What Should You Do If You Are In Negative Equity?

Negative equity was a buzz word in the early nineties thanks to the recession and house price crash of the late eighties, but it has not featured so much during the recent recession. However, the BBC reported that half a million people in the UK are currently living with negative equity in their property.
Negative equity is very much a regional issue, with the worst hit place in the UK being Northern Ireland, where 41% of mortgages were in negative equity at the end of 2013. London, in comparison, only had 1%.

So what is negative equity and how does it affect you and your household?
When house prices fall sharply, negative equity occurs because the property is worth less than the mortgage taken out on it. The financial institution who lent you the money for the mortgage finds they do not have enough capital in the property to pay off the loan. The impact of this shortfall in capital is that you will need to make up the difference by paying this to the mortgage company if you want to sell your property.

So what are your options if you are in negative equity?
Your first option is to rent out your property so you can continue to pay the mortgage and keep the property in the hope that property prices will increase and allow you to sell at a later date. However, this may take some time, as 80% of homes are now worth less than they were in 2007, when the market was peaking.
There are drawbacks to renting out property though. There are rules and regulations which need to be factored into to your monthly costs and you will need to make plans about how you will continue to pay the mortgage if the property is empty.

Another option to consider is to talk to your mortgage company about the negative equity situation, as they may consider moving your mortgage with you to another property. There will be strict conditions to meet though and with new affordability criteria in mortgage lending, this may not be the easiest route to take.
Negative equity may not be a deal breaker if you do want to move, as there are options open to you.

The best thing to do if this applies to you is to seek professional advice about your circumstances so you know where you stand.
If you have any property questions, please call Ingrid Hindle or Jo Ayrton in our Warminster office on 01985 214444 or Sandra Smith in the Westbury office on 01373 865577 or  email ihindle@mulaw.co.uk and we will be delighted to help you (there is no charge for initial telephone discussions).