Negative Equity: What is it and What Can You Do?
What does Negative Equity mean and how does it affect you? Basically, Negative Equity is when the value of an asset (say your home) is used to secure a loan (say your mortgage) and is less than the outstanding balance on the loan.
Negative Equity is dominating news stories and Northern Ireland is the most affected region in the UK. In Northern Ireland there are over 68,000 mortgages recorded where the loan balances of the mortgages are more than the property is worth. Think about that for a minute; if this was a settlement in Northern Ireland, it would be the fourth largest. If you are in Negative Equity, you are not alone in looking for a solution, we are all working on this together.
Other regions have seen a fall in Negative Equity in the last four years whilst in Northern Ireland it has increased. The borrowers most exposed to negative equity are those who obtained loans of a high percentage of the property value. This is called the "Loan to Value" which was may be 90%, 95% or even 100% which were common during the property boom years.
Negative equity may also occur if the property owner obtains a second-mortgage (commonly known as a second charge). This causes the combined loans to exceed the property value.
Negative equity is a concern for all borrowers, particularly in the worst case scenario, where a borrower is in "default." Default is where a borrower has missed three or more loan payments. Being in default can result in repossession and sale of the property by the lender. Repossession should always be a last resort.
Sometimes the sale does not raise enough cash to repay the amount outstanding. In these circumstances, the borrower will still be liable for this debt as well as having lost their property. This debt is referred to as a "debt shortfall."
At this point there a number of solutions to your debt. Mediation is one of these solutions, and a solution you probably did not know existed. GDP have been at the forefront of doing things that people say cannot be done. In the last 4 years our team has helped over 300 people write off over £120m of debt through Mediation. The sooner you address it, the sooner it's gone.