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Negative Equity

Debt is often described in negative terms. But borrowing money, or ‘taking on debt’, isn’t necessarily a bad thing. Manageable debts, that you can comfortably pay back over an agreed period, are often necessary in order to take that next step in life.

It’s only when debt repayments become unmanageable or unaffordable that debt becomes a problem.

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Negative Equity

Equity refers to the value of the share in your home that you own.

Negative equity means that you owe more on your mortgage that your home is worth. This can happen if your house has dropped in value, interest rates have risen significantly or if you’ve had trouble making mortgage payments.

If you are not planning to sell your home anytime soon, negative equity should not necessarily be a big concern, provided you can still make your payments.

However, if you need to sell your home, negative equity can mean the proceeds from the sale are not enough to pay off the mortgage and you may be left with a shortfall.

For example:

Your home is worth is £150,000

You owe £180,000 on your mortgage

That’s negative equity of £30,000

It’s important to remember too, that if the value of your home increases, you may no longer be in negative equity.

You can ask a local estate agent for a free valuation of your home and calculate that against your mortgage value to determine any shortfall. We advise that you get more than one valuation to gain a truer reflection of your property’s value.

If your home is in negative equity, there are two things you may be able to do to tackle it:

  • Increase your monthly repayments, provided it doesn’t stretch your budget
  • Pay a lump sum to reduce the deficit if you can afford to

Speak to your lender before doing either of these things to see if there are any early repayment penalties.

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