Should we Worry about Negative Equity?

publication date: Nov 20, 2008
author/source: Kate Faulkner

It is estimated that over a million people will soon be in negative equity and 45,000 homes will be repossessed this year with many families effectively thrown out onto the street and made homeless.

Negative equity is when the property you bought with the help of a mortgage is valued at less than the cost of that mortgage. For example if you had a £100,000 mortgage, but the property was valued at £90,000 then you would have £10,000 negative equity.

Unfortunately the press major their headlines on negative equity statistics when property prices fall, but fail to mention that there are only a few people that need to worry about it and that's those that can't afford their mortgage and HAVE to sell at a loss. In the UK we have 26 million homes, of which even at the height of repossessions back in the 1990s, is less than 0.01% of properties!

However what negative equity does do is have a wider effect on our economy, in that people don't feel as well off, so they don't spend as much. As spending in the economy falls, companies cut back with falls in sales and the economy can contract - and that's why generally the government and companies worry about negative equity.

The only time that negative equity will affect you is if you have to sell your property for less than you borrowed from the mortgage company and you cannot make up the shortfall. The second way negative equity can affect you is if you need to remortgage and can't get an equivalent deal, so the mortgage company asks you for a higher deposit that you can't find. If you find yourself in this situation:-

1. Contact an independent financial advisor for help.
2. Visit Citizens Advice Bureau.
3. Ring the National Help Debtline.
4. Speak to your mortgage lender in advance of the problem happening.  
5. Follow the steps in our "How to avoid being repossessed" article

What ever you do, don't sell for a 'quick sale price' at a substantial discount before you have explored other options.

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