With the threatened house price crash, negative equity – where the value of your home is less than the value of your mortgage – or at least the possibility of it, is back… But who’s really in danger of falling into the trap? And what can you do to protect yourself? We offer help, advice and tips, whatever your situation.
By Caroline Bloor
4Homes Essentials
Property Search
UK Region Ratings
With house prices predicted to continue their downward spiral this year, anyone who bought their home at the peak of the market without much by way of a deposit could be forgiven for feeling a little queasy right now.
It wasn’t so long ago that getting a 100 per cent mortgage wasn’t that hard. Heck, you could even get one with negative equity built-in (110 per cent or 125 per cent) so confident were we about the endless rise in property values. Now the headlines are full of dire warnings to homeowners. The Council of Mortgage Lenders (CML) estimates that the 23,310 people who took out 100 per cent mortgages on properties in the last 12 months are almost certainly in negative equity. And it isn’t over yet.
Most independent observers agree that the housing market may not recover until 2010. But that’s as far as the consensus goes. Industry predictions about house prices - and how much they will fall in that period vary enormously (the most pessimistic estimates cite up to 30 per cent). You need to make up your own mind about what’s actually happening in your area. Are properties still selling? How hard are the developers having to work to shift their new developments? Obviously the more values fall, the more homeowners with high loan-to-value mortgages are likely to be hit.
* Negative equity won’t affect most of us when you consider the total number of mortgages holders in the country (11.8m).
* The Financial Services Authority (FSA) estimates 1.4m borrowers will need to refinance or re-mortgage their existing fixed rate deals during 2008.
Do the maths: get a balance from your mortgage lender showing how much equity you have and compare it with the current value of your home. (To find the current value, get quotes from a couple of local estate agents or an online valuation at www.hometrack.co.uk, which costs £20).
Ray Boulger, senior technical manager at John Charcol says: ‘I believe most people who took out a mortgage more than two years ago will escape negative equity, unless house prices fall by more than 15 per cent, which I do not think is going to happen.’
The bottom line is negative equity in itself is not a problem unless you are trying to sell or need to re-mortgage.
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