What is negative equity?

A property is in negative equity if it’s worth less than the mortgage/lending you have on it, and it’s normally caused by falling property prices.

Example:

If you bought a property for £150,000, with a mortgage for £120,000 and the property is now worth £100,000, you would be in negative equity.

However, if you had bought a property for £150,000 with a mortgage for £120,000 and it’s now worth £130,000, you would not be in negative equity.

It’s estimated there’s around half a million properties in negative equity in the UK, although some areas are affected more than others.

How do I know if I’m in negative equity?

You might not know whether or not you’re in negative equity. First of all, check your mortgage statement or contact your lender to find out how much you owe now. If it is commercial lending, you can always request for a latest redemption statement. Once you have received the above, the next thing you can ask a local estate agent to value your home or hire a surveyor to do a valuation (they will charge for this). If the value of the property is below what you owe, then you are in negative equity. 

What are the issues that come with negative equity?

It’s an immediate problem if you want to sell your home so BE CAREFUL!

Unless you have savings that you can use to repay the difference between the value of your home and the lending, you might find it difficult to move. It can also be difficult if you want to refinance; if you want to save money by getting a fixed rate or a cheaper deal. Most lenders won’t let people with negative equity switch to a new lending when their existing one ends. Instead, they’ll normally be moved onto the lender’s standard default rate.

Pros and cons of negative equity mortgages

Pros:

• You can move house without having to pay off the negative equity on your mortgage. This is particularly useful if you need to move for work or family reasons and can’t put it off.

Cons:

• You might have to pay early repayment charges on your existing mortgage
• There might be extra fees and charges, and your new mortgage might have a higher interest rate than your existing one very few lenders offer them.