You might also consider making over-payments, if your mortgage deal allows it, which would bring down your loan more quickly. Mortgage rates tend to be higher than savings interest, so you might be better off putting some cash into your mortgage loan. Over the long term, prices may begin to rise again and help reduce the level of negative equity or even reverse it. It may also be possible to add value to your property by renovating or adding features that are in demand in your local market.
But this can be highly risky - you could spend more on renovations than the value that you gain. In most cases, your cash is likely better used paying down the loan. Normally, when your mortgage deal comes to an end, it's wise to consider remortgaging - but while it's worth trying this, lenders may not offer you a new deal if you're currently in negative equity.
This means you'll move onto the lender's standard variable rate SVR , which will generally be higher, meaning your repayments will go up. As your deal is coming to an end, make sure you can continue to meet the new payments on the SVR over the long-term. Our mortgage repayments calculator shows you how interest rate changes will affect your monthly repayments. If it's at all possible, you should avoid selling your house while in negative equity - if you're forced to sell for less than the loan amount, you'll be responsible for making up the shortfall.
That said, your mortgage lender may allow you to repay the debt over time using a payment plan, so it's worth talking to them before you sell. Keep in mind that selling while in negative equity will mean you won't make a profit and will lose the deposit you paid - so you may not be able to buy a new property straight away. A very small number of specialist lenders offer 'negative equity mortgages', which enable you to transfer the negative equity to a new property, saving you from repaying the debt.
But you might face early repayment charges on your old mortgage, and the interest rates are generally very high. Another option if you need to move is to let out your property and rent elsewhere.
But you'll be responsible for meeting repayments when the property is vacant, as well as paying rent at your new place, which could put you in a worse financial situation. If you're struggling to meet your mortgage payments, contact your lender immediately. They may offer options that would make your repayments more affordable. In the meantime, continue paying what you can. Don't be tempted to simply stop paying - mortgage arrears will put a black mark on your credit record and may prevent you from buying a house in the future.
In the worst-case scenario, the lender may repossess your home. Your home will then usually be sold as quickly as possible, often for less than the market value, meaning you'd owe the bank even more than you would have if you'd sold the property yourself.
The first five years of the loan are interest-free. Any time you buy with a small deposit, even a relatively modest fall in house prices could quickly erode the equity you hold.
That's because the government owns a percentage share of your property, rather than a set monetary amount. As first-time buyers struggle to get on the property ladder, many are turning to guarantor or family mortgages. With no deposit, you're at higher risk of slipping into negative equity, especially in the early years of your mortgage before you've made significant repayments.
If you are forced to sell while in negative equity, or your home is repossessed, your family member will be liable for meeting the shortfall - which may cost them their own home. For this reason, you should be careful to ensure you can meet your repayments, and that you're unlikely to be in a situation where you have to sell for less than the asking price. Capital growth is part of the allure of buy-to-let - rent provides the investor a long-term income, while the asset itself grows in value. For this reason, many investors buy using interest-only loans, meaning they don't repay the capital on the property, just the interest.
In theory, the rent generated pays off the interest each month, while capital growth increases the investor's share of the equity. If the property value fails to grow, your share of the equity won't increase, limiting your chances of remortgaging or paying off the loan.
You also won't have equity from the property to finance the next purchase and grow your portfolio, a common strategy. That said, rents don't necessarily track with capital growth, so you may be able to continue letting out the property and repaying the interest until the market picks up again.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it. Negative equity means the value of your home is less than the amount you owe on your mortgage.
Although it is not necessarily an issue, negative equity can become a problem if you are trying to remortgage or sell your home. Negative equity is when the current value of your home is less than the amount you owe on your mortgage. Find out more about mortgages. If you bought your house with a small deposit, then you are more likely to have taken out a high loan to value LTV mortgage.
This means you are more likely to be affected, even if there is only a small fall in house prices. House prices do fluctuate, and a house purchase is a long-term financial commitment so even if you are in negative equity, it may not affect your finances.
As you pay off more of your mortgage, you will find you owe less to the mortgage lender and are more likely to have expanded the amount of equity — which is the amount you own — in your home. Taking out a repayment, rather than interest-only mortgage means you will be paying more of your mortgage and building more equity in your home. You can do this using an online estate agent that offers a free valuation service like Yopa or Purple Bricks. Another option is to ask a local estate agent for a valuation, or you can use a property comparison website such as Zoopla or Rightmove to find out how much similar properties in your area are selling for.
Remember that any valuation you get will only be a guide to the value of your home. Check your outstanding balance by looking at your most recent mortgage statement or contacting your lender to ask them for a balance update.
You can check the current value of your home and compare it to the amount outstanding on your mortgage. If your mortgage balance is more than your home's value, you are in negative equity. How you should deal with negative equity will depend on your finances and current circumstances.
If you have just bought your house and you are a first-time buyer with no problems making your mortgage repayments, then you may not need to worry about negative equity. If you need to sell your home and you owe more on your mortgage than your home is valued at then you will have to make up the difference between what you owe on your mortgage and the amount you make from the sale.
Your options if you need to sell your home and are in negative equity are:. Getting permission from your lender to arrange the sale if the likely return is less than your outstanding mortgage.
Renting rather than selling the property which will allow you to keep paying the mortgage. You will need permission from your lender before you arrange to let out your home. If you are in negative equity it can be difficult to arrange a new mortgage when your current deal ends. Talk to your existing provider to try and re-negotiate a new deal.
If they do not offer you a new deal, you will be moved onto their standard variable rate SVR when your current deal ends. If the SVR is lower, your repayments should decrease.
But they could rise later because SVR deals can change at any time. If your mortgage payments become unaffordable, speak to your lender about your options. You can switch to an interest-only deal to make your repayments more affordable, however this is not a long-term solution.
If you are struggling to meet your mortgage repayments, speak to your lender right away. They may be willing to look at solutions to make your mortgage more affordable. Keep paying whatever you can in the meantime and contact an independent advice charity like Citizens Advice for guidance. Here are your options if you are unable to make your mortgage payments. How to find out if you are in negative equity. You can find out whether you are in negative equity by following these steps: Make an appointment with your lender or speak to them on the phone.
Ask them how much money is owed on your mortgage. Arrange a valuation with your provider. Get your housed valued. Compare the valuation and the amount you owe. How you may be able to avoid negative equity. Buy at the right time — Prices for the same property can change depending on when you buy. Understanding when property prices are high or low can help you decide the best time to buy.
Pay a bigger deposit — The larger your deposit, the more equity you will have in the property. This can make it less likely that you will fall into negative equity. Avoid interest-only deals — These mean the equity in your property could potentially remain low. What should you do if you have negative equity? Continue as normal. Overpay your mortgage. Financial advice could help you with negative equity. The content on this page is for reference and does not constitute finance advice.
Find out more about mortgages. Important legal information Lloyds Bank plc.
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