Remortgaging with Negative Equity

Negative equity means that the house is worth less than you bought it for. Negative equity in the UK, was common in the early 1990s when house prices in the UK, fell by upto 15% in one year. This creates severe problems for people who need to sell their house. Even if they sell the house, they will still owe money to the bank who lent them their mortgage.

If you find yourself with negative equity you may still wish to try and remortgage to find a better rate of interest. It is still possible to remortgage, however, it will be more difficult.

It is particularly a problem for the average types of mortgages which require you to own a certain % of the house value. It depends how much deposit you put down. For example, if your initial deposit was 5% and house prices fell, you would be requiring a 100% mortgage. 100% mortgages are becoming increasingly popular, however, as a general rule the interest rate will be higher than a standard mortgage.

If house prices have fallen by more than the initial deposit you will be required to get a mortgage of greater than 100%. These become increasingly difficult to get. Some mortgage companies offer 105% mortgages, but they are not common and usually require even higher interest rates.

In these circumstances there are a number of options available.

1. Wait for house prices to rise. This is difficult, because it can be difficult to predict. For example, after the house price falls of 1992, UK house prices soon recovered. But, in the case of Japanese house prices, they remained low for much of the 1990s. House prices in the US are currently falling, and it is difficult to know when they will regain their old value.

2. Save for a deposit. If you are able to save for a new deposit you will be able to benefit from a better mortgage deal. By the time you have saved for a deposit, house prices may have recovered.

Although it is more difficult to remortgage with negative equity it is always worth bearing in mind that the benefits of remortgaging can be quite significant and it is definitely worth pursuing.

It is also worth making enquiries with your current mortgage provider. They may be willing to offer a remortgage even though you are suffering from negative equity. After all, it is in their interests to make sure you can continue to pay your mortgage

• Different types of Mortgages
• Will House Prices Drop?
• Why House Prices are likely to Fall