Debt Management: Negative Equity

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by: stickystebee
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Word Count: 382
Date: Sun, 24 May 2009 Time: 6:35 PM
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Many people who bought their house at the peak of the market before the recent crash in house prices are currently in negative equity. This means that if they sold the house they would fail to raise enough cash to pay off their mortgage on the property.

To be in negative equity is an unpleasant experience and it can be deeply restrictive on the lifestyle of people who find themselves in that situation. For instance, it is more or less impossible to move house unless your personal income levels have suddenly seen a considerable improvement.

The house price inflation bubble of recent times, along with over generous mortgages offered by misguided building societies and banks, have resulted in people borrowing large multiples of their income in order to buy their dream property. In many cases the mortgages have been for 100% of the then current market price of the home and in some cases have even exceeded it. Mortgages of 125% of the house value were not unheard of.

If a mortgagee attempts to sell a house for a price that would be too little to pay off the debt secured on it, then the company that issued the mortgage can by law block the sale. This will almost always be the case if the shortfall is significant and they were not contacted initially. If they are approached at the outset it is quite possible that they might be able to help in some way.

If it is not possible to find a compromise then it is advisable to apply to the courts in order to obtain an order for sale of the property. This will only be granted if the court considers the terms that you are offering to clear the outstanding debt to be reasonable. It would probably be of benefit to approach a debt management company regarding the best way to handle this situation as they should be able to help you set up the best deal. For instance, if there are other debts in addition to the mortgage, it might be possible to consolidate these in such a manner that would enable additional capital repayments to be made on the outstanding mortgage.

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If it is not possible to find a compromise then it is advisable to apply to the courts in order to obtain an order for sale of the property. This will only be granted if the court considers the terms that you are offering to clear the outstanding debt to be reasonable. It would probably be of benefit to approach a debt management company regarding the best way to handle this situation as they should be able to help you set up the best deal. For instance, if there are other debts in addition to the mortgage, it might be possible to consolidate these in such a manner that would enable additional capital repayments to be made on the outstanding mortgage.