Outside of the London and South East bubble, UK Finance and Hometrack’s The Changing Shape of the UK Mortgage Market report found regions such the North East had seen house prices drop by four per cent in the past decade.
This week, Mortgage Solutions asked: Have you noticed a trend in borrowers falling into negative equity in the past few years when it comes to remortgaging?
We have not noticed any significant increase in borrowers falling into negative equity although we have noticed a trend of down-valuations in the North and West Midlands and parts of Yorkshire.
Equity is of course a major issue that can lead to people becoming mortgage prisoners.
That said, rate switches for homeowners who find themselves with less equity than they started with are now common, meaning that there should be a way out of the standard variable rate (SVR) trap for most borrowers.
However, there are one or two lenders that will apply a desktop or price index valuation to decide what products these clients can have and on occasion will refuse to offer a new rate leaving them on an SVR.
Further issues arise if people wish or need to move location due to work, divorce or entering new relationships and for those that are prevented from easily doing this the frustrations are enormous.
Let to buy or let to move was previously a potential solution but again criteria changes can prevent this. We need to ensure that as a country we remain flexible and are allowed to make the most of the assets we have.
When coming to remortgage, some people do find that they can’t borrow extra, as there’s an insufficient increase in their equity after an initial couple of years of owning the property.
Flats in London suffer a bit more from this, particularly those bought new two to three years ago on schemes such as shared ownership, for example. But these types of cases are few and far between for us at Habito.
Generally speaking, the ‘quick gains’ from property ownership, that buyers might have seen in parts of the UK in the previous decade, have stalled. Over the last two to three years, equity gains have been steady and reasonably stable – though it does depend on the type of property and location.
These days, buyers can’t assume that their property will go up in value and that they’ll be able to sell for a substantial profit in a few years’ time.
So, borrowers need to make sure they’re happy with the home they are buying, and that it’s suitable for them for the next five or so years, to weather any property market ups and downs.
First but foremost, our recommendation to borrowers who are facing negative equity is to seek professional advice at the earliest opportunity to ensure they know what options exist for them.
At Mojo Mortgages, we’ve not seen a large number of customers coming to us in this situation, but it is indeed a possibility, especially when it comes to first-time buyers who have bought new build properties in areas with stagnant house prices.
For those in this situation, there are a few options that are available. The first is to stick with their current lender and switch to a new fixed rate product.
However, this isn’t always possible as lenders often undertake desktop valuations when offering switches, and a significant number of properties fall short at this stage, meaning that the customer isn’t offered a range of choice when it comes to the rates or products available to switch to.
On the other hand, lenders may not even offer customers a new deal if they are currently in negative equity, and therefore, this will force them on to the more expensive SVR.
What’s more, very few lenders have negative equity products, so knowing if your lender offers this in the first place would be a good place to start if customers find themselves in this type of situation.
Another option would be to inject cash into the current mortgage to bring it out of negative equity. If a customer doesn’t have any considerable debts or overdrafts, but they have some cash saved up, they should consider putting it towards making capital repayments (therefore, overpaying the mortgage), so that their chances of switching products or remortgaging are increased.
Overall, anyone in this situation should get professional advice as negative equity is a complicated topic, so talking to a lender should be a customer’s first point of call.