Don’t Panic Over Negative Equity
In recent years, leading up to the current economic slow down and credit crunch, many people have bought property with the view that they could not possibly lose money on it and have therefore taken out large homeowner loans, mortgages and other secured loans in the certain knowledge that the value of their home would increase.
But since the start of the credit crunch two years ago, many of these individuals have had a rude awakening, as property values have seen significant reductions, particularly since banks and building societies have restricted their lending criteria and become extremely reluctant to offer new loans to customers.
As a result, many borrowers who took out secured loans with a high loan to value ratio are now in a position of negative equity, a situation where the outstanding balance of the loan exceeds the value of the property and a recent study by the Bank of England has shown that somewhere in the region of ten per cent of homeowners could well be in this position. Although this is a worrying prospect for many people with large loans on their home, there is no need to panic over the situation according to Peter O’Donovan of Bestinvest Mortgages.
As long as homeowners don’t absolutely have to sell their homes at the present time, there should be little cause for concern, as homeowner loans and mortgages are particularly cheap at the moment, due to low interest rates, making loans more affordable for borrowers and although negative equity is likely to stop anyone obtaining a remortgage deal, existing lenders’ standard variable rates are often cheaper than a new loan deal at the moment.
For anyone wanting to get out of negative equity, the best option is to either switch from an interest only loan to repayment, or make regular overpayments on their existing loan in order to reduce the outstanding balance quicker.
