What If Your Property Is In Negative Equity

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When you’re a few months or years into your mortgage, you may encounter the term “negative equity” and wonder what it means for your loan. Negative equity is what happens when your outstanding mortgage exceeds the value of your property. According to Property Reporter, this has affected nearly half a million UK properties. Additionally, some people are in negative equity without even realising it.

The good news is that you can take advantage of various options to reduce your negative equity and hike up your property’s value. Here’s what you need to know about it and how it affects your mortgage:

What Does Negative Equity Entail?

The equity you have in your property is the difference between its current value and the outstanding mortgage you have. If you bought your house for £250,000 and paid a deposit of £25,000, then you’ll have 10 per cent equity in your home. Many homebuyers hope that their house will increase in value as they repay the mortgage, which means the equity value will also climb. If house prices dip, they’ll risk negative equity, as the property’s value becomes less than the mortgage loan they obtained.

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

People are usually unaware that they’re in negative equity. Still, you can easily find out by acquiring a valuation of your property and comparing it with how much mortgage you have left to pay. If your outstanding mortgage is higher than your property’s value, you are in negative equity. If this makes you consider selling your house, be sure to talk to a conveyancing solicitor to know your options.

If you buy your house without a mortgage and pay it in full, however, you cannot be in negative equity, which means you are safe from this dip in valuation. Unfortunately, this isn’t an option for many aspiring homeowners due to the sheer cost involved.

Who is Vulnerable to Negative Equity?

Homeowners more likely to be at risk of negative equity live in an area that has been hit dramatically with plummeting house prices while having a 95 or 100 per cent mortgage. If your mortgage is interest-only and you’ve overpaid for your house when you first got your mortgage, you are also at risk of negative equity. 

How Does Negative Equity Impact Your Mortgage?

If you’re in negative equity and want to remortgage, you’ll be hard-pressed to find a lender who will approve it. You must typically get out of negative equity before you can remortgage, though this all depends on what mortgage you have.

For instance, it may be more difficult to remortgage if you have negative equity on an interest-only mortgage. While you can opt to overpay on your mortgage if your lender permits it, you can opt to wait for the housing market to recover.

On the other hand, if you have a fixed-rate mortgage and you’re meeting your monthly payments, it is best to continue doing so until you’ve reached the end of your term. However, if you’re still in negative equity when the end of the term is approaching, consider overpaying or figuring out your negative equity before you switch to a new deal.

What is a Negative Equity Mortgage?

If there aren’t feasible ways to pay off your negative equity, you may benefit from a negative equity mortgage. You can move houses without paying your negative equity right away, although these loans are subject to early repayment fees since you’ll be terminating your current mortgage early. You are free to apply for a negative equity mortgage even if your present mortgage is with another lender. Still, your new mortgage will likely include other additional fees, mainly if the interest rates are higher.

Conclusion

Being in negative equity is out of your control, as it is subject to the housing market, which fluctuates. The good news is that there are a few options you can pursue to reduce your negative equity and put yourself in a more favourable position, returning to positive equity.

Conveyancing Expert offers quality conveyancing services you can use when buying a home, remortgaging, or trying to improve your negative equity. We deliver excellent and efficient service to ensure your property transaction goes smoothly. Get a free, no-obligation quote from us today!

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