Negative equity occurs when the mortgage and secured loans combined are cumulatively greater than the property value. Property buyers who are in negative equity feel trapped as it becomes virtually impossible to move house until property market recovery takes place.
Identifying options to deal with being in negative equity is critical if the owner is unable to afford the mortgage payments. If a major problem exists, make contact with a debt counsellor as a matter of urgency. However, if in no rush to sell and income streams are solid, it is just a matter of playing the waiting game until property market recovery.
Unenforceable Loan Agreement
If a secured loan has been improperly executed, there is a strong chance that it would constitute an unenforceable loan agreement. Provided the loan was taken out before 6th April 2007, it is worth checking whether it can be written off or compensation can be claimed.
Rent out the House and Move in with Relatives
Renting out the house until negative equity is no longer an issue is an excellent idea to get through any financial turmoil. It may be possible to move in with relatives to cut costs or private rental may be the only option. Make sure that the existing insurance policy provides the correct coverage for tenants.
Rent out the House and Buy a New Property
With the permission of the lender, it may be possible to rent out the house and buy a new one. This will only normally be possible if someone has a very good income. The rate of interest on the existing property may well increase due to the higher associated lender risk with buy-to-let properties, especially when combined with the negative equity.
Sell the House at a Loss Rather than Allowing Repossession
If financial problems mean that it isn't going to be possible to keep up with repayments, selling up and renting would be the favourable option. Problems occur when in negative equity as this means that the seller is liable for the losses. Any negative equity can result in the borrower being pursued for repayment for up to 12 years.
Selling the house privately is definitely the favourable option as, although the bank is obliged to secure the best price possible for the borrower, it is simply trying to recover money. A private sale will mean that the amount of negative equity will be vastly less than if a repossession takes place.
Any private sale must be agreed with the lender as they can block a sale going through. Take time to explain to the lender that by selling privately, more money will be recovered than from a repossession. It isn't in the interests of the lender to commence a repossession of the property due to the associated cost and lower recovery of debt.
Housing Association Rescue Scheme
It is worthwhile contacting local Housing Associations to see if they offer mortgage rescue schemes. This would enable them to purchase the house and rent it back to the seller. This is only currently available in Wales, but there is a strong possibility that it will be extended to England shortly due to escalating repossession rates.
Negative Equity Mortgages - Borrow up to 125% of the Property Value
It can be very difficult to decide what is the best option when in negative equity. Negative equity mortgages and negative equity loans aren't as readily available as they were, especially for those with bad credit. If adverse credit isn't a problem, see if it is possible to get a negative equity loan.
Get an Unsecured Personal Loan to Cover the Negative Equity
Provided that affordability isn't an issue, take out a personal loan to pay off the negative equity. Whether someone is able to borrow money from a bank will be dependant upon having good credit, although it may still be possible to borrow from a friend or family.
The key thing to do when facing negative equity combined with financial problems is to seek impartial advice from a qualified debt counsellor. There are ways to deal with this problem and any outstanding money owed can be dealt with via a number of different debt solutions at a later date.
