7 STEP GUIDE TO BREAK FREE FROM NEGATIVE EQUITY
In 2010 I met my good friend James in a coffee shop in Belfast, Northern Ireland to discuss a business idea both of us had been passionate to explore.
Let me set the context. We were three years post the collapse of the Irish property market, Lehman brothers bank had gone bust and the global financial crisis had ripped through every economy on the planet. The Irish economy was in a spin, debt had swept the boards and was ravaging through households the length and breadth of the country. Businesses were going bust and people were running out of money. In some cases as well as their businesses and livelihoods, people lost their homes. In the most tragic, they lost those closest to them. In short, it was a horrendous time in our history.
The business we wanted to bring to the marketplace was a service whereby our new company would act in the best interests of the borrower only, borrowers who had found themselves in financial distress with their banks. This in itself was a unique selling point as all of the professional firms across the country had thrown their lot in with the institutions. GDP Partnership was born and its mission was simple: to help people who found themselves in financial hardship due to property debt.
Seven years into this business model and we are delighted to report that we are still very much in business. We are recognised as the leading company in this area across the UK and Ireland. And we are still helping people save their homes, their businesses and often their minds in what is a very complicated and challenging area.
One might have thought that ten years post the global financial crisis, the market might have corrected itself, our banks would be back to full health and our economy would have been restored. Unfortunately things are simply not quite there as yet. The most recent economic headwind to hit our shores was Brexit, and this summer the Bank of England has continued to send out warnings that over the next few years, the economy is going to be extremely challenging, the liquidity crisis will continue and inflation will start to bite.
How will this affect the man on the street?
In simple terms most people over the next couple of years are going to have less money in their pockets. It is now estimated that there are close to 600,000 properties right across the UK and Northern Ireland alone, that are in negative equity. A property is in negative equity if it’s worth less than the mortgage secured on it.
For example, if you had bought a property for £200,000, with a mortgage for £150,000 and the property is now worth £130,000, you would be in negative equity to the tune of £20,000.
Broadly speaking people fall into two categories when discussing negative equity. Those whose own home is in negative equity largely due to falling house prices and those who own investment buy-to-let properties.
For our own company our good work will have to continue, and as the leading firm in this area, we have now set out a seven-step program that will give you and your family a better understanding of negative equity, and more importantly, if implemented break free from your own negative equity prison.
STEP 1: MAKE A DECISION TO ASK FOR HELP
This is the first step, and for so many people it’s by far the most difficult one.
It’s completely natural.
So many of us have been trained not to talk about money publicly.
When it’s not just money, but money problems, the situation is compounded.
So if you’ve been avoiding it, don’t worry. Almost everyone does. It’s true that many people spend months and even years ignoring the problem. They wish it will go away, evaporate and simply work itself out. But this never happens.
So it’s important that you know this: deciding to ask for help is Step 1.
You can’t do this alone.
Asking for help is the first part and the most important part of your recovery process.
STEP 2: ENGAGE WITH A FIRM OF REGULATED DEBT ADVISORS
But whom do you ask? That’s a very legitimate question.
Following the global financial crisis in 2008, many people saw an opportunity to establish businesses with the primary function of giving debt advice, and as a result the number of businesses offering debt advisory services has increased.
It is vitally important that whomever you choose to advise you in this area, is regulated by the Financial Conduct Authority.
There are a number of professional requirements that any company has to have in place in order to give debt advice. Debt advice can be a complex business, and it’s vitally important that if you do find yourself in a negative equity or distressed debt position, that you engage only with a company that meets all of the requirements of the regulatory body.
So that’s Step 2. Talk to a firm of regulated debt advisors.
STEP 3: GET IT ALL OUT – Full Disclosure of the financial information
Okay, so you’ve now taken two steps in the road to recovery and now onto step 3.
After deciding to take action and talking to a firm of regulated debt advisors, this step gives you the opportunity to get everything out on the table. In professional terms that means full disclosure of all of the financial information.
For your plan to work it is essential at this point that you give full disclosure of all your financial information to your advisory team.
This can be an intimidating part of the process, as you may not want to release certain pieces of information, however unless you buy into this step, your overall plan will be flawed.
Just get everything out on the table. You’ll be relieved when you do.
On a number of occasions we have been presented with what we have believed to be all of the financial information, which relates to a particular client. We then produce a plan and proposal based on that information which ultimately is presented to the bank. If for whatever reason the information we have presented is not an accurate reflection of the client’s financial affairs, and the bank becomes aware of this, the plan and the proposal will be rejected outright.
