Looking for Help With Negative Equity

The term ‘Negative Equity’ was spread in the United Kingdom between 1991 and 1996, a period of notorious economic recession. In recent years, it has become a term that many people cringe from. To fully understand this, you need to understand what a secured loan means, which is basically providing an asset on which a loan value is based on. Your equity becomes negative when that asset is actually worth more than the value of the loaned amount. Usually, this happens when the asset is a property that has fallen in value for any reason.

Let’s say you bought a house worth £300,000, you paid a down payment of £50,000 and took a mortgage worth £250,000. If the property price falls down to £200,000, you are now hitting a negative in equity. More than 500,000 properties face this exact problem in the UK. In this article, we’ll give you a brief of some issues that you may face and tips on how you can get support to resolve them.

What makes it bad

The first problem you’ll face is being unable to sell your home. The only way to immediately sell your property is by settling the difference of the value of the property currently, you’ll need some savings to be able to do so, without repaying the difference it’s impossible to sell your property. If you’re looking to remortgage your house or get a better deal on it, you’ll find that negative equity is a serious obstruct. Banks, or lenders in general, won’t allow you to switch to another mortgage deal as long as the property is in this state.

Getting an IVA

An individual voluntary agreement is a deal made between you and your creditors. The basic plan is to pay a part of your debt over a defined time limit and using a payment plan that is affordable for you. When you begin an IVA, paying your mortgages is a must, since it won’t be included in the agreement because it’s a secured debt. You’ll be getting legal protection from your creditors in case they’d like to take you to court. Your equity should remain the same while you’re in the agreement, and you won’t have to release further equity. 

Mortgage debt restructuring

This solution requires an agreement between the lender and the borrower; the lender agrees to alter the contract of an existing mortgage to allow for more affordable payment options. This is usually done when the risk of defaulting is high, it can negatively affect your credit score so it should only be used in dire situations. The best-case scenario is that you restructure the contract terms to only pay for the current true value of the property.

If you don’t have enough savings to balance your equity with your lender, you’ll have to consider some other options to make the most out of a bad situation. You shouldn’t let it ruin your chances of selling your house, moving somewhere else, or remortgaging. That’s why doing sufficient research and looking at what your possible options can be is always crucial.