Why should I worry about negative equity?
| Overview
Across Northern Ireland, many homeowners have found themselves trapped in negative equity since the property crash and recession ten years ago, but many people don’t know what negative equity is or how it can affect them and their finances.
Put very simply, negative equity’ means that the value of something against which a loan was secured is now less than the outstanding balance. In Northern Ireland, it is a term applied almost exclusively to property debt.
In the past, bricks and mortar were popularly seen as a safe investment, guaranteed to gain in value.
Similarly, it was accepted that other things depreciated in value, often quite significantly. The market value of a car might drop by 20-30% as soon as it is driven out of the showroom. People understand this and could factor this loss of value into their calculations whenever they decided to make an expensive purchase.
| But property? That was different. Or, at least, so most people thought.
The recession which hit Northern Ireland in 2008 saw the value of many properties plummet. This left those who had taken out loans based on the pre-recession worth of their homes, with debts greater than the post-crash value of their property.
If, in 2006 to 07 when the British and Irish property booms were at their peaks, a buyer took a mortgage of £210,000 for a house, today valued at £140,000, they have a problem as selling their home will still leave them with a significant shortfall, which they will still have to pay back.
This is the main problem with negative equity, in addition to this significant loss, the amount raised from a sale at this stage would be insufficient to clear the outstanding debt to the bank of building society.
In the current climate those who have suffered are the borrowers who, in the days of easy money’, took out loans of 90%-100% of the property’s value. From the outset, they were most at risk in the event of any fall in the value of property.We can Help. There are a number of possible solutions we can offer to resolve your property debt problems, depending on your circumstances, but for many of our clients a sale and settlement is the only solution to their problem.
We have successfully negotiated hundreds of cases every year where we have arranged the sale of our clients’ homes and reached an affordable debt settlement with the lender.
For other clients remortgaging might be their best option and, in some cases, we might pursue an individual voluntary arrangement, or IVA. This is a legal agreement between you and your lender and is suitable for people who have debts with multiple lenders.
How is home equity calculated?
Home equity is calculated by subtracting the amount you still owe on your mortgage from the current market value of your home.
Can you have negative equity?
Yes. With standard loans, your home equity will increase over time. With negative-amortizing loans — a loan with monthly payments less than the interest rates — your equity decreases over time as your owed balance increases.
Whatever your circumstances, the first step to dealing with your property debt is to contact Negative Equity NI for an initial free, no obligation consultation with one of our advisors.
Take a look at our reviews and call us on 028 9018 3223 or go to our website and arrange for us to call you at a time that suits you.