Negative Equity

SarahWhitesands

Hi,
I am a little confused regarding negative equity if anyone can help?!

Say for example I purchased a property now on a 5 yr fixed rate mortgage. Next year Brexit causes house prices to fall and I fall into negative equity... can a mortgage lender demand the money from me? (assuming I always pay in full and never fall behind on payments)

As far as I was aware, it only becomes an issue when it comes time to renew the mortgage in 5 yrs and surely the lender cannot do anything until then - or is this not the case?

I've been advised by a friend that in some lenders T's & C's they have the right to foreclose for negative equity before the term of the mortgage even if you have never missed a payment??

Thanks!

Ozzuk

I've never heard of that term, but you should always read T&Cs anyway.

Aside from mortgage change, it is also obviously an issue if you want to sell. You may not plan to (especially with neg equity) but could be forced to if your financial position changes - health issues, job loss or change etc. Or if you breach the terms of your mortage - rent it out without permission for instance.

wesleyad

I'm sure there are exceptions for odd situations, but yes you are correct it only becomes a problem at mortgage renewal and even then (normally) only if you change mortgage.

From the banks point of view, firstly how would they know the specific value of your house in a few years time without resurveying? You could have added value by doing improvements, your area may not be affected by any drop in price etc.

Secondly why on earth would they repossess a house that is now worth less than the amount they have lent, only to sell at a loss? Rather than getting the monthly payments they were happy to accept in the first place?

AnotherJoe

SarahWhitesands wrote: »

Hi,
I am a little confused regarding negative equity if anyone can help?!

Say for example I purchased a property now on a 5 yr fixed rate mortgage. Next year Brexit causes house prices to fall and I fall into negative equity... can a mortgage lender demand the money from me? (assuming I always pay in full and never fall behind on payments)

As far as I was aware, it only becomes an issue when it comes time to renew the mortgage in 5 yrs and surely the lender cannot do anything until then - or is this not the case?

I've been advised by a friend that in some lenders T's & C's they have the right to foreclose for negative equity before the term of the mortgage even if you have never missed a payment??

Thanks!

I agree with Wesley, apart from being highly unlikely due to the practicalities such as "how would they know", what would be the benefit to the mortgage company of giving up a stream of income for a definite one-off loss?
Lenders are in the business of lending. They are not in the business of repossessing, evicting, incurring legal costs and bad publicity etc and this is why they only do these as a last resort. Apart from anything else they are very costly thinsg to do and they are running on low margins already.

And on a practical matter, there were from 2007-2010 many many people who went into negative equity within a year or two and many who are still in NE, dId you ever hear of whole areas of mass repossessions ? Has half of Northern Ireland been repossessed?

So your friend is just spreading baseless FUD. Maybe they are jealous of you being able to afford to buy? Or perhaps just coming up with reasons why they arent buying to convince themselves. Are they renting by any chance?

davidmcn

SarahWhitesands wrote: »

I've been advised by a friend that in some lenders T's & C's they have the right to foreclose for negative equity before the term of the mortgage even if you have never missed a payment??

Please bring your friend here and ask them to post a link to such a mortgage condition. I've certainly never seen one before, and as said, why it would even make sense?

Lenders will certainly have conditions to prevent you doing things which would devalue the property, but the movement of the property market is something which everybody takes a risk on.

Pixie5740

AnotherJoe wrote: »

So your friend is just spreading baseless FUD. Maybe they are jealous of you being able to afford to buy? Or perhaps just coming up with reasons why they arent buying to convince themselves. Are they renting by any chance?

i had to Goggle that because fud means something different in my part of the world although it could equally apply to the OP's friend.

:rotfl::rotfl::rotfl:

Silvertabby

“ So your friend is just spreading baseless FUD. Maybe they are jealous of you being able to afford to buy? Or perhaps just coming up with reasons why they arent buying to convince themselves. Are they renting by any chance?
Originally posted by AnotherJoe

Pixie5740 wrote: »

i had to Goggle that because fud means something different in my part of the world although it could equally apply to the OP's friend.

:rotfl::rotfl::rotfl:

I had to google it too - I was initially thinking along the lines of an Armed Forces acronym (such as SNAFU), where the F would stand for something quite different (but maybe applicable in this case?).

robatwork

Spreading FUD was a typical IBM behaviour in the 80s/90s.

But now we're a little off topic.

AdrianC

SarahWhitesands wrote: »

Say for example I purchased a property now on a 5 yr fixed rate mortgage. Next year Brexit causes house prices to fall and I fall into negative equity... can a mortgage lender demand the money from me? (assuming I always pay in full and never fall behind on payments)

Nope.

Unless you fail in the repayments, you've got that money until the end of the full mortgage term, 25yrs or whatever.

As far as I was aware, it only becomes an issue when it comes time to renew the mortgage in 5 yrs

You don't need to do anything in 5yrs - the reduced/fixed/whatever interest rate simply runs out and you go to standard variable rate.

AnotherJoe

I thought FUD was a well used term what with Brexit and all. Its in a stack of Brexit headlines.

And yes its FUD not "fud" whatever that is and i hesitate to look up !

burtbot1

Also, be aware that neg equity is when the house becomes lower in value than your mortgage - not just loses value on what you paid for it. So if you have a big deposit, it's quite unlikely you'll ever get in neg equity, even if your house loses value.