‘If you borrowed more than 90 per cent last year, or more than 95 per cent in 2006, you are at greater risk of slipping into negative equity,’ says Ray Boulger. If you have spare cash, now might be a good time to reduce your debt. It’s worth overpaying on your mortgage if you can, thereby reducing the loan-to-value rate. ‘Most mortgages now allow you to repay up to 10 per cent without penalty but even smaller reductions can help,’ says Ray. But don’t use money that you might need at a later date as most lenders won’t let you have it back.
Negative equity in itself isn’t a problem as long as you are able to continue to pay the mortgage. So sit tight and ride it out! ‘Clearly we are in a period where we expect house prices to go down. But in the longer term, the market will continue to be underpinned by the shortage of property, house prices will go up again and people will move out of that position, even if they are nominally in negative equity,’ says a spokesperson for The Council of Mortgage Lenders.
If you can, avoid selling. Try and pay as much of your mortgage off as possible and aim to have at least five per cent equity before you sell. But if you have no option but to sell, you will have to pay back the shortfall to the mortgage lender out of your own pocket.
Speak to your existing lender. You are unlikely to be able to switch to another lender for a more competitive deal because no lender is currently offering mortgages for more than 100 per cent of a home’s value. This means sticking with the same lender, potentially on its expensive standard variable rate.
Try and prepare for the higher monthly payments. Find out how much extra you are likely to have to pay and start putting that difference aside in a savings account. Equally, if you are just short of negative equity, talk to your lender. If you are a good debtor, your mortgage lender won’t want your property, so bargain with them and see if you can get a deal.’
If you are coming to the end of a fixed deal and you are not in negative equity, see a good independent mortgage broker (visit www.unbiased.co.uk to find local firms). They’ll look at the options properly for you.
Housebuilders are now required to tell mortgage lenders about any incentives or discounts they have given homebuyers. The new measure is designed to help reduce the risk of new build properties falling into negative equity. It has been prompted by lenders’ concerns that that they could be offering mortgages based on a valuation of a property that is higher than the amount paid by the buyer.
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