How does negative equity affect you?
Negative equity and what it means for you
Find out what negative equity means for you and what you can do about it.
Negative equity can often get in the way of your plans to move or remortgage. If your home is in negative equity, we take a look at how you can start looking ahead and moving forwards.
What is negative equity?
Negative equity occurs when your property is worth less than the mortgage you secured for it. For example, if you bought your home for £200,000 with a mortgage for £180,000 and the property price drops to £170,000, you would be in negative equity.
Falling house prices commonly cause negative equity. After the 2008 financial crash, property prices fell by around 20% and left many homeowners dealing with negative equity. You could also end up with negative equity if something happens to reduce the value of your property, like faulty renovations.
How can I find out if I’m in negative equity?
You might not always realise if you are in negative equity. To find out the equity in your home, you will need to find out what’s left owing on your mortgage and carry out a home valuation.
It’s easy to contact your mortgage lender and find out your remaining balance. Once you’ve done this, you can seek a home valuation. You can get a rough estimate online for free or you can arrange for a surveyor to value your property.
If the amount you have left to pay towards your mortgage is higher than the estimated price of your home, you could be in negative equity.
How does negative equity affect me?
Negative equity typically affects homeowners when they are looking to sell the property or switch mortgage deals.
You can’t move home as easily
Unless you have the money available to pay the difference between the value of your home and your mortgage, you could struggle to move house.
You might struggle to remortgage
Once your mortgage deal comes to an end, it’s normal to switch to a better rate. If you’re in negative equity, your lender may just move the mortgage to their standard variable rate – which could be expensive.
It’s harder to find a secured loan
If you were considering a secured loan to cover upcoming costs, you could struggle if you have negative equity. That’s because you need to offer collateral for lenders to secure the finance against, but negative equity means you don’t have any collateral to offer.
How can I get out of negative equity?
If you’re in no hurry to move house, it can often be best to wait until your negative equity improves on its own. If house prices have fallen across the market, you could find that the economy picks up in due time. However, if you’re looking to move or remortgage soon, you could look into these tips to reduce your negative equity.
Increase the value of your home
There are various ways to boost the value of your home. From adding a conservatory to revamping your kitchen, home renovations can increase the value of your home and reduce your negative equity.
Make mortgage overpayments
If you have any available savings, you could put them towards reducing your negative equity. You could contact your mortgage lender and see if you could pay a lump sum towards your outstanding balance.
Rent your home
If you need to move home but can’t afford to sell, renting out your home could be an option. This would allow you to move and earn income from your property until you’re able to sell.
Secured loans and negative equity
Having low or negative equity can make it harder to find the finance you need. At Evolution Money, we won’t automatically turn you away if your home has fallen in value. We’ll listen to your circumstances and aim to offer you a secured loan that suits you, at a rate you can afford.
For a typical loan of £30,000.00 over 120 months with a variable interest rate of 19.56% per annum, your monthly repayments would be £598.34.
Including a Product Fee of £2,400.00 (8% of the loan amount) and a Lending Fee of £807.00, the total amount repayable is £71,800.20.
Annual Interest Rates ranging from 11.88% to 29.38% (variable). Maximum 50.00% APRC. The loan must be paid back by your 70th birthday. Read more.
Think carefully before securing debts against your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
