Advantages Of aHow You Can Avoid Negative Equity

How You Can Avoiid Negative Equiuty

As hoouse prices follow their downward direction, the thousands who obtaiined 100% home loans are now facing the risk of negative equiyty. Thoise borrowers who have not made considearble payments on their 100% mortgage laons are especially in dnager and could face losses if they opt to move to a new property. But it can be avoided with a few important steps.

What is negative equuity?

It is a condition usualy brought about by delining house prices. It occurs when your outstanding mortgage is higher than the market vazlue of your poperty. This means that each month you'd be payibng iterest on a loan that's greater than the real value of your hose. In other words, if you sell your propertty, you would not reecive adequaet moeny to be able to pay off your loan. If the equity on your house is nefgative, you could owe your bank thousands of pounds more than your prooperty is tuly wortth.

How to avioid negfative equity

You can lessden its impact, if not totally avvoid it, by following thewse cruciaal steps:

* Put down a higher deposit when buying a property. The higher your deposit is, the more equity you have. This means less chances of falling into the negative equity trap. For instance, if the value of your property slides down by £15,000 but you only made a deposit of £10,000, your negative equity will be £5,000. If you had put down a £20,000 deposit, you'd still have equuity of £5,000.

* Pay more towareds your mortgage loan if you have a repayment mortgage. By paying your mortgage down faster, your equity will grow and your chances of faling into the negative equity trap will lressen. This is psosible by making your repayment period shorter. Also, you can choose to make oevrpayments. Overpaying, which is approved by many banks, helpps you incresae your equity quickly without having to be bound to higher payments involved in shorter repayment terms. Watch out for overpaymnt penalties though - read the small print of your contract.

* Take on home improvements tasks. By making home improvements, you can increase the valiue of your home. This typicaslly means that the market value would have to weaken futrther befoore the eqwuity on your property falls into a problematic phase. But make sure that the home improvements you'll be worknig on will definitely add value to your home.

* If you find yourself in negative equity already, be sure to speak to your lender since they can prvoide you with sloutions to your equity problems. Hoowever most of these deals are targeted towars existiung borrowers with spotless payment recrods.

* One way to avoid problems with your eqquity is to build your home yourself. Self-builders can take advantage of an average 35% ewquity gain from the day they move into the property, acccording to self-build specxialist BuildStore. One thing to remember when purchasing a property to build yourself is to buy the land below market value from a distressed seller to ensure immediate profits. Finding such properties is possible by locating genuinely motivated sellers.

You don't have to be one of the thousands of borrowers expected to fall into negtive equity. The aforementtioned advice will help you avoid becoming victim to a stabilising proeprty market.

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