In negative equity but want to sell your house or are you struggling with the repayments?
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Negative Equity: Introducing John and Sarah
John and Sarah bought their home in 2007 for £250,000.00 on an interest only mortgage. In 2007, banks were lending up to 100% of the value of a property so John and Sarah’s mortgage is £250,000.00. As it’s an interest only mortgage, all they have been paying off since 2007 is the interest, their mortgage debt has not reduced but the value of their house has reduced to £175,000.00.
They are in negative equity.
What is negative equity?
Negative equity is when a mortgage is higher than the value of the property that it’s secured on.
Why is negative equity a problem?
Selling your home
In our example, John and Sarah would have to pay another £75,000.00 to the bank following the sale of their house, providing they can get £175,000.00 for the sale.
They cannot sell their house if they cannot repay the bank.
If John and Sarah want to remortgage, they will not find a bank that will give them a mortgage for more than the value of their home. Their house is worth £175,000.00 and they need a mortgage of £250,000.00.
Even if they only wanted £175,000.00, banks are no longer lending 100% of the value of a property so they need a minimum deposit of 5%, that’s £8,750.00 on top of the £75,000.00 they need to pay to their bank to pay off their current mortgage.
John and Sarah got a good rate when they took out their mortgage in 2007 but now that it has come to an end, they are paying interest at their banks’ standard variable rate. This means they are paying much more each month and it only goes towards the interest on their mortgage, rather than paying off any of the balance. Paying off the balance would at least go some way to helping them out of negative equity. Instead they cannot afford the monthly interest repayments and can’t sell their home either – John and Sarah are trapped in negative equity.
What can we do?
At Robert G Sinclair Solicitors, we have been working with banks for over 25 years. As banking specialists, we know how they think and what they can and cannot do. We will work with you and your lender to get the best outcome for everyone.