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How to survive negative equity

When house prices fall there is a risk homeowners can fall into negative equity, which is when your mortgage is worth more than your home's value.

This is not a problem if you do not need to move, but it can be if you want to get a new mortgage product or have to sell your house.

What you can do if stuck in negative equity:

Overpay your mortgage

Many lenders will allow you to overpay your mortgage by up to 10 per cent each month to reduce your loan to value.

Taking in a lodger if you have a spare room is a good way of increasing income and you can earn up to £4,250 a year tax-free.

If you are to overpay, borrowers should ensure they are making capital repayments - ie paying off the debt - rather than the interest only.

Talk to your mortgage provider

If you are in negative equity and unable to afford monthly repayments then you should speak to your lender straight away. They may extend your loan or let you switch to interest only which will bring down monthly payments.

Move to another property

Some lenders will let you port or carry your mortgage to another property but only if you do not require more funds.

You could rent out your home to cover mortgage payments but you will have to speak to your lender about this as your rates are likely to increase.

Let someone else take over mortgage payments

If there is limited or no equity in the property, then can take out an option to buy your home at close to its full market value at some point in the future. In the meantime, they would take over your mortgage payments - ie lease the house off you - so you can move out without having the burden of paying the mortgage.

They would become responsible for your property’s maintenance and when they exercise their right to buy the property in for example five years, you would have your mortgage cleared and maybe even a profit. This would not be possible if you had negative equity in this moment of time.

This is a good solution if you have mortgage arrears, facing repossession, have little or no equity in the property, need to move right away or want a price that is close to today's full market value no matter how the property market will perform in the future.

If you would like to discuss this further, then give one of their friendly advisors a call on 0800 954 5258.

Email or fill out your details here.

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