If your home is currently in negative equity, you’re not alone. Following the property market crash of 2008 and a tightening of the rules on mortgage lending, many people are facing this struggle.
So, if you are in negative equity, how does this affect your chances of taking out other types of credit?
Well, the good news is that there are still credit options available to you. And as long as you always make your mortgage payments on time, as well as your other bill payments, your eligibility in the eyes of lenders will not be affected by being in negative equity.
Let’s look at your borrowing options and the impact negative equity can have on each:
As your credit history is unaffected by your loss of equity, it will not be taken into account when you apply for a personal loan.
What you should take care of is to not overstretch your finances by taking on more credit. Use a loan calculator like ours to work out how much your loan could cost you each month, and whether you can afford to spend that.
If it’s a secured loan you’re after and you’re in negative equity, unfortunately you won’t qualify.
A secured loan, as the name suggests, is secured against the equity you have in your property. If your property is in negative equity, your mortgage is worth more than your home, and there’s no equity to secure a loan against.
If you were to default on your loan payments while in negative equity, a lender would not make any of their money back by selling your property.
You may be able to remortgage with your existing mortgage provider if you’re in negative equity, but this is unlikely.
Once your fixed-term or tracker mortgage deal ends, it may not be possible to remortgage to a new deal or lender. Instead, you may find yourself on your lender’s own Standard Variable Rate (SVR), which usually has a higher interest rate than other mortgage deals.
If this is the case and if you can afford to make overpayments on your mortgage, as long as there are no fees attached, do this so you can reduce your Loan-to-Value ratio as quickly as possible to get out of negative equity. Once out of negative equity, you can apply to remortgage and get back on to a lower rate.
If you want to switch lenders while in negative equity, keep in mind that they’ll most likely want to value your home. If it’s worth less than the amount you want to borrow, the lender is very unlikely to give you a mortgage because of the risk you present.
A borrowing option that won’t be affected by you being in negative equity is a credit card. As with a personal loan, because your credit history isn’t affected by your negative equity, you should be able to get a credit card as long as you meet all of the lender’s criteria.
If you find yourself in negative equity and feel like you’re fighting a losing battle - there is a light at the end of the tunnel.
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