Negative equity

Negative equity

Negative equity means the value of a mortgage being higher than the value of the house.

This will happen when mortgages with high loan to value ratios enter a period of time when house prices slump. This is a difficult situation since it’s not possible to sell the property to settle the mortgage. The owner is stuck with the property and can only vacate when it’s been paid or bankruptcy has been declared.

The idea of “portable” negative equity has been floated by the government as a way to help avoid this situation. The owners can still move elsewhere but will still be in a state of negative equity in their new home. The way out of negative equity can only be to wait for house prices to rise. This is a very frustrating experience meaning its imperative before taking out a loan to make sure that your circumstances match that of your mortgage commitment.

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