sadly, we know that some of you reading this may have found yourselves in this position. But luckily for you, if there’s a will, there’s a way! Here are some options on how you can tackle negative equity:

If you need to sell 

To put it bluntly, if you need to sell your home and you are in negative equity you will need to make up the difference. When you move house, and you’re in negative equity you’ll have to cover the difference between the sale and the amount you are due to pay.

We know negative equity sounds very stressful, but we’re here to make your life easier. At Mortgages Online our team of experts are here to offer you advice to help ease your property woes.

In this instance, we’d advise that while this will vary on your specific situation, don’t necessarily think that you need to sell your property. Sometimes, it may be a good idea to roll with punches for a while. By this, we mean that you could try other solutions.

One of these could be trying to improve the value of your property. Quite often, your property’s valuation may fall just short of the overall mortgage payment. The good thing is that there are loads of different ways where you could improve the price of your home without breaking the bank. This could take the form of doing various maintenance and reparation work on your home. Don’t be afraid to get your paintbrush out either! DIY can be an easy, cost-effective way of upping your property’s value. You could use a credit card or a loan to finance and improve the value of your home.

Speak to your lender

Remember that while your mortgage lender may sometimes seem difficult to deal with at times, they can be a very useful friend in situations regarding negative equity. This can be a great idea if you’re in a situation where you’re struggling to make your mortgage repayments. They could be willing to run over any alternatives for you to help make your mortgage repayments more affordable.

It’s also worth noting that while negative equity isn’t the best thing in the world, it is by no means a disaster. If you are able to pay your mortgage repayments still and do not need to sell your home, it doesn’t make a massive difference to your financial situation. After all, house prices are always fluctuating and over a long period of time, they tend to increase so this could bode well for you in the future.

There are loads of free places online to seek debt advice, and seek money advice too. Just make sure you don’t lose out due to negative equity! For all your mortgage needs, use Mortgages Online.

PaulFlavin

Paul Flavin

Paul Flavin is the Managing Director of Mortgages Online and has been working in the mortgage industry for over 20 years. Running a successful independent mortgage broker since 2010, Paul oversees Mortgages Online and creates articles regularly – drawing on his years of mortgage experience.

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