Is your house 1 of the 827,000 homes in the UK in negative equity?

The number of mortgage borrowers in negative equity is estimated to be around the 827,000 mark, according to lenders.

Negative equity is where the loan is larger than the value of the property. Despite the shocking figure, The Council of Mortgage Lenders (CML) believes this is not as great a problem as it was in the early 1990s. 

Approximately 1.6 million households were living in negative equity in the early part of the 1990s.

CML have recently reported that the number of properties taken into possession in the first quarter of 2011 was 7% down on the first half of 2010.

Commenting on the research, CML director general Paul Smee said:
“Negative equity is much less common than in the 1990s, and in the current cycle low interest rates and a relatively stable employment market are providing more options for borrowers and lenders in difficulty.

“There is no direct relationship between negative equity and mortgage payment problems. What typically causes difficulty for households is not a nominal fall in housing value but an unexpected change in personal circumstances, like the loss of a job or the breakdown of a family relationship.”

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Nearly half of existing borrowers have outstanding mortgage debts equivalent to less than 70% of the value of their home.  Back in 2009, the CML revealed that 900,000 homeñowners had been in negative equity, with two thirds of them having negative equity of less than £10,000.

With the cost of living soaring and house prices driving up inflation, many are trying to re-mortgage their properties. Further research from the CML found that the value of buy-let loans has increased by 21% between April and June 2011, worth £3.5 billion.

This is the highest number and value since the last three months of 2008.

There are several factors that contribute to negative equity and many ways that could lead to the conclusion that you have negative equity.

How to find out if you have negative equity

The more recent your mortgage, the more likely you are to be in negative equity. If you have been paying off your mortgage for years then you may have built up a significant equity on your property.
Your mortgage deposit

The smaller the deposit you put down, the more likely you are to find yourself in negative equity. This is because your deposit is likely to have been wiped out by house price falls. If you took out a 100% mortgage, the likelihood is that youíre already in negative equity as you are not paying off the borrowing against your homeís capital. 

The negative effect

It can be difficult and stressful to be in negative equity whatever your situation. It can also make negotiating a decent mortgage deal more complicated in the future. If you need to move house or re-mortgage it is advisable to talk to your current lender or a mortgage broker to discuss your options.

How to avoid negative equity

The best way to safeguard yourself from negative equity is to make over-payments on your mortgage. No matter how small, this will increase the amount of equity you have in your house. This will therefore reduce the amount of interest you will pay overall.

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