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The Credit Cruncher was conceived to help you to keep up to date with credit crunch and recession developments, it provides some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Recently, we have begun to look at how BREXIT will affect the UK economy. Please feel free to leave comments where relevant.

15 Mar 2009

Negative equity looms..

The credit cruncher dot com has already nailed it's colours to the mast when it comes to property prices - industry predictions have been conservative, but the drop over the next year or so could be very significant when you study the steep rise in house prices over the last decade.
Whilst many may be 'enjoying' the savings afforded by the drop in interest rates, it is worth mentioning again that negative equity is going to be a reality for many, not just those that have bought property when the market was at peak, but also the many thousands of homeowners who have realised some of their equity capital when remortgaging.

Of course negative equity is not a huge problem in the short-term as long as you can afford your mortgage repayments, but a dropping market coupled with high unemployment, is bound to take it's toll.
In short, negative equity refers to the value of the property compared to the remainder of the mortgage. Where the remainder of the mortgage exceeds the market value of the property, the homeowner is in negative equity. If the homeowner fails then to repay the mortgage, they risk losing the property and having nothing to show for it - or even worse, losing the property and having a debt remaining.

It is currently estimated that four million UK homeowners are in negative equity, this is certain to rise over the coming months and years, but as long as you have the means to pay your mortgage and don't need to move, it should not present a problem. If negative equity is looming for you, you could consider overpaying your mortgage (easier if you are currently benefiting from low interest rates) as this will eat into your debt. The latest house price index from Nationwide indicates a drop in house prices of 17.6% in the last 12 months.

Related posts:
When will the property market recover?
25% house price drop expected
Sub-prime mortgages to blame?

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