Is negative equity trapping you in your home?

Last week MoneyExpert reported that one in twelve borrowers, or 827,000 households, are living in negative equity. Does this apply to you? Are you feeling trapped in debt?

Figures from the Council of Mortgage Lenders (CML) revealed that many people who took out a mortgage before the credit crunch are now trapped in their property as their house price has fallen.

However, the CML also said this problem was not as in bad as previous years. Considering the state of the general economy, the property market does not appear to have an optimistic future. This has left many homeowners frustrated.

Those who bought homes at the height of the market with 100% mortgages are now left suffering and may have seen the value of their property fall by approximately 60 %.

House prices have dropped to their lowest level for 19 months. 80% of those who have purchased properties since 2006 are unable to move because their homes are now worth significantly less than they were.

In contrast, with house prices continuing to fall anyone willing to take the risk may find themselves in negative equity.

Martin Ellis, housing economist from Halifax, commented, “Lower house prices and reduced mortgage rates have resulted in a substantial improvement in housing affordability since the peak of the housing market in 2007.î

ìHousing is now at its most affordable for 12 years, and mortgage payments for a typical new borrower, compared to average earnings, are now comfortably below the long-term average.î

So what are your options?


If you have negative equity you may have to revert to your standard variable rate (SVR) when the current deal expires. Due to the historically low base rate, SVRs are also at an all time low. This could potentially save you hundreds of pounds a month. However, if lenders get the chance to raise SVRs they will.

Moving out

If youíre looking to move out, living with negative equity could be a serious problem because a sale could lead to a substantial mortgage shortfall. One option could be to move and rent your property out to cover the mortgage payments. However, this is not ideal for many homeowners who become both a tenant and a landlord. Downsizing is also an option, yet you will need permission from the lender if you wish to rent or sell. 

Increase your mortgage payment

Times are tough and many donít have extra cash to spare, but if you can raise your mortgage repayment it is well worth doing. It will lessen the impact of future rate rises and ensure that your capital is paid off. It will also reduce the length of your mortgage and could improve your overall equity position.

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