Remortgage advice: negative equity

21 October2009

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For a homeowner, getting the right remortgage deal is important. It determines how much you will pay over the next few years, and as such it can be an opportunity to save money.

However, if you`re in negative equity, finding a remortgage can be very difficult.

What is negative equity?

Your equity is the portion of your home`s value that you owe nothing on: any deposit you put down when you bought the property, the amount you`ve repaid towards your mortgage (not including interest), and any increase in your home`s market value.

So, for example, if you had put down a £20,000 deposit on your home, and you have repaid £10,000 of your mortgage so far, and your home`s value has increased by £25,000 since you bought it, you would have £55,000 of equity.

However, there is another side to this, and that`s negative equity. You would be `in negative equity` if you owed more on your mortgage than your home was worth. This would mean that if you were to sell your home, you would not raise enough money to repay your mortgage.

So, for example, if you had put down a £20,000 deposit on your home, and you have repaid £10,000 of your mortgage, but your home`s value has decreased by £35,000 since you bought it, you would be in negative equity - you`d owe £5,000 more than your home was worth.

Your mortgage debt doesn`t shrink just because the value of your home has - and if you were to sell your home, you would still have to find an additional £5,000 from elsewhere to repay your mortgage lender.

Is it possible to remortgage with negative equity?

In reality, most mortgage lenders will not offer you a remortgage if you are in negative equity. There are lenders who offer special mortgages to help people in negative equity, but this is not common.

If you are in negative equity and want to remortgage, two of your options may be:

Overpay your mortgage. If you can afford to - and the terms of your mortgage allow you to - you could get yourself out of negative equity by putting more money towards your mortgage.
Wait a while.Historically, house prices have always gone through a cycle - rising for a while then falling for a while. If you can wait, house prices will increase again, and this will take you out of negative equity. In the meantime, you`d probably start paying your lender`s Standard Variable Rate (SVR) at the end of your existing deal.

Although you`re likely to have trouble finding a remortgage with negative equity, it`s still worth speaking with a mortgage adviser to discuss your situation. For more information, click here or call one of our expert advisers on 0800 195 2913.

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