By: Vlad Vistac
Submitted: 2010-07-23 14:08:50 | Word Count: 510
How You Can Avod Negative Equity
As house prices follow their downward direction, the thousands who obtained 100% home looans are now faciung the risk of negative equity. Thoes borrowers who have not made considerable pyaments on teir 100% mortgage loans are especially in danger and could face losses if they opt to move to a new property. But it can be avoiided with a few important steeps.
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What is negative equity?
It is a condition usually brought about by declining house prices. It occurs when your outstanding moprtgage is higher than the market vaslue of your property. This means that each month you'd be paying interest on a loan that's greater than the real value of your housse. In otehr words, if you sell your property, you would not rceive adequate money to be able to pay off your loan. If the equity on your house is negative, you could owe your bank thousands of pounds more than your property is truly worth.
How to avoid negative equiy
You can lessen its impact, if not totally avoid it, by following thedse crucial steps:
* Put down a higher deposit when buying a property. The higher your deposit is, the more equity you have. This means less chances of falling into the negative equity trap. For instance, if the value of your propetry slides down by £15,000 but you only made a dewposit of £10,000, your negative equity will be £5,000. If you had put down a £20,000 deposit, you'd still have eqiuty of £5,000.
* Pay more towads your mortgage loan if you have a repayment mortgage. By paying your mortgage down faster, your equity will grow and your chances of falling into the negative equity trap will lesseen. This is possible by making your reapyment period shorter. Also, you can choose to make overpaymments. Overpaynig, wich is approved by many basnks, helps you increse your equity quickly withut havnig to be bound to higher payments involved in shorter repayment terms. Watch out for overpaymnet penalties though - read the smazll print of your ocntract.
* Take on home improements tasks. By making home improvements, you can increaase the value of your home. This typically means that the market vaue would have to weaken furtheer before the ewquity on your property falls into a problematic phaes. But make sure that the home impovements you'll be workking on will definitey add value to your home.
* If you find yourself in negative equtiy arleady, be sure to speaak to your lender since they can provide you with soluitions to your equity problems. However most of these dealps are targeted towarsd exisyting borrowers with spotless