I Am a One in Ten….

Sang UB40 back in 1981, commenting on faceless statistics. Well the Bank of England are doing their best to encourage a 2009 rerelease of that single (can you still get 7” singles?) as they reported this week that around one in ten borrowers are in negative equity. 1 in 10? These figures might seem pretty anonymous but with house prices still falling, the numbers are likely to climb. Last October the Bank predicted 1.2million households could be affected by negative equity. Today it’s already estimated to be between 700,000 & 1.1 million, the numbers climbing faster than in the 90s when it took around six years to reach that level.  Should you be worried? Despite the bank being less concerned about the potential impact this time around (easy for them to say as I doubt they’re on the list), I think there could be a greater impact. In previous periods of falling house prices negative equity didn’t really matter unless you were moving. This was true because remortgaging was less common, there was less mortgage choice, and lenders standard variable rates were pretty similar, so it really didn’t matter because it didn’t cost you anything. This is definitely not the case now. There is a huge margin between the best and worst mortgage rates, lenders are reluctant to lend a high proportion of a property value, and are keeping their best deals for those with up to 40% equity, so even if you still have some equity, you could still miss out. Anyone thinking it won’t happen to me, should try this simple exercise. Ask a friendly estate agent to give you a current valuation and ring your lender for your mortgage balance. Then work out your loan to value (mortgage divided by valuation X 100). If the figure is above 60% then you will already be prevented from getting many of the best deals on the market, and don’t forget, house prices are continuing to fall. It’s not all bad news however as there are things you can do. Firstly if you’re already in negative equity or owe more than 90% of the value, many lenders will have a range of deals specifically for existing customers, which can even be better than they’ll offer to new customers. With interest rates only expected to go one way at least you can fix your mortgage at a historically low rate, and have the facility to overpay if you can afford to, so clawing back some equity. If you still have equity don’t rely on it always being there. You should be looking ahead and making use of the overpayment facility most mortgage schemes have built in, because nobody really knows how much further prices will fall or what will happen to interest rates.

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