Almost half a million households in the UK struggle with negative equity with the greatest number in the regions rather than London.

Negative equity occurs when the value of a property is worth less than the mortgage used to purchase them.

In London where property prices are rising only 1% of mortgage borrowers are in negative equity, 13% in Scotland increasing to 16% in the north of England and 41% or 68,000 homeowners in Northern Ireland.

With negative equity in a property, the only option is for remortgage buyers to stay in their existing home and continue saving more for a bigger deposit.

According to the Halifax, in London average house prices are £409,881 or more than twice the figure for the rest of the country averaging £179,872.

The main reason UK regions are worse than London and other parts of the south-east is due to the decline in property prices after the financial crisis in 2008.

Trapped homeowners

Negative equity can trap homeowners and prevent them from moving as they must repay the mortgage loan but would receive less money from the house sale. The balance, often in the tens of thousands, would have to come from their personal savings.

For the lender it means the value of the property no longer provides the security to cover the loan if the homeowner cannot pay the mortgage.

Across the country 8% or 463,000 homeowners are experiencing negative equity.

This has been made worse for some in north-east England as property prices are still falling, now 6% lower than a year ago according to the Land Registry.

Negative equity is a threat to first time buyers, remortgage and home movers which can impact your ability to move in the future or for older homeowners to retire.

Help with the financing for a new home can come from family members as the equity release buyer can access cash using a lifetime mortgage and gift to a child or grandchild.

Lenders can help

Many homeowners will have to stay in their house or rent it out if they must move although this is not always possible.  There are comprehensive rules for landlords requiring checks which could amount to thousands of pounds to satisfy as well as converting to a buy-to-let mortgage.

Some lenders, such as the Nationwide, will allow their borrowers to ‘port’ their mortgage to another property. For home movers this may be the best solution as some areas may take five or more years before a rise in prices.

What are your next steps?

Talk to our London City Mortgage brokers for advice if you remortgage your existing home and want the best mortgage deal or release capital, buying your first home, moving home or are a buy-to-let investor.

For older homeowners releasing equity from your property, our LCM mortgage advisers can recommend the lifetime mortgage, accessing wealth to improve your quality of life, pay for care at home or even buy a more expensive home.

Start with a free mortgage quote or call us and we can take your details. Learn more by using the equity release calculator, mortgage cost calculators, and property value tracker chart.

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