Negative equity is the term used to describe a home that is worth less than the mortgage secured on it. If you’re in this position, selling your home at a good price on the open market wouldn’t raise sufficient money to pay off your mortgage.
If you don’t have the means to pay the difference, there’s a good chance you’re stuck in your property indefinitely. That’s why we’ve put together a list of potential options. Yes, you can sell a house with negative equity — but is it the right move?
Speak to your mortgage provider
If you’re happy to remain in your home and can afford the mortgage repayments, negative equity might not be a major short-term concern for you. However, if you want to move, you might need to take a proactive approach.
Reach out to your mortgage advisor and ask about transferring your mortgage to another home. A lot of lenders will transfer the mortgage to a more expensive property if you sign up to a larger balance.
Alternatively, you might be able to make overpayments on your mortgage without incurring penalties. This is usually the quickest way to get yourself back into positive equity. You should be allowed to pay off at least 10% of your balance early without incurring penalties. So if you can unlock savings or investments elsewhere, this is a good option.
Stay at home
The simplest and cheapest option is to ride things out. If you’re in negative equity, it’s probably because of a sudden decline in the local property market. These things tend to right themselves over time.
If you’re happy in your property and have no problem paying your mortgage, wait until the market recovers. If you don’t have to worry about repossession, you can ride out the storm and wait for local house prices to recover.
Negative equity only becomes a significant problem when you can’t afford repayments, or you need to sell your house fast.
Increase the market value of your home
Three things get you out of negative equity: debt reduction, rising house prices and an increase in the market value of the property.
Take a look at the houses for sale in your area. What do they have that your home doesn’t? In many cases, you’ll be able to improve your house without a huge cash outlay. A few enhancements or repairs might add a couple of thousand to your home’s market value.
Rent out your property
So, you can’t afford to move home, but you need to leave as soon as possible. Perhaps you’re struggling to keep up with mortgage repayments. Or maybe you need to relocate for a new job. In either case, negative equity could be holding you back.
In these circumstances, the most logical decision is to rent out your home. You can use the income to pay off your mortgage or any debts secured on your home. You might even be able to turn a profit. Renting gives you breathing space. House prices always recover eventually; you just need to be patient.
Take out a loan
If the negative equity in your home is relatively modest, an unsecured loan might be enough to make up the difference. Make sure you get a good rate of interest, and that you can comfortably afford the repayments. But beware: this type of borrowing is always more expensive than securing a loan against your property.
Sell as quickly as possible
Check with your mortgage provider about the best way forward. But if you’re in serious financial difficulties, you might need to ask about selling your home as quickly as possible. Some lenders will accept repayment programmes after the property is sold.
If you need to sell a home quickly to alleviate financial problems, Flying Homes can help. We buy homes directly from owners for up to 100% of their market value. If the circumstances are right, you could have the proceeds of the sale within just a few days.