Negative equity

Negative equity can be a problem should you wish to remortgage or sell. Negative equity means that the amount outstanding on your mortgage is higher than your property value.

There have been growing numbers of people in negative equity since the credit crunch.

Should you not be planning to remortgage or sell your property, you do not need to be concerned about negative equity given that you are able to continue meeting mortgage payments. It is vital to note that you will not be threatened with repossession purely due to you being in negative equity.

Many thousands of homeowners went into negative equity in the 1990s, however, most of them kept their homes purely by sitting out the downturn in the property market.

What you can do should you be concerned about negative equity

To discover whether or not you are in negative equity, obtain your mortgage balance from your mortgage lender and compare it with your property's present value.

Ask some local estate agents to provide you with valuations on your property. If you are able to and your mortgage permits you, it is highly sensible to make overpayments on your mortgage, whether or not you are presently in negative equity.

What you can do when your existing mortgage deal finishes

Should you be in negative equity, it is not likely that you are going to be able to remortgage as the majority of deals which permit you to borrow more than 90% of the property's value have vanished.

Hence, you may have to remain on your existing mortgage lender's standard-variable rate (SVR) without an option of going elsewhere, even though most SVRs have been providing good deals recently. The majority of SVRs have decreased a lot as a result of the Bank of England base rate of interest falling.

There is no harm in asking your mortgage lender what else is on offer for your specifications.

Should you be struggling to meet your mortgage payments, get in touch with your mortgage lender straight away as it could offer you help. You could increase your mortgage term to ensure you can afford your mortgage payments on a monthly basis, even though you are going to end up paying more interest altogether. In addition, you may also temporarily switch to paying the interest only.