Negative Equity Mortgages Return
The return of negative equity mortgages has become widespread again due to the collapse in the housing market which happened due to the global downfall of the banking system. The last time we saw mortgaged property worth less than the amount borrowed to purchase them was back in the late eighties. During the eighties property downturn the finance experts thought it would be around ten years before properties would recover and realise any equity. How wrong they were as property prices continued to rise for the next twenty years with a small blimp in the early nineties.
The Causes of Negative Equity Mortgages
One reason for having a negative equity mortgage today is due to home buyers who purchased their homes in the years before the collapse of the housing market. To compound the issue many of these mortgage borrowers bought their homes with little or no deposits. Prior to the recession borrowers were paying a premium for their homes as house prices were rising fast. Mortgage lenders were offering mortgages to just about anyone who wanted a mortgage. It was as if the lenders believed that they had a bottomless pity of money to lend and the mortgage demand would last forever.
To exacerbate the issue of paying capital off the mortgage most people who were remortgaging or were first-time buyers seemed to have taken out an interest-only or a long term repayment mortgage. This means that in the first five years of the mortgage they would have paid nothing or very little off the amount they borrowed from their mortgage company.
To make the situation of negative equity mortgages worse mortgages have become harder to obtain for first-time buyers, home-movers and home owners looking to remortgage. Mortgage lending is at its lowest levels for many years as lenders don’t have the appetite to lend and interest rates are at their lowest level. Borrowers have lost their jobs and had their working hours reduced which has caused many people to fall into arrears and have defaults and County Court Judgments’ issued against them for failing to maintain their secured and unsecured loan payments. In many situations homes have been repossessed by lenders.
The banks will not willingly take on a negative equity mortgage, given the problems they have had with sub-prime loans and negative equity. As house prices continue to fall the number of home owners with negative equity could start rising again. Just because a mortgage borrower has negative equity mortgages does not mean that they will default on there mortgage commitment.
For the first ever mortgage lenders have started talking with their existing mortgage borrowers that have fallen into arrears with their mortgage payments in an effort to help them stay in their homes. Some mortgage lenders have reduced their interest rates to make their mortgage payment more affordable for their struggling borrowers. Lenders know that properties are not selling and house prices are still falling and their borrowers are still losing their jobs. It makes financial sense for them to help their borrowers to stay in their homes then to repossess their homes and lose more money.
Most people will not realise they have an issue with their negative equity mortgage until they come to sell their homes. At this time they will discover that they owe more money then they originally borrowed from their mortgage lenders.
Different Methods of Dealing With Negative Equity Mortgages
One method of dealing with a negative equity mortgages would be to do nothing at all. Negative equity mortgages are only ever a problem if you are selling your home and for most of us it is not worthy of our concern. However if you are in the unfortunate position of needing to sell your home then you need to consider a realistic price and be prepared to wait for a buyer. Beware that it is a buyers market and buyers are very much in control of the purchase. It might be an idea to rent your property out on a short term rental agreement and rent a house yourself while you wait for the market place to recover.
Rising mortgage interest rates and falling house prices are expected in the near future. The situation is expected to worsen over the short term as higher interest rate impact the recovery of the housing market. Remember negative equity mortgages are not a problem unless you need to move and if you don’t need to move it is not an issue.
Your thoughts, experiences and comments are welcome. Leave your thoughts and experiences below if you have been affected by negative equity mortgages recently or in the past.