House Price Decline Could Bring About the Negative Equity Disaster

House Price Decline Could Bring About the Negative Equity Disaster

For those that seek to save money with a lower interest rate through remortgaging, the discovery that one simply has to convert to their lender’s standard variable rate (SVR) and sit out paying more than necessary is hard news to take. Yet, that could happen to many homeowners should the house prices decline as is expected by one think-tank group, the Resolution Foundation, in response to predictions made by the Office for Budget Responsibility (OBR). The ability to remortgage could disappear for many homeowners with the onset of negative equity.

Negative equity happens when the loan taken out by the homeowner is higher in value than the actual value of the property. When house prices are in line with the mortgage loan there is no problem. The best and usual expectation is that while the homeowner is paying on their mortgage debt the actual value of the property increases. Therefore, the loan is below the value of the property. In that case, getting a remortgage is possible. Some homeowners will release the built up equity into cash for needed purposes with a remortgage.

If the values should decline and a homeowner discovers their loan debt is above the value of the home, it is a stressful financial position. Many must wait out the financial crisis or situation that is occurring in the economy and hope for a quick resolution to the existing problem. In some cases, the climb to the normal levels can be quick or it can be painfully slow.

Homeowners cannot remortgage when their loan is higher than the value of their home. Lenders would consider that a risk to give the homeowner more money than what the property is currently worth.

It could be helpful for a homeowner to get a remortgage as soon as possible now while interest rates are low and house prices are in areas growing or remaining steady. To secure a fixed rate remortgage for several years and lock in the low interest rate could be helpful. It would give peace of mind rather than having to be on a risky SVR and a remortgage being out of reach.

The OBR is predicting house prices will decline by 8% on the average, and in the worst case scenario they will decline as much as 16%. The Resolution Foundation predicts 11% of homeowners could face negative equity should house prices decline as predicted.

Obligation Free Remortgage Quotations

Get a Quote »