June 25, 2009
The Negative Equity Trap
The Bank of England recently revealed that as many as 1.1 million people in the UK could be in negative equity – but if you are in negative equity, there is nothing to be concerned about.
Negative equity is where your home is worth less than your mortgage, and it’s becoming a common problem for those who took out high loan to value mortgages or secured loans a few years ago. House prices are as much as 11.3% lower than they were a year ago, so those who only had 90% or less equity now own none of their own home.
This isn’t anything to be worried about. The media may link negative equity with arrears and repossession but it couldn’t be further from the truth. A lender will not repossess you if you are in negative equity nor will they charge you any more for your mortgage or secured loan each month.
Negative equity is something that can be perfectly manageable, even in this tough period. As long as you keep up with your mortgage repayments, and any other debt payments such as secured loan repayments then there is no reason why a lender would be unhappy with you.
Of course negative equity does mean you will find it very difficult to get hold of any more credit – if you are in negative equity then you will have nothing to secure credit against. But, with some careful financial planning and some saving then there is no reason why you cannot begin to combat the negative equity by investing back into your home.
Talk to a mortgage adviser about what you can do while you have negative equity. You may not have many options, but as long as you are fully aware of your situation and willing to do something about it then there is no reason to fear negative equity.
SOURCE: Bank of England, 12/06/09, Nationwide, 29/05/09
To keep up with the latest news and comments on current financial affairs please visit the Secured Loan Blog.
Related posts:
Filed under Blog by admin
