Can I move home while in negative equity?
Any time a property is worth less than the mortgage taken out on it, it is classed as being in negative equity. There is usually only one conceivable way that this happens, and that is as a result of falling house prices.
It’s estimated that at least half a million properties in the UK may be in negative equity, and some areas are affected far more than others. One might expect the figure to be higher, but with property prices rising year on year homes are more likely to appreciate than depreciate. However, according to the Guardian it would only take a 10% fall in house prices to plunge ten per cent of homeowners into negative equity.
Bear in mind also that the value of the home has to fall below the level of the mortgage owed, not the total price being paid; so if you’ve purchased a home for £150,000 with a deposit of £30,000 the value of the home would have to drop to less than £120,000 for it to be in negative equity. It makes moving home difficult, but not always impossible.
The problem is that some of the measures you might take to put your home back into positive equity are out of your control; for example, anything that affects the housing market at a local level including a lack of nearby amenities and the building of a new motorway. In addition, you might not even know that your home is even in negative equity until you come to sell it and receive a valuation, by which time it could be too late.
When a lender gives you the money to buy a home there are certain checks that have to be made, on your finances and on the building itself (survey etc.), because that lender hopes it will at least get its money back plus interest. Negative equity lessens the chance of that happening, so it’s no surprise that in such a situation some lenders are wary of a homeowner selling up or re-mortgaging.
Homeowners with property in negative equity might also suffer from additional charges and fees, especially if they try to re-mortgage early. It’s also worth remembering that lenders (and financial markets in general) hate uncertainty so a fluctuating market combined with a rise in interest rates – which may or may not happen in 2017 – may be wary of lending more money into a risky situation, no matter whether it is the borrower’s fault or not.
However, there is a way of solving the problem – making up the shortfall. While painful, it might be the only way out of a hole and will be looked upon favourably by mortgage lenders. Therefore, if the housing market in your area seems to be in decline and you have the funds to plan ahead, putting aside a little a month or borrowing from elsewhere would seem to be the simplest way of solving the problem, if not necessarily a satisfactory one. Another option is making overpayments on the mortgage, which might be arranged when you first take it up. You can find out more about your options here.
Negative equity is bad news, but not terminal. You might not even have to do anything to change the situation, if house prices suddenly rise. And unless there’s a momentous crash in the house market your home will rarely plummet in value to an irredeemable level. If you feel negative equity is a possibility then why not get it valued, get it confirmed, and take steps to rescue the situation.