What is...

Negative Equity

Negative Equity is the difference between the value of your house and your mortgage, when the value is less than the mortgage outstanding. This is caused by a general fall in the market value of a mortgaged property. This can create difficulties for individuals who can no longer maintain the repayments on their mortgage as they will be unable to cover the full amount of the mortgage if they sell the house.

This is why lenders will generally not lend above 90% LTV of the property, to ensure this situation does not arise. It is also why lenders charge Higher Lending Charges on high LTV properties to cover them on any potential loses if the house is repossessed.

Will my Credit Report show whether I’m in Negative Equity?

The value of your home isn’t recorded on your Credit Report. Any outstanding mortgage balance will be reported, but potential lenders (for example when remortgaging) will use their own valuation to assess the level of equity you have and to see whether you are in Negative Equity.

What’s bad about being in Negative Equity?

Moving home or remortgaging can be more difficult if you are in Negative Equity. If you are unable to remortgage, it could mean that you are moved to a lender’s standard rate once a fixed rate ends, which is likely to be much more expensive.

It also means that selling the property would not be enough on its own to repay the remaining mortgage amount.

It’s sensible to monitor both your outstanding mortgage balance and the estimated value of your home regularly.

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