How To Deal With Negative Equity Property
If you haven’t experienced this yet, you might be wondering what in all of Wonderland we are talking about when it comes to negative equity. Here is what you need to know first:
What does being in ‘negative equity’ mean?
Say for example you bought your property when it was worth £200,000. You were lucky enough to qualify for a £150,000 mortgage so you went for it. Lo and behold, 3 years down the line, the market takes a tumble and your house is now not worth more than £130,000. At this point, that property would be considered to be in negative equity. Meaning your property is now worth less than the money or loan you used to secure it.
This problem is often brought about by property prices falling and a whole lot of global economic issues that might not have anything to do with you. But affect you they do, so now you have to deal with these issues.
How do you know when your property is in negative equity?
Honestly, unless you actively check, you may not even know when your property goes into negative equity. Find out from your lender how much you still owe then ask your trusted estate agent what your property is worth in the current market should you decide to sell tomorrow. If the figure is still more than the securing mortgage, you are in the black.
Best ways to deal with negative equity property
Should you find that your property is in negative equity, do not go burning down the house to cut your losses. Here are some of the steps you can take that will help remedy the situation:
- Rent it out for a little while: Although you might have to inform your lender before doing this, but you should be able to put up your property for rent so as to earn some income. Your mortgage will not change but you might have to pay higher interest rates. You will also have to inform your insurer.
- Overpay the mortgage: Most people are not tremendous fans of this option but it does work. If you can pay more on your current monthly mortgage payments, do so. You would have to consult with your lender to see how much more you can pay without actually incurring early repayment charges.
- Make lump sum mortgage payments: This helps you to greatly reduce the principle. You will find that most lenders have no issue whatsoever with clients making huge lump sum payments every so often.
Finding yourself in negative equity can be disheartening, especially if you intend to sell your property soon or were counting on it to be a part of your nest egg. But just because your property has gone upside down does not mean that it is a lost cause. For all you know, the market might just take a turn for the better. But instead of just sitting by and waiting for that to happen, you can try out the above outlined solutions to help dig you out of that hole.