Some Homeowners Facing Tough Times
The average price of a house fell once more through the month of June by one per cent, that is nine months of consecutive decreases and the Council of Mortgage lenders (CML) has predicted that we could very well see overall reductions of up to 7% on the average property value by the end of this year.
Now if you’re in the situation where you don’t have a large loan to value ratio on your mortgage or home loan and you don’t intend to sell your home in the near future, then you’ve got nothing to worry about, just because the value has reduced doesn’t mean that parts start to drop off it, or the building gets any smaller! Prices will recover over the long term, it may take some time, but they will recover and if you’re in the position of only having a small loan on your home, then you’ve probably owned it for some considerable time and have therefore enjoyed a high level of growth in value over the years and even with the recent (and projected) drops in value, you are still likely to be in a strong profit situation.
The problem area lies with those borrowers who have bought recently (in the past two years) with a high loan to value mortgage or home loan. Many homeowners have bought their homes with a loan of 95% (or sometimes more) of the value of the property and many of these borrowers could be looking at a possible negative equity situation, that is where the amount of loan on your home exceeds the current value. Once again however, if you don’t intend moving then the market will recover eventually.
Those who could be most affected by the current price drop are those borrowers who had a reasonable amount of equity within their property, but maybe have debts elsewhere through loans and credit cards etc and are considering applying for a secured loan on their home to consolidate their debts. As the equity content reduces, the loan to value ratio closes up and it is less likely that they will be able to obtain a secured loan, particularly in view of the fact that many lenders are now reducing the maximum loan to value they are prepared to offer on.
Finally, if home owners are looking to downsize, or sell their home altogether and they took out a high loan to value mortgage recently, they may be faced with the situation of not even being able to clear the loan once the house has been sold. If you are in this situation, you should take advice before you do anything.
