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What can I do about negative equity?

Negative equity occurs when the market value of a house is below the outstanding mortgage secured on it. Negative equity is more common when house prices are falling. Negative equity is a major concern when you want to sell your home.

what can you do about negative equity?

Negative equity has been on the decline since the financial crash in 2008 and with generally rising house prices in recent years.  But if you are in negative equity, we look at your options and what you can do about your situation.

What can I do about negative equity?

1. Stay put

If you can, stay in your home and slowly pay off your mortgage.

Give it a few years and prices might rise and you will find yourself in positive equity.

This will either be because property prices have risen, or because you have paid off some of your mortgage.

Negative equity only becomes a problem when you sell your home, or if you want to borrow against your home.

2. Reduce your debt

If you have some savings, use it to pay off some of your debt. Mortgage rates are almost always higher than savings rates, and you also pay tax on savings interest, so the best return you can get on any spare money you have is to pay down your mortgage.

Most mortgage companies allow you to pay off up to 10% without penalty, though smaller repayments are also helpful. Check your contract.

If you are struggling with your mortgage repayments you could end up having to sell your house. This is a problem at the best of times, but is a particular problem if you are in negative equity.

Because you could end up in serious debt you should seek professional advice.  There are a number of places you can go for free, confidential, independent, unbiased and professional advice. Money Advice Service, Citizens Advice Bureau, Shelter and National Debtline.

For mortgage advice, speak to fee free brokers at L&C

3. Sell and repay shortfall over time

Most mortgage lenders will allow you to sell your home and then pay off any shortfall over a period of time.

But this is clearly not an ideal solution. You will need your mortgage company’s permission to sell for less than the mortgage is worth.

You will also need somewhere to live, and to pay all the costs of selling which can total in the tens of thousands.

4. Allow your home to be repossessed

You should avoid repossession if at all possible.

Public auctions of repossessed homes tend to attract lower prices than private sales, so you will end up owing your mortgage company more than if you had sold your home yourself.

Your credit rating will be bad for at least six years, making it more difficult to get a mortgage in future.

The mortgage lender will be able to pursue you for up to six years for any outstanding debts.

5. Declare bankruptcy

  • The worst option is to declare bankruptcy, because after you do, it is very difficult to borrow money again for many years
  • You also cannot act as a Director of a company, and face a number of other restrictions
  • Your mortgage lender will still be able to take your home
  • It may be worth considering if you fall into very serious negative equity, and do not believe you will be able to repay your debts for many years after you have sold your home
  • Ensure you get good legal advice before declaring bankruptcy

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