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In negative equity: what are my options?

Little African baby boy looking at his laptop and looking confused while sitting on the couch at home.

09 Mar 2017

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Negative equity is one of those terms that could make even the calmest homeowner wake up in a cold sweat. It’s an emotionally-charged phrase that represents most homeowners’ worst nightmare. However, it doesn’t have to be the end of the world.

 

 

The subject has been in the news in recent years after the property bubble and the recession left many homeowners in negative equity and facing a tough battle to break even.

Negative equity might sound scary but it doesn’t necessarily mean that you can’t get the situation back under control. So what do you do if you find yourself in negative equity? The first step is to assess your situation and then check out your options.

What is negative equity?

Negative equity means that the market value of your house is less than the amount that you still owe on your mortgage. So if you’re in negative equity and you sell your house, you’re still going to owe money to your mortgage lender. You don’t need to be a financial expert to work out that it’s not an ideal situation.

If your house has dropped in value since you bought it, it could easily slip into negative equity. It’s something that’s more likely to affect newer buyers, especially if they bought during the boom, as they haven’t had a chance to pay off much of their mortgage. But there’s no need to despair yet.

How can I tell if I’m in negative equity?

The simplest way to find out if you’re in negative equity is to get your home valued. Only then will you be able to tell if the outstanding balance on your mortgage is more than your house is worth.

The simplest way of doing this is to seek a valuation from an estate agent in your area. Based on their valuations, you can then judge whether the market value of your home is worth more or less than the outstanding balance of your mortgage. It’s that simple.

Can I move if I’m in negative equity?

Many people worry about being trapped if they end up in negative equity, but existing EBS customers can still move house by taking on a negative equity mortgage. This allows you to add the outstanding balance of your current mortgage on to your new mortgage, as long as you meet the EBS criteria requirements.

So you can sell your old home, buy a new place and transfer the outstanding balance on to your new loan. Transferring the balance over means that you may still remain in negative equity – but it’s a good solution if you need to relocate or want to change your living arrangements.

EBS allows existing customers who want to avail of this option to trade down or trade up, meaning that there’s options regardless of your circumstances. That’s a reassuring thought if you’re expanding family needs more space but you’re still in negative equity.

What if I want to keep the house and move?

Sometimes, homeowners have to move for work or personal reasons but they don’t want to sell their house. If it’s in negative equity, you may want to wait for the market to recover so you can sell it at a more favourable time.

So what can you do? Well, one option is to rent the property to cover your mortgage payments. You may not have planned to become a landlord but it’s one way to cover the cost of the mortgage and keep your property until the time is right to sell.

Stick it out

This may not seem very proactive but sometimes it pays to be patient and to weather the storm. Property prices are on the rise again and waiting it out could see your house get back into positive equity.

How else can I tackle negative equity?

There’s no great mystery to how this process works. Your mortgage is out of balance because you owe more than your asset is worth. The question is what you can do to restore the balance and your peace of mind.

One way to approach this is to pay more towards your mortgage. This is only an option if you’re in a position to increase payments without putting yourself under pressure. Another option is to make lump payments towards the mortgage if you can afford them, or if you come into money through an inheritance or a  work-related bonus.

Both solutions are dependent on the arrangement you have with your lender. You’ll need to check the terms and conditions to see if these are valid options. If in doubt, arrange a meeting with your mortgage advisor to find out if you can renegotiate the terms.

Want to know more about your options?

Are you in negative equity and curious to know more about your options? Why not book a 30-minute mortgage meeting with your mortgage advisor? It’s a chance to chat about all the options that are available to you like trading up, trading down or opting for a Negative Equity Movers Mortgage.

If you’re thinking about buying your first home but are worried about things like Negative Equity, calling in for a chat is a great way to discuss your concerns with one of our friendly agents.

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EBS d.a.c. is regulated by the Central Bank of Ireland. Some of the links above bring you to external websites. Your use of an external website is subject to the terms of that site. The content of this blog is expressed in broad terms and is limited to general information purposes only. Readers should always seek professional advice to address issues arising in specific contexts and not seek to rely on the information in this blog which does not constitute any form of advice or recommendation by EBS d.a.c.

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