Banks do not take kindly to customers who withhold information. In one case the bank decided to progress bankruptcy proceedings on our client, as they were able to determine from the information that was presented that it was not accurate. Clearly this is not where you want to be. It is extremely important that you give full disclosure of your financial affairs to prevent negative implications down the line.
STEP 4: THE PLAN
This step is probably the most straightforward for you so far.
Why? Because you don’t have to do most of the work!
You’ve decided to ask for help, you’ve engaged with regulated debt advisors and you’ve got everything out on the table.
The next stage is over to your advisers.
They will take some time to review all of the financial information that relates to your exact situation.
They will then work out some options that are open to you, and talk you through each of those options in detail.
You and your team of advisors will then agree on the best plan for you to progress matters with your creditors.
If you are living in your home and want to remain in that property but you have an arrears situation and significant negative equity, all of the detail surrounding your circumstances will be discussed with you at that time.
It will be decided between you and your advisors how you would like to progress matters and the options available to you. A plan will then be agreed. You will be advised on what is achievable and realistic given your circumstances.
This underpins the importance of only engaging with a professional, fully regulated firm who offer expertise in these complex situations.
STEP 5: ALL PARTIES COMMIT TO YOUR PLAN
Once you’ve agreed the plan, you have to commit to it.
In order to progress everything smoothly, there will be a number of tasks that you (and your debt advisors) will have to undertake.
These tasks and commitments will vary greatly depending on the customer’s own personal financial situation.
It could result in cancelling a deluxe TV subscription or trading in a high-end car for a lower-spec model in order to reduce car repayments. It could be any number of things, but it’s important that you commit to them. Once you do, the likelihood of your creditors accepting your settlement proposal is so much greater. Be prepared here.
There is likely to be some compromise on your part. Your creditors will be asked to accept settlement terms that are likely to be very different to what you agreed back when you drew down the credit.
On a number of occasions we have agreed plans only to find out that at a later stage the client has changed their mind and decided to take matters into their own hands. For example, if you have a buy to let property and the plan agreed between you and the bank was that all rental monies where to be mandated to the bank, however this was not happening. If this happens the bank would be entitled to disregard the agreement that had been reached up to that date. In these kinds of developments it is likely that the bank may take legal action against you. Clearly nobody wants this to occur.
If you are trying to come to a mediated settlement it will definitely not help your case with the bank to deviate from the agreed plan. Talk to your advisor if you are uncertain about anything to make sure you completely understand the process.
STEP 6: YOUR ADVISOR PUTS THE PLAN TO YOUR CREDITORS
The most straightforward of the 7 steps. Your plan has been agreed and all parties have bought into whatever role they may be asked to play in terms of delivering the plan to the satisfaction of your creditors.
This proposal will now be put to your creditors by your regulated advisor.
STEP 7: FULL AND FINAL SETTLEMENT AGREED
When your plan is presented to your creditors, they will acknowledge receipt.
What happens next can vary case-by-case depending on individual circumstances.
Often a new process of mediation and negotiation begins.
It is very likely that your creditors will want to ask a number of questions around some of the information received. That’s completely normal.
Don’t worry, though - your advisor will be on hand to work closely with your creditors to ensure they have all of the information they need to reach a decision on your proposal.
One milestone for your team of advisors is to reach a situation where your creditors have been provided with all of the financial information and all their queries have been answered in full.
At that point a full and final settlement will be reached with your creditors.
And that’s it.
When the day comes and Step 7 has been safely negotiated, it’s the day you have been waiting for, for the past number of weeks, months and in some cases years.
You have now broken free from the negative equity position that has been negatively affecting your life, probably for as long as you can remember.
It is a process that might not be without some pain and compromise, but by the end of it you’ll acknowledge that any pain and compromise you have to go through is far less than the financial worries that were occupying your mind for in many cases a significant period of time.
And now, Step 8: Go out and get on with your life!
Over the last seven years our company has had hundreds of millions of pounds of debt written off by banks on behalf of our clients. We have helped hundreds of people, families and business move forward with their lives.
When James and I sat down to have that coffee seven years ago, we thought there might be a need for what value we could bring to the market in this regard.
However what we didn’t appreciate at that particular time was how many lives and families we could impact in such a positive manner. This has meant that the journey we have been on for the past seven years has not been so much one of work, more so one of reward, discovery and satisfaction. Sometimes it's important to go and have that cup of coffee.