The dramatic falls in property prices over recent months have left many homeowners in negative equity - in other words, owing more on their mortgage than their property is worth.
The Financial Services Authority certainly agrees that negative equity is a real problem. It states that as many as one in five households could face negative equity by the time the market bottoms out, with an estimated overall fall in prices of 30% from their 2007 peak. These figures mean that some 2.5 million loans will be in excess of the value of the property against which they are secured.
Short term negative equity is not necessarily a huge problem for those who are prepared to stay put and sit out the downturn. There are things that can be done by homeowners to minimise the impact, one of which is to make higher mortgage payments thus paying less interest on the loan overall. In a market where interest rates are low this could be an option for those who have cash to spare. If the market recovers relatively quickly the period of negative equity may be short. There are signs that lenders are starting to ease up on mortgage restrictions, which could get house sales moving again. With strong encouragement from the Government, Northern Rock and RBS/Lloyds Banking Group are increasing the number of mortgages they are making available and the British Bankers Association has reported that mortgage lending increased slightly during January, although to put this into context it was still some 43% down on the previous year.
For homeowners who have to move house or who are having trouble meeting their mortgage repayments the negative equity trap can have serious consequences, compounded by the fact that selling up can be a difficult and lengthy process during which mortgage arrears escalate.
It may seem that the homeowner has little choice in such circumstances other than to allow their home to be repossessed. But repossession is far from an easy way out and should be viewed as a last resort because of its ongoing consequences in terms of future borrowing and effect on personal credit ratings. Far better to sell the home and prevent repossession. But in an almost stagnant market, is this a realistic option?
There remains a certain way to sell your home despite the turmoil in the property and financial markets. Property Rescue will give you a valuation for your home and, if you accept that valuation, will buy your property regardless of its location or the type of home it is. Although no one can improve the current economic situation is it good to know that there is a guaranteed way of selling property in a crisis.
For more information contact Property Rescue. All calls are in complete confidence and without obligation.