If the outstanding balance on your mortgage is more than the value of your home, then you are in negative equity. For homeowners, this means that their property is now worth less than what they have already invested in it.
However, if this happens to you it’s important not to panic. If you are thinking of selling or simply don’t like being in this position, then there are solutions.
How do you know if you’re in negative equity?
To gauge whether your property is in negative equity, book a valuation.
An up-to-date in-person valuation will help you discover your home’s value in today’s market. A good agent will chat through your options with you, from adding value to your property through home improvement to seeking out a mortgage that’s better suited to your needs.
Ways to get out of negative equity
Improve your home
Improving your home could bridge the gap between your home’s value and what you owe on your mortgage. Ask your agent for ideas on how it could be improved, based on what buyers are looking for in the local market.
Making your home more presentable and carrying out easy fixes, such as repairing a broken fence, painting, decorating, or increasing your home’s kerb appeal, with some simple maintenance hacks will help significantly. It’s vital that you don’t overspend. But if bigger renovations are the answer, your agent will tell you how much value they could add before you start work.
Browse home improvement guides
Give it some time
Sometimes the best thing you can do is simply carry on. By continuing to pay your mortgage, you are reducing the amount you owe while property prices slowly inch upward. In just a few months, you may find that you are in a much better position.
Property prices tend to rise steadily in the long term. Perhaps you have gained equity over the years in a previous property, so your own personal property story remains positive, despite being in negative equity now.
Reduce the size of your mortgage
Most mortgage lenders will allow you to overpay your mortgage by up to 10% per year and, in some cases, more. However, it’s essential to check with your mortgage provider.
Making overpayments each month will speed up reducing your mortgage balance. Paying in lump sums could also be an option. Do you have any savings that could be used to decrease your mortgage balance?
Remortgaging is often not possible if your home is in negative equity, so taking this approach will open the door to getting a better mortgage deal.
Rent out part or all of your home
Rental properties are in high demand, and if you are stuck between a rock and a hard place, renting could be the solution.
By choosing to rent a cheaper home while achieving a good rental income for your property, you could turn the situation on its head.
A managed letting service can guarantee you receive a rental income even if your tenant does not pay, which means your mortgage payments are covered. Your property’s maintenance and all other steps of the process can be taken care of for you. You could also consider letting a room in your home.
Apply for a negative equity mortgage
There are many ways to mortgage your home today, and if you find yourself in negative equity and want to move now, a negative equity mortgage might be the solution.
A negative equity mortgage, available from specialist lenders and potentially subject to early repayment fees, enables you to transfer any negative equity to your new home. It's always worth discussing your options with your current mortgage provider. They will more than likely be able to help. They could create a payment plan for any remaining debt if you decide to sell your home.
Sell your property
Being in negative equity and not being able to re-mortgage is a real worry if your fixed-interest rate deal is coming to an end. Paying a higher variable interest rate will cost you more, and if this means you will struggle, you may decide to sell up.
However, selling a home that is worth less than you owe on it means you will not be able to settle the amount outstanding on your mortgage. This is why talking to your mortgage provider is vital. If you can make up for the shortfall or set up a repayment plan to repay the difference between what you owe the bank and the value of your property, you could sell up and move on.
Contact your local Ellis & Co agent to guide you to your perfect property.
