Negative Equity Mortgages Return After Twenty Years
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.One reason for having a mortgage with negative equity today was 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. Before the recession most borrowers were paying a high price 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 aggravate the issue of paying money off the mortgage most folks who were remortgaging or were first-time buyers seemed to have taken out an interest-only or a 30 to 35 year 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 problem worse mortgages have become harder to obtain for first-time buyers and home owners looking to remortgage. Home lending is at its lowest levels for many years as mortgage lenders don't have the desire to lend and mortgage 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 is in negative equity does not mean that they will default on there mortgage commitment.
Mortgage lenders have started talking with their mortgage borrowers that have fallen into arrears with their mortgage payments in an effort to help them stay in their property. 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 sense for lenders to help their mortgage customer to stay in their homes then to repossess their homes and lose yet more money.
Most people will not realise they have an issue with negative equity 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.
One method of dealing with a negative equity mortgage would be to do nothing at all. Negative equity is only ever a problem if you are selling your home and for most of us it is not worthy of our concern. If you are in the unfortunate position of requiring to sell your property then you should consider a sensible 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. You should consider renting your property out on a short term rental agreement and rent a house yourself while you wait for the mortgage market place to recover.
As mortgage interest rates continue rising and house prices fall there will be problems 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 is not a problem unless you need to move and if you don't need to move it is not an issue.
by: Mark Aucamp