Negative Equity

[WordsAndWorlds]

If no deal really does happen. & it's been predicted that to do so could result in as much as a 35% fall in house prices...am I right in thinking that a humongous proportion of the country would be plunged into negative equity? Because of the climate of maxxed out mortgages in the UK, particularly in the South, a 35% fall would have a massive impact on so many people - would everybody lose their homes? Or just be forced to stay put and pray they could meet their mortgage payments because they certainly couldn't move elsewhere? Otherwise how is the UK going to cope with mass homelessness and what would become of all the repossessed homes?

Negative equity doesn't make you lose you home. You pay the same per month on your mortgage whatever your house is worth. It only affects people who have been sitting counting there hypothetical beans as the prices went up. There will be no more beans to count but you still have a roof over your head. An increase in interest rates would be far worse.

You can transfer negative equity onto a different house - or at least you could in the 90's when lots of people were in negative equity.

Negative equity means that the value of the house has fallen below the loan balance. The mortgage payment doesn't go up, you still owe what you owed before. If you could afford the payment when you had positive equity you can afford it when you have negative equity.

It is a problem if you want to sell, but not if you stay put.

People will just stay put. They won’t lose their homes unless they lose their jobs.

It would affect those who split up or lose their jobs though, just the same as it does every tine house prices go down.

Only 5% of houses sell in any one year
due to crippling price rises there are LOTS of people like me with little / no mortgage
who are just sitting tight.

Negative equity is only a problem when the house is sold
and REALLY a problem if the house is repossessed

Happened in the late 80's early 90's, only effects you if you want to or have to move, just remember the house you couldn't afford would have dropped by more in value, if you can a good time to buy as long as you know we are nearly at the bottom,

A huge rise in interest rates worries me more tbh.

The problems occur when you need to sell your house. In the 80s/90s, the interest rates soared, people lost their jobs and they couldn't afford to keep up with their mortgages.
They then found that they couldn't sell their houses because the house was no longer worth what they paid for it and no-one was buying anyway.

So people were trapped paying more and more money that they didn't have on a property that they couldn't borrow against and couldn't sell to move somewhere cheaper.

A huge rise in interest rates worries me more tbh.
And that won't happen because there are no drivers for it
No more than 2% within the next ten years.

My house went into negative equity after the last crash, I bought at the height of the market. It really doesn't matter unless you need to move. I'm thankfully out of negative equity now but my house is still worth the same as when I bought it 11 years ago.

Could the two happen at the same time? Drop in house prices and interest rates rise.

House prices could fall because demand has been artificially inflated by poor Whitehall policies.

Interest rates are driven by global macroeconomics
and there are no drivers for rates in any developed country to go up.

A drop in house value also affects you when your mortgage term finishes and you need to move to a different deal. Unless you revert to your lenders standard variable rate.

A good loan to value ratio (i.e. your house is worth a lot more than you owe) gets you a much better rate than a poor LTV ratio.

So yes. Fall in house price plus negative equity can be tricky if you move house. It can also be expensive if you sit tight.

Falling house prices would also affect those relying on the value of their home to find their old age.

Tanith- thank you, Yes this is my exact concern not just the negative equity alone. You explained it perfectly. It's the situation where there is widespread negative equity - but at the same time as interest rate rises or mass unemployment, meaning the option to just stay put and ride it out is taken away.

My DH is also adamant that there won't/ can't be massive interest rate hikes as a result of Brexit. Do others agree? Meaning from a property perspective at least the 'worst' that could happen is that you have to stay put in the house you're in for the long-term rather than having flexibility to move if wanted or needed?

I've never had a fixed rate mortgage so that was never an issue for me.

Interest rates can be sky high in one country while rock bottom elsewhere. See Argentina for an example.

As a pp says it does matter when you need to refix your rate if your LTV has changed for the worse. I'm relieved my term is up in May so we can fix now. I'm hoping things will have stabilised in 5 years but who knows 🙈

It wouldn't be just people looking to move - a drop in value also affects those people who are in a fixed rate deal. For us, we're on a cheap interest rate because we have 50% equity and therefore get the lowest interest rate. When the fixed rate is up, we'd only have say 25% equity so the mortgage payments would go up. Probably not massively but by a few hundred quid.

People who have say a 90% mortgage, or even 80% or 85% (depending on the value of the house) would find themselves in negative equity at the end of their fixed rate deal and would not be able to remortgage and would have to stick with the standard variable rate which is likely to be much more expensive that the fixed rate they were on previously.

Wordsandworlds
I've been unable to move for many years
as what I earn is nowhere near enough to buy a house in this area
half the country earns less than £20,000
only the rich are still able to buy and sell houses

half of Londoners earn less than £26,000 remember

tilder
Argentina is not a developed country for the purposes of interest rates

In my ignorance I'm assuming interest rates won't rise dramatically while the economy is so uncertain, they've already delayed raising them even though it was due. If all goes well then rates are absolutely due to rise, it's quite concerning when so many (myself included) have bought houses in the last 10 years with very low rates, it'll be a shock to the system to see them higher but I gather it's needed. As I say complete ignorance :/

My DH is also adamant that there won't/ can't be massive interest rate hikes as a result of Brexit. Do others agree?

Interest rates go up in response to substantial price inflation or government raising a benchmark rate.

Some price inflation may occur as a result of brexit, but I don't think it will be systemic or enduring beyond what you've already seen. The biggest inflationary threat you face is the falling value of the pound, which makes imports more expensive. A lot of that seems priced in already.

A central bank (in your case, the B of E) will raise rates to slow an economy that's growing too fast and threatening inflation because of excessive demand bidding up the price of goods. It's hard to see that scenario happening post brexit either. Slower economic growth and no overheating of the economy seems more likely. So I'm with your DH on this one.

TalkinPeece I didn't say it was.

Would say though that is slightly naive to think interest rates in one country won't go up just because they are not rising elsewhere. I'm not saying interest rates will rise here. Just that we are heading into a period of significant uncertainty. A bit of planning now seems a responsible thing to do even if politicians seem incapable of doing so

There won’t be interest rate hikes.

Talkinpeece
"Interest rates are driven by global macroeconomics
and there are no drivers for rates in any developed country to go up."

Sorry, can you explain that a bit more, please? I don't quite understand what that means. I, too, have been worried about interest rate rises, having lived through the 80s and 90s.