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Negative Equity and Mortgages

Negative equity is when the value of your home, which is used as security against a mortgage falls below the outstanding mortgage value.

When house prices are rising, negative equity becomes less commonplace because the value of the property outstrips the value of the loan you would have used to buy it.

If house prices drop, people with high loan to value mortgages and with little equity in their homes become at risk of falling into negative equity. People can also fall into negative equity by obtaining further loans based on home equity.

Negative equity is a particular problem for people who want to move, as they will be forced to make a loss on their home purchase and may not be able to repay the outstanding debt of their mortgage.

It's also a problem for homeowners looking to remortgage as they will probably have to stay on the lender's standard variable rate (SVR).

Negative equity was an issue for many people during the economic recession of the late eighties because UK house prices dropped, but interest rates were also very high. People found that they couldn't afford their mortgage repayments, but couldn't sell their homes at a price that would pay back the owed amount.

The economic crisis of the past couple of years has once again left house prices faltering, pushing some home owners into negative equity. However, as interest rates are low, many of those in negative equity can afford their mortgage repayments so can sit tight until prices rise.

If you're in negative equity or it looks like it could happen and you can afford to, consider 'overpaying' on your mortgage repayments to increase the equity in your home.

Lender Initial Rate Duration Standard Rate Overall Cost For Comparison Max Loan To Value Fee
2.59% 2 years 5.69% 5.4% APR 75% £999
2.69% 2 years 4.99% 4.9% APR 75% £495
2.79% 2 years 4.99% 5% APR 75% £795
2.94% 2 Years 5.69% 5.4% APR 75% £199
2.99% 2 years 4.99% 4.9% APR 85% £495
2.99% 3 years 4.99% 4.6% APR 70% £499
3.0% 2 years 5.69% 5.5% APR 80% £999
3.19% 5 Years 4.79% 4.2% APR 80% £995
3.5% 2 years 5.49% 5.1% APR 75% £595
3.84% 2 years 3.94% 4% APR 90% Nil

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