Do Nothing About Your Negative Equity?

Our first option to consider is:

Option 1 – Do Nothing About Your Negative Equity

In theory, this is an option as such, but there are very few circumstances when you should actually do nothing about your negative equity.

In fact, it’s crucial to take proactive steps to address the issue of negative equity on your property as soon as possible. Negative equity occurs when the outstanding balance on your mortgage is higher than the current market value of your home.

This can leave you in a precarious financial situation, especially if you need to sell your property or refinance. By taking action now, you can avoid further financial strain and potential long-term consequences. There are several ways to tackle negative equity, depending on your individual circumstances. One option is to increase your monthly mortgage payments to pay down the principal balance faster.

This can help you build equity in your property more quickly and reduce the gap between the outstanding balance and the market value. Another option is to make a lump sum payment towards your mortgage, if you have the means to do so. This can help reduce the overall debt on your property and improve your equity position.

It’s also worth considering alternative solutions, such as a loan modification or refinancing your mortgage. A loan modification can help lower your monthly payments or interest rate, making it easier to manage your mortgage debt. Refinancing can also be a viable option if interest rates have decreased since you took out your original mortgage. By exploring these options and taking proactive steps, you can work towards improving your financial situation and avoiding the pitfalls of negative equity.

What Is Negative Equity?

Quite simply, negative equity is when your property value is lower than the borrowings on that property or as Wikipedia put it:

“Negative equity occurs when the value of an asset used to secure a loan is less than the outstanding balance on the loan”

For example, if you have a mortgage of £200,000 and maybe a second charge secured loan of £25,000 on the property, this makes your total secured borrowings £225,000.

Now if your property is only worth £180,000, then you have negative equity of £45,000.

Negative equity is the difference between the value of the property and it’s borrowings against it, which result in a shortfall.

What Happens If You Do Nothing?

Again it depends on your circumstances and you must look carefully to see what might in fact happen.

If you are nearing the end of your interest only mortgage term, your property is in serious negative equity and there is no way it will recover in value by the time the mortgage ends, then you have a really big problem indeed.

In this situation, if you decide to do nothing about your negative equity, then the bank or mortgage company will take control of the situation and it will not be to your benefit, but to their total benefit, as you would know.

You Lender will take possession of the property, throw you on the street homeless and then try to get back all the losses from you.

If you are younger and maybe have a family and have outgrown the current property you are in and need to move for more space and you have negative equity, then this proves difficult.

Doing nothing in this situation will mean you might have to get a few extra bunk beds to fit everyone in and sit put!

Not a practical solution.

The only situation when it may be best to stay in your property and do nothing, is if there is only a small amount of negative equity and you have enough time left in your mortgage term for the value of your property to rise.

The future anticipated value must be equal or higher than your mortgage amount for this to work.

However, the best solution is to contact us and we can discuss a way to get you out of the mortgage, by writing off the majority of the negative equity.

This sounds unbelievable, but it is a tried and tested legal formula and you may only have to pay a small part of the negative equity actually due.

We discuss this further in Option 2 – How To Write Off Your Negative Equity Legally which involves legally reducing the negative equity that is payable.

So, Do Nothing About Your Negative Equity?

That’s not the best option available to you.