What is Negative Equity?
Negative equity occurs when the value of your property falls below the outstanding balance on the mortgage used to purchase your property. In other words, negative equity is calculated by taking the current market value of your home and subtracting the amount left on the mortgage.
If you’ve found yourself needing to sell your house, but you’re in negative equity, it can be a very difficult time. It is not easy for any homeowner to decide what the best thing to do is. I have compiled the below to help you make this decision easier for any homeowners facing this situation.
Selling a house in negative equity can be extremely difficult. If you were to sell the house, you’d be at a loss paying the rest of what you owe to your lender. As a result, you will have to get your lenders permission to sell the house before you go any further. A lot of lenders will not allow the sale if you are in negative equity.
Some lenders may allow you to carry the shortfall from your mortgage over and add it to your new properties mortgage. These lenders tend to only accept a change if you meet certain criteria. For instance:
- You will be moving out of necessity rather than want. For example, if you needed to relocate for work or a family issue
- You’re employed full time
- You can prove that you’ll be able to afford the new mortgage payments
- You’ll also be required to pay the deposit outright on your new house
If you do not satisfy these requirements, then do not worry. You do have other options to move forward but unfortunately, they are also dependent on a number of other factors.
Can I Get A Negative Equity Mortgage?
Yes, but its dependent on the following:
– How much negative equity you have
– The value of the property that you’re wanting to move to
– If you’re in arrears with your current mortgage
– The deposit that you have for your new house
What Are The Pros And Cons Of A Negative Equity Mortgage?
Pros
- It will allow you to move house without paying your previous mortgage off. This is ideal for someone who is having to move with short notice and isn’t in a position to pay the difference on the mortgage after the house sale
Cons
- There could be potential early repayment fees for your current mortgage that you have to pay
- There is no guarantee that your new mortgage will have the same or better rates than your current one
- Very few lenders will offer a negative equity mortgage
What Do I Do If My Lender Won’t Let Me Sell The House?
If your lender doesn’t have any early payment fees in place for your mortgage, it’s worth making the most of this and trying to pay off as much of the mortgage as you can afford to. Some lenders have fees in place, but you can ask if this is the case or not so you know. You can use a mortgage overpayment calculator to see how much of a difference the overpayments will make. You may be surprised how quickly it starts to improve your situation if you’re able to overpay for a period.
You can also look at renting your house out instead of selling it and renting a property where you need to relocate to. You will still need to let your lender know that you’re planning to do this, as your mortgage will need to be changed to a buy-to-let mortgage, and there may be a higher interest rate in doing this, but your tenants rent should typically cover your monthly mortgage payment and give you some freedom to move where you need to.
In negative equity and looking to sell your home? Why not ask the friendly team at Olivia Rose Estates for advice, as we buy any house. We are here to help you sell your house fast. We can offer a guaranteed cash purchase for your property in a timescale that suits you. It could be a couple of weeks, or even just a few days. You no longer have to pay estate agents fees and deal with the potential long delays of a traditional sale process.
We will help guide you through the process of selling your home. From the initial valuation to the final completion date, rest assured you are being guided by trusted property professionals who are here to help you get the most out of your house sale and ensure you have a hassle-free experience.
