What to do if you are in Negative Equity

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Negative equity is often seen as a very bad thing and many reports suggest millions of people are in ‘negative equity’. This is only an issue though if you have to move and/or you can’t make the mortgage payments on the property 

 

FREE What to do if you are in Negative Equity

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Work out how much negative equity you are in yourself, by checking what other similar properties have sold for nearby.   
Approach three estate agents to ask for their opinion on what the property will sell for within a six to eight week time frame. Ask them what’s happened to house prices in the last 12 months and what they expect will happen in the future.  
Take your various valuations and create an ‘average’ valuation. To calculate how much negative equity you are in, take the average property value and deduct this from the mortgage so you are clear how much you currently owe. Rough example:-
  • Average property valuations:          £150,000
  • Mortgage:                                   £170,000 
  • Negative equity:                           £ 20,000
 
Look at property price forecasts to see how long experts suggest it will take for your market to recover, eg Savills  
Use the forecasts to help you work out how long it might take for property prices to recover. For example, if prices are forecasted to grow by 15% in the next five years, your property could be worth £172,500, taking you out of negative equity.  
Organise to speak to an independent financial expert about your situation, this could be:-
 
Speak to an independent financial advisor to find out what you can do to help reduce your debt:-
  • Do you have savings/investments which could help reduce the debt? 
  • Will you incur any charges if you pay off some of your mortgage?
 
Speak your lender as if you’d paid promptly up until now, they may be able to
help you. 
 
If you are struggling to make the mortgage payments or are worried about it for the future, find out about the Mortgage Rescue Schemes that are available   
Could you make some practical changes to create some more cash, for example, rent out a room – you can earn up to £4,250 extra a year, tax free?  
Could you move in with friends/family and rent the property out to help
cover costs? 
 
Consider the ‘Help to Buy’ Scheme if you need to move home and are currently in negative equity, it may be able to help you with a loan for a deposit.   

 


All our information is brought to you by Kate Faulkner, author of
Which? Property books and one of the UK's top property experts.
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