Frequently Asked Questions about Property Debt, Negative Equity and others
Quick links:
1. What is Negative Equity?
What exactly is Negative Equity and how do I know if I am affected by it?
What is negative equity? It's very important to keep this really, really simple. Negative equity occurs when the value of your asset, for example your house, is worth less than the mortgage that you have on that property. As an example, if owe the bank or a mortgage provider £100,000, and the property is worth £80,000, your negative equity position will be £20,000. That's what negative equity is.
2. What is a Debt Shortfall?
How do I know if I will have a debt shortfall post the sale of my house? What can be done about this debt to the bank?
What is a debt shortfall and what is a shortfall sale? So to explain this let's use the same example as above. If you have agreed with your bank to sell your property, and the bank is owed £100,000, and the property is sold for £80,000, the debt shortfall will be £20,000. So when we talk about debt shortfalls we're referring in that example to the £20,000 which has been crystallized from the sale. This £20,000 then becomes an unsecured debt - and in typical circumstances your lender will seek to be repaid this £20,000 in unsecured debt.
3. What is Mediation?
The bank have asked me to repay all the money I owe them post the sale of my house but I do not have enough money to repay my debt. I have heard that I could settle for less money but I am not sure exactly how this happens; is this Mediation?
At GDP Equity Experts we typically propose mediation as a solution to your debt challenges. Mediation means we act on your behalf. First, we analyse your financial position, then we engage with your lender (bank or other financial institution), and try and work out a solution with them on your behalf. That is mediation.
4. What is a consensual sale?
Why should I try and sell my house myself rather than hand the keys back to the bank? Wouldn't handing back the keys be easier?
Let's give you an example. In 2012 we sat in a bank in Belfast and explained to banks the benefits of a consensual sale. This is where the borrower and the lender agree to sell the property and maximise the return. This way there is no need for receivers and no need for lawyers. Automatically this reduces the costs as well as exploring ways of getting the market value for the property. Of course, if you're in the position whereby a consensual sale arrangement is something you are open to exploring, the likelihood is that you will need somebody to mediate that situation. At GDP Equity Experts, that is just part of what we do.
5. What options do I have to help with my debt problems?
I thought my only option was to go bankrupt, why is this possibly not the best option for me? What other ways of dealing with my debt are available?
If you find yourself under a financial duress, in negative equity, facing mortgage arrears or struggling to pay your bills, there are typically three ways to deal with that.
You can go down the most formal route, which is to explore bankruptcy
You can explore another quite formal route, which is to explore an individual voluntary arrangement (IVA)
You can choose a more informal route, which is through mediation
Ultimately we see it as three options: bankruptcy, an IVA or mediation. If you choose bankruptcy or an IVA, there are professionals who can help you with that. If you choose mediation, which is often a great option which many people might not know about, we are happy to talk you through that today.
6. Will I lose my home?
My main worry is losing my home. I need to protect it as best I can but I am unsure how to do this. Can GDP Equity Experts help me or is giving up my home my only option?
When people are under financial duress, the big questions we often get are: do I have to sell my home? Or, will I lose my home?
There is no hard and fast answer here. You might lose your home, or you might not lose your home. What we at GDP Equity Experts will try to do when you contract our services is this:
Work out your financial position to determine whether there is equity in the home. That is, is the property worth more than the existing debt secured against it?
If there is equity in the home, the next step is to work out who owns the equity in the home. That is important. Because even in bankruptcy there are many examples whereby people do not lose their homes.
So the bottom line is, there is no one-size-fits-all answer to the question of whether you might lose your home. The most important thing for you and your family is that it's incumbent upon you to educate yourself around the information and the solutions, and the answers to those types of questions.
7. Will my credit rating be affected?
I am worried that my credit score is going to be irreparable after I have mediated with the bank as I have missed many payments. Is this always the case or can I repair it?
We get this question a lot. And the simple answer is this, if you have a credit arrangement with anyone, via a credit card or a mortgage or any other credit arrangement, and you stop paying or you struggle to repay, or you fail to pay back at all, then it's virtually certain that your credit rating will be affected.
However, the interesting thing is that when you make a settlement with your creditors then there's an obligation for your credit file to be updated as settled. This is a vital fact which a lot of borrowers are often totally unaware of.
So, in a nutshell, your credit rating will absolutely be affected if you do not pay, but if you do make a settlement, then your credit file should be updated and settled, which is obviously a lot better. Helping you make a final settlement with your lender is what we at GDP Equity Experts try to do.
8. Why should I talk to GDP Equity Experts?
I think my financial problems are beyond help, so how will GDP Equity Experts be able to help me?
Since 2011, we at GDP Equity Experts have established an outstanding team of professionals who are totally independent. That means we don't work for the banks. What we've been able to demonstrate is that GDP Equity Experts is the market leader in the whole field of mediation. We don't try to force people into any particular option.
Instead, we take an independent view, and we advise on the best solution for you, depending on the situation you find yourself in. We have a proven track record and we are now firmly established as the market leaders in this industry right across the United Kingdom and Ireland.