Negative equity risk when remortgaging??

[QuakingQuiche]

I'm close to exchange on a property I like with a 2 year fixed rate mortgage (this 2 year period will finish in March 2022.

I've heard from a lot of people that they're worried house values will crash due to covid-19 and they'll end up in a negative equity situation if remortgaging in 2 years?

If house values are still lower than they are in e.g. Jan 2020 in March 2022, will that mean I may have to get a bigger mortgage?

Also, second question is how likely do you think it is that house prices won't recover by March 2022 (I know no one can answer this second question with any reliability!)

You won't have to get a bigger mortgage but you may find that you can't switch to another deal and will be stuck on the lender's standard variable rate - it should say what this currently is in your paperwork. It is likely to be higher than your fixed rate, so your monthly payment will increase due to more interest being charged but the amount borrowed will remain the same.

For example, say you are buying a £200k property with a £180k mortgage. If prices crash and your house is worth £170k in 2 year's time, you will be in negative equity as you will only have paid a tiny amount off your mortgage balance so you are unlikely to qualify for a new mortgage as you won't have a deposit and you will effectively have lost all the deposit that you've put down, and an additional £10k. You will still owe the £180k mortgage minus the small amount that you've paid off.

Thanks for your reply - that sounds horrible :(

Would that put me at risk of repossession then?

You won't get repossessed if you keep on paying your mortgage.

Whether you can do that depends mostly on whether you are able to stay in employment and continue getting paid, plus are able to afford your mortgage even if it becomes a little more expensive.

If you are a doctor, other healthcare professional or working for another secure employer, you'll probably be fine. If you work in a chain restaurant or retailer of non-essential goods that is currently closed and part of a chain with a lot of debt and is quite likely to go bust, probably not