Negative equity is something many borrowers are concerned with at the moment.  You are considered to be in negative equity when the value of your property is lower than the mortgage secured on it and with falling house prices, this is affecting many people at the moment, so is it a real problem and what can you do?

Pay extra
For those who can afford it, overpaying on the mortgage will increase their equity in the property.  However, always check the terms of your mortgage as some mortgage lenders cap the amount you can pay off without penalty.

Moving house
As long as you plan to stay in the property then negative equity shouldn’t be a huge issue as in the long term, hopefully you would be paying off your mortgage and house prices may recover.  If you do need to move home, then some lenders will allow you to take the mortgage with you.  Otherwise, chances are you’ll be left with a debt if and when it sells so consider other options such as renting the property and moving out.

Repossession
As a final resort, this is certainly not an easy option.  If you leave your property and have it repossessed by your mortgage lender, then it is likely to be sold at auction or through an estate agent for a quick sale.  In negative equity, it is possible that the price gained will not cover the mortgage and the mortgage lender can then pursue the borrower for the remaining figure for up to six years after the sale.  Some mortgage lenders do charge a Mortgage Indemnity Guarantee (MIG) for higher loan to value mortgages.  An MIG is an insurance policy that would cover the shortfall in situations such as this, but these are now few and far between.  The debt would also stay on your credit file.

If struggling with negative equity or meeting mortgage repayments, speaking to a mortgage advisor can help so for those taking CeMAP training, negative equity is a section all of its own.

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