While the governor of the Bank of England, Mark Carney, argues that the ìUK housing market is in wide recoveryî, other bankers are recoiling at the new figures which reveal that close to half a million UK households remain in negative equity.
Figures from the mortgage group HML have shown that individualsí homes in certain regions are increasingly becoming worth less than the mortgages which were originally taken out on them; especially in Northern Ireland, where 41% of borrowers, equal to 68,000 homes, are found to be in negative equity.
Meanwhile in the north-east of England and Cumbria the rate of negative equity for home owners is at a less substantial, but significant 16% – slightly ahead of Scotland where 13% of households are experiencing the same financial adversity.
It appears that when the governor of the Bank of England was referring to the recovery of the UKís housing market, he was actually referring to recovery of Londonís housing marketÖ As in stark contrast to much of the rest of the state, and partly due to the recent surge in house prices, only 1% of Londonís homes find themselves in negative equity.
The widespread ramifications
As property prices in the aforementioned regions continue to detrimentally fall, homes eventually become less valuable than the loan which was originally used to purchase the property.
This has a damaging effect on both the financial situations of the building society or bank acting as the lender, and the home owner.
In this catastrophic situation, the lender now does not have the adequate security to cover the loan. Concurrently, the homeowner is unable to sell their home without covering the difference in equity, which could equate to tens of thousands in cash.
Take Shafiq Caan, a homeowner in Yorkshire, for example, whose property has reduced in value to the point where it is worth £20,000 less than the original mortgage ñ meaning if Shafiq was to sell he would be required to repay the £20,000 difference to the lender.
One viable option for Shafiq, and many others like him, would have been to rent out his property in order to cover his monthly mortgage repaymentsÖ That is of course, if his lenders hadnít increased his monthly payments to the point where he was ìpaying £250 a month extra, which is barely affordableî ñ as he revealed to the BBC.
The number of options for homeowners is reducing faster than the value of their properties
For those unfortunate enough to be tangled in negative equity, there are relatively few options.
Unable to sell their homes, finding tenants who can contribute rent toward keeping up with ever increasing mortgage payments is often the single and only option available.
In the Tyneside area, lettings agents have seen an increase in landlords by 25% due to the falling house prices ñ which, according to the Land Registry, have fallen by as much as 6% in the north-east of England since the last summer. Likewise, Hometrack reports that in 80% of the UKís post codes, homes are worth less than they were during the peak in 2007.
Advice for Those in Negative Equity
Those in negative equity should avoiding selling their homes unless they have no other option. In the event that a homeowner falls behind on their mortgage, lenders may seek to repossess the home to cover the debt.
However, there may still be the option of porting the mortgage over to a separate property, to help remedy the situation.
This works by allowing the homeowner to move to a new home and then transfer their existing mortgage over to that new home, and is usually available for those in full-time employment and who can afford any additional funds which need to be borrowed.
For homeowners who are able to find a tenant, and the rent is enough to keep up with the mortgage payments, this is likely to be the best way to hold out for the 5+ years it will take for the property market to recover to the point where they are no longer in negative equity.
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