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UK Homeowners Affected By Negative Equity

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Nearly half a million UK household owners have become affected by negative equity, which means the value of their houses and homes have fallen below the outstanding balance of their mortgage. There is potential a risk of large amounts of indebtedness, depending on the drop in value of a property.

Who has been affected and how?

Negative equity occurs when the value of a property drops so dramatically that it is not worth as much as the loan taken out on it. 463,000 homeowners have now found themselves in that position.

The number of people fallen victim to negative equity has varied widely between different regions in the UK. The figure in Northern Ireland was 41%, 16% in North East England, Scotland had 13% of homeowners borrowing, but London had a surge in house prices meaning negative equity in the busy capital only totalled 1%, based on figures from the mortgage group HML.

Negative equity is not only an issue with property owners, but with banks and building societies too, when they don’t have security to cover the loan any longer.

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Stress and difficulty

It becomes a huge difficulty financially and emotionally for those involved, and homeowners often end up losing tens of thousands worth of pounds when they can’t sell up without paying the difference, which is a usual occurrence.

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Lots of people end up renting their property out because they are unable to sell, however because the lender has increased the repayments, the rent money doesn’t cover the mortgage. Often the owner will end up paying hundreds of pounds extra a month, which is not an affordable or comfortable way of living at all.

It is fairly common that those suffering from negative equity will become accidental landlords, and one lettings agency predicts that around 25% of landlords in the UK are in this position.

There are areas all over the UK where property values still remain depressed, and a report from Hometrack shows that homes in 80% of the UK’s postcode districts are still worth less than the market peak in 2007.

Advice to those involved

Technically, negative equity is only a problem if you intend to move. Don’t move unless it’s necessary. Lots of people going through a divorce, for example, find themselves trapped by their financial issues.

If you do have to move, some lenders may consider porting your mortgage to another property. Nationwide building society says it will always try it’s best to help those struggling in this situation, as long as the customer is in permanent employment and will be able to afford any additional borrowing.

You may consider renting your property, but be aware that your home must conform to all appropriate checks and may need safety certificates in order for it to go forward, and this can cost too.

If you fall behind your mortgage, your home may be repossessed. If you need further help or advice you can contact Best Deal Homes today.

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