Leaseholders beware: you may be sleepwalking into negative equity

Falling values as leases get shorter made worse by number of interest-only mortgages

April 18, 2013 | post last updated on August 12th, 2016

Homeowners of leasehold properties need to be aware of the falls  invalue of their home if their lease becomes short. A report by surveyor e.surv has found that there are 1.43 million properties worth £2.2 billion in the UK which are owned as leaseholds. As these leases get shorter the value of their homes drops. There is a real danger of huge numbers of people falling into negative equity as a result.

This is especially true thanks to the huge number of interest-only mortgages which have been issued over the last 10 years. Although these products are being phased out 1.28 million mortgages in the last decade were interest-only. Our recent report On the Edge found that 300,000 people believe they will have to sell their home when new FSA rules come limiting their remortgage options.

Richard Sexton, director of e.surv said: “Most leases are very long, up to 900 years in some cases, but there are plenty which are much shorter. Once a lease has less than 80 years to run, the value of the property begins to fall and picks up speed the closer it gets to expiry.

‘The potential consequences are nightmarish for the owner and the mortgage lender. Both the lender and the owner can fall into negative equity, the property becomes unmortgageble, and is therefore impossible to sell to anyone but a cash buyer. This traps the lender and the borrower with a toxic asset that is losing value by the day,’ explained Sexton.”

If you are worried about not being able to pay back your interest-only mortgage check out our free guide which explains your options