When an individual is facing negative equity, there is always no easy solution to get out of this; hence the “borrowers” would often find themselves helpless in this situation. This article will examine some options for homeowners to survive through negative equity in this tough economic climate.

House prices have fallen by 19% in a year and a half since 2007, which decreased the value of properties and lowered the rate of equity of every borrower. Even worse, negative equity was resulted for some when the value of their homes fallen below the mortgage they had taken out. Every individual in negative equity is trying to get out of this state; yet unfortunately, there is no easy way so solve this problem.

There are a few options to tackle the problem of negative equity:

1. Get help from your lenders

It is very important to get help and advice from your lender when you are struggling with negative equity. Depending on your situation, some lenders might be able to offer some aid packages; some may extend their lending over the Loan-to-Value amount in order to help households to remortgage; some offer unsecured loan that is not backed by any collateral. The option of picking any of these solutions from the lender is usually more expensive when considered in the long run. However, it is always better to have options than having nothing to get you through the tough situation.

2. Renting out

Renting out the property and find a smaller and cheaper place to stay may be a good idea to ease the negative equity. The rental income you get from it could possibly cover the cost of the mortgage loans. Nevertheless, the drawback on this is the huge responsibility to look after the property and any damages caused within your “home”.

3. Taking a lodger

If renting out the whole property involves too much responsibility, time and effort; you may also consider taking in a lodger. This way, you can keep an eye on your property all the time. Renting-a-room allows you to receive up to £4,250 tax-free allowance a year; with the rental income, you have the opportunity to reduce your debt.

4. Selling your house instead of repossession

By selling your property to escape from negative equity, the borrowers have to get the permission from their mortgage lenders. Even when the lenders agreed to the sale of your property, conditions may be applied - for examples, using particular estate agents for the sale as well as implying excess charge to secure the lenders on repayment. It should be noted that the borrowers would still be liable to the mortgage payment until the property is sold.

These are the basic options borrowers can use when facing negative equity, which can help them to repay the mortgage for the moment as well as avoiding repossessions. Maintaining a good communication with your mortgage lender is very essential; thus, make sure to let your lenders realise the full picture of your current situation and financial circumstances.

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