Negative Equity Options

Negative equity options
What can I do when my properties are in Negative Equity?

Negative equity is essentially when a property is worth less than the current mortgage you have on it. You bought a house for £200,000, and you took out an interest only mortgage for £175,000. Now, the latest market value for your house is £135,000. As a result, you have £40,000 of negative equity as your mortgage is worth more than the value of your home.

It is believed there are roughly 350,000 properties in England and Wales that are still in negative equity. Mostly, these properties reside in the Midlands, North of England and Wales. They come as a mixture of investment buy-to-lets and regular homes. You can trace back the cause of this negative equity crisis to the housing crash in 2008; over a decade later and we’re still feeling the effects!

But what’s the problem with having negative equity – and what can you do to resolve it?

Why is negative equity an issue?

If you want to sell your home and the mortgage you owe is less than the value of the property, then you’re essentially in debt. Going back to the example above, let’s say you sell your property for £135,000, but you have the £175,000 mortgage. Now, you still have an extra £40,000 to pay back to your lender.

The good news is that there are solutions to deal with this problem. Ideally, you want to be able to deal with your negative equity and move on – here’s how…

Mortgage write-downs

Write-downs are relatively common in both the business and financial worlds. In essence, a mortgage write-down is where you evidence to your lender that your current situation is no longer tenable due to a change in your affordability or situation, and propose a solution that better suits all parties.

Clearly, this can be hugely beneficial to both you and your lender as it can remove the impending problems that would ultimately lead to repossession or receivership. This approach makes sense and can often be a viable alternative; it allows the distressed borrower to move on in a responsible fashion without extreme levels of stress and allows the lender to maximise their returns in terms of achieved value for the asset, saving on both professional fees and time. Not all lenders are open to this type of settlement, but many are becoming progressive in their attitude to this type of settlement.

CD Fairfield, through our brands Negative Equity UK, Negative Equity NI and Landlord Debt Advisory, has good working relationships with the majority of the UK high street lenders. We’ve managed to secure average an write off of 76% of the residual mortgage debt for over 600 clients over the last five years. We know how to evidence lenders that it’s worth more to them to write down your mortgage and move on, rather than go ahead with the alternative.

Missing payments and future interest rises can mean the debt becomes even harder to repay, which, if you are currently struggling, means that the lender may need to eventually repossess your home – which, as we have said, isn’t ideal for them. Adding in the fact that repossessed homes tend to sell for much less than average means that the lender could end up with a larger shortfall debt, meaning a mortgage write-down should also be the best option for them.

Were You Mis Sold An Interest Only Mortgage

It is well documented that mortgage lending during the mid-2000s was “fast and loose” at best.

Many homeowners were sold unsuitable mortgage products, leaving them in a difficult financial position today.

In conjunction with our industry leading legal partners we have successfully challenged mis-sold mortgages and secured significant sums of money back for our clients.

How much can I claim?

Each case is individual; £100,000 is the maximum.

How can I tell if my mortgage was mis-sold? What you should I look for?

  • Your mortgage is interest only or was when you originally took it out and you had no clear plan to repay the capital
  • It has been running for at least 6 years
  • The mortgage was arranged via a broker (rather than by a lender directly)
  • It was arranged after October 2004

Type of mis-sold mortgage – where the mortgage broker advised the homeowner(s) to:

  • Raise money against their home to fund an overseas property purchase
  • Purchase their property via the Right To Buy Scheme where the broker used misleading information
  • Take a mortgage where retirement date is before the interest only mortgage term ends
  • Consolidate debt (loans, credit cards etc) by re-mortgaging their home
  • Incur costly penalties (Early Redemption Charges) to re-mortgage

How long does a mis-sold mortgage case take to complete?

It depends. Simple cases can be resolved in 2-6 months, more complex cases can take 1-2 years.

I think my mortgage was mis-sold but I’ve re-mortgaged to another lender since, can I still claim if my mortgage was mis-sold?

Yes.

I’ve sold my property but I think the old mortgage was mis-sold, can I still claim if my mortgage was mis-sold?

Yes.

Is there are end date, like PPI?

Currently no. Though experience tells us that the more time that elapses the more difficult it can become to secure redress/compensation; if you believe your mortgage was mis-sold, you should look into this now.

What types of mortgages are excluded?

Generally mortgages completed before October 2004 are exempt for redress/compensation, as are buy to let mortgages.

How much does it cost?

A case review is £395. Here your lending documentation is retrieved and reviewed and advice provided. If you choose to take a mis-sold mortgage claim forward from there, the cost is 20%+VAT of any claim.