Should I Be Worried About My Negative Equity?
Overview
Should I be worried if my property is in negative equity? If you want or need and those two things are different, remember to sell your home, then you do have a problem. Not unsolvable, note, but a problem nevertheless and one with which you probably are going to require help if you are to achieve the outcome you desire. However, if your home continues to tick all the boxes in terms of its affordability, appearance, size, space and location, you need not worry. Just continue to enjoy what you have and pay off your mortgage safe in the knowledge that so long as you neither need nor want to sell, the market value of your home at this point in time is irrelevant.
So what exactly is negative equity?
A property/house/flat/apartment/bungalow is in negative equity when the current sale value is less than would be needed to pay off the outstanding mortgage. If, for example, X years ago you borrowed £180,000 to buy a property now valued at £120,000, you are in negative equity to the tune of £60,000. Such property debt is a huge problem throughout the UK, with some areas hit worse than others.
How did this unfortunate situation arise? It happened as a result of house prices having reached record highs between 2005 and 2007 which was the peak of the property boom. But following that, those hitherto unparalleled prices then dropped also at an unprecedented rate. The graph of that period shows a remarkable ascent followed by a no less staggering descent.
If you bought property when prices were at their peak, almost certainly you have negative equity at this stage.
And that is likely to be the case for some time to come, for although the market is recovering and house prices are increasing again, these are far below the levels they hit a decade ago. In reality it will be some time before they return to where they were in 2005-07. This is a major concern for those who bought during the boom times in the belief that property prices never fall. After all, we grew up hearing such pearls of wisdom as, No investment more sound than bricks and mortar, to say nothing of ‘safe as houses.’ Um….
Those who have since discovered that not all of what their grandparents believed to be the truth of such matters was actually true now are worried on several counts.
Firstly, they fear it is impossible for them to sell, even though they need to do so. Secondly, they feel that although they are seen as being home owners, in reality they are tenants effectively paying rent on a property owned by the bank because currently it is worth less than when they bought it. They have a third concern, too. It is this: the base interest rate in the UK has been 0.5% for more than seven years. That cannot continue forever. At some point the Bank of England will have enough of its necessary economic indicator ducks lined up in a row to prompt it to pull the trigger. When that happens, expect to see a few home-ownership feathers fly heavenwards.
Those misgivings are understandable, for already cases of mortgage debt are plentiful. And if anyone is struggling to meet their monthly mortgage repayments at a time when the base interest rate is at an all-time low, how much harder are they going to find it when, as must happen, it finally starts to nudge upwards again?
At the outset we pointed out that wanting to sell and needing to sell are two totally different things. Whereas want is nothing more than desire, need is necessity. Want can wait, necessity cannot. So what constitutes necessity? Why might someone NEED to sell their home?
Negative Equity UK (NEUK) are vastly experienced in such matters and in their experience there are four reasons which surface time and again.
(a) Couples who bought a two or three-bedroom property have since had children. As a result, their once-adequate home now is too small. They need more space.
(b) Alternatively, once-happy couples have now decided that they are no longer compatible. They are divorced or are in the process of divorcing. The joint-ownership deal into which they entered is no longer appropriate; they need to sell and move on.
(c) Job circumstances and income have changed significantly. As a result, a mortgage which in the past was comfortable now is beyond them. They need something better suited to things as they are now rather than as they were previously.
(d) Trying to sell may be the result of simply needing to downsize, either as a result of children having grown up and left what was the family home to make their own way in the world, or because a spouse has died, leaving the surviving partner alone in a property which is too big and too costly for them.
If that all sounds a little pessimistic, take heart from the fact that there are negative equity solutions and there are negative equity mortgage options.
NEUK are specialists in solving problems like those described above. They tackle the issue of negative equity head-on, appraising the reasons for it, realistically assessing the clients ability or inability to pay the outstanding debts, agreeing with the client a strategy that will produce an outcome whereby they can be released from the economic strangleholds in which they find themselves and then negotiating on his or her behalf with the creditor(s) in order to draw a line under the property debt/mortgage debt/negative equity problem(s).
So in answer to the original question, Should I be worried about my property being in negative equity?, yes and no.
Yes because if your property is in negative equity, there is a problem. But no given that there is a tried and tested mechanism and procedure via which your situation can be redeemed. NEUK CAN enable you to sell, ACT ON YOUR BEHALF with your lenders, RE-NEGOTIATE the terms of any existing agreements and enable you to WRITE OFF huge amounts of debt you are not able to repay.
Typically, NEUK achieve 80% to 90% debt write-off for their customers. Got that? 80% to 90% debt write-off.
Creditors know that when NEUK negotiators present them with a settlement figure on your behalf, they can be relied upon to have done so only after extensive work to determine what is fair and feasible to the debtor as well as being acceptable to the lender. The latter conclusion is reached as a result of NEUKs knowledge of the market and their experience in almost certainly having negotiated with that bank or building society on previous occasions, leading to a bond of trust and mutual respect.
Since the start of 2016, NEUK have negotiated the wipe-out of more than £2,000,000 in the form of Resolution Write-Offs and Bankruptcy Debt Write-Offs. The total figure is £5.3m in just over three years.
If you need help and advice on the subject of negative equity, lift the phone and call 028 9023 6074.
