Negative equity is essentially when a property is worth less than the current mortgage you have on it. You bought a house for £200,000, and you took out an interest only mortgage for £175,000. Now, the latest market value for your house is £135,000. As a result, you have £40,000 of negative equity as your mortgage is worth more than the value of your home.

It is believed there are roughly 350,000 properties in England and Wales that are still in negative equity. Mostly, these properties reside in the Midlands, North of England and Wales. They come as a mixture of investment buy-to-lets and regular homes. You can trace back the cause of this negative equity crisis to the housing crash in 2008; over a decade later and we’re still feeling the effects!

But what’s the problem with having negative equity – and what can you do to resolve it?

Why is negative equity an issue?

If you want to sell your home and the mortgage you owe is less than the value of the property, then you’re essentially in debt. Going back to the example above, let’s say you sell your property for £135,000, but you have the £175,000 mortgage. Now, you still have an extra £40,000 to pay back to your lender.

The good news is that there are solutions to deal with this problem. Ideally, you want to be able to deal with your negative equity and move on – here’s how…

Mortgage write-downs

Write-downs are relatively common in both the business and financial worlds. In essence, a mortgage write-down is where you evidence to your lender that your current situation is no longer tenable due to a change in your affordability or situation, and propose a solution that better suits all parties.

Clearly, this can be hugely beneficial to both you and your lender as it can remove the impending problems that would ultimately lead to repossession or receivership. This approach makes sense and can often be a viable alternative; it allows the distressed borrower to move on in a responsible fashion without extreme levels of stress and allows the lender to maximise their returns in terms of achieved value for the asset, saving on both professional fees and time. Not all lenders are open to this type of settlement, but many are becoming progressive in their attitude to this type of settlement.

CD Fairfield, through our brands Negative Equity UK, Negative Equity NI and Landlord Debt Advisory, has good working relationships with the majority of the UK high street lenders. We’ve managed to secure average an write off of 76% of the residual mortgage debt for over 600 clients over the last five years. We know how to evidence lenders that it’s worth more to them to write down your mortgage and move on, rather than go ahead with the alternative.

Missing payments and future interest rises can mean the debt becomes even harder to repay, which, if you are currently struggling, means that the lender may need to eventually repossess your home – which, as we have said, isn’t ideal for them. Adding in the fact that repossessed homes tend to sell for much less than average means that the lender could end up with a larger shortfall debt, meaning a mortgage write-down should also be the best option for them.

IVAs and CVAs

An IVA (Individual Voluntary Agreement) or CVA (Company Voluntary Agreement) are agreements made between you and your creditors. They differ because an IVA is for an individual and a CVA is for a company, but the aim behind both is the same: you enter into an agreement to pay back a portion of your debt over a specific period using a payment plan that you can afford.

With regards to your negative equity property, it is a way moving on from your outstanding debt with an amount of debt written off and repayments that you can’t keep up with. A CVA is typically for companies that own properties with negative equity. Your debts are frozen during this agreement, and any other debts are written off once you’ve completed the CVA. You can still run your business as well during this period.

An IVA is for individuals or sole traders. There are two key differences here: all of your unsecured debts are included in the agreement, and your credit score is affected. Other than that, everything is the same – your debts get frozen during this period, and you agree on affordable terms to pay them off.

Setting up an IVA or CVA can be a great option when it comes to managing the residual debt from negative equity with ease. It can help you pay off your debt in a more manageable fashion while ensuring you do not keep adding to it.

Mortgage debt restructuring

Debt restructuring is where the original terms of your mortgage are renegotiated to make the debt easier for you to pay back – for example, extending the term of your mortgage.

When done correctly, this can be an effective way of removing the current problem allowing you to retain your property and make inroads into your debt in an affordable manner. We can try to restructure your mortgage terms so that you only have to pay off the equivalent value of your home.

Mortgage re-broking

Mortgage re-broking is where we can help you find a more suitable mortgage product with a different lender. We analyse your current financial situation and present your case to a new lender. By doing this, we can arrange for a revised version of your mortgage contract that better suits the situation you’re in.

Like everything in this guide, success isn’t always guaranteed and it depends on each case. But it’s certainly an option to help create a more affordable mortgage contract where you aren’t faced with losing your home.

Mis-selling

One of the contributing causes of the market crash in 2008 was the miss-selling of mortgages. It is well documented, especially more recently, that banks and high-street lenders were handing out mortgages to almost anyone. As a result, many people ended up with a mortgage that they couldn’t really afford from the get-go.

If we can find evidence to support a claim that you were mis-sold a mortgage, we can help fight your corner and have been successful in getting clients redress.

Next steps

If any of your properties are in negative equity, then you should start thinking about taking the steps to resolve it; by doing nothing, you could be taking a gamble. CD Fairfield has a 91% independent rated NPS score and excellent relationships with lenders throughout the UK. As such, we’re here to lend a helping hand and offer solutions to free you from your negative equity.

Get in touch with us on 0161 660 4403 for a no-obligation chat – we’ll see if we can assist you. As always, if we find that we are unable to help you with your case in particular, we can point you in the direction of certain organisations and charities that may be able to help.