Negative Equity Concerns

Sunday 08 March 2009

Thousands of house owners are trapped in a situation when their houses worth less than their mortgage obligations. Lately, Halifax reported a 2.3% decrease in house prices in February, which is equivalent to a £135 price decrease per day. If the situation does not change for the better, approximately five million households will be trapped in a mortgage debt. In October 2008 to January 2009, The National Debtline received 3 times more telephone calls from homeowners, concerned with negative equity, than during the same period last year. However, experts say, not everyone needs to be worried about negative equity. It will not have any influence on those who do not plan to move or remortgage. Mortgage brokers explain that negative equity only occurs when price house falls lower than one can repay the mortgage debt. There are some options for people stuck in a negative equity. The first is remortgaging. Although many banks refuse to remortgage customers in a negative equity, there are some banks that do. For instance, Halifax and Cheltenham & Gloucester (C&G), which are part of Lloyds Banking Group, offer remortgage deals to their existing customers, suffering from negative equity. Unfortunately, the rates are far from competitive: C&G offers a 6.59 per cent five-year fix with a £995 fee. Coventry Building Society also introduced a remortgage plan for existing customers with 4.99 per cent fixed for five years. Another option is paying off the mortgage. Experts say that borrowers should try to overpay at least 10% each month if it is allowed by the bank. Also, if the borrower has an extra room in the house, he/she might consider taking a lodger to raise some extra money for monthly mortgage payments. It is essential to stick to capital payments rather than interest-rate only because it will allow the borrower to eliminate problems in the future. The last option is moving out, which might also be troublesome. However, you can talk to your lender and he might allow you to transfer your existing mortgage to your new house. Or else, you can lend your old house to cover the mortgage payments for the new property. It is important to remember that simply moving out of the property would not automatically cancel your debt to the lender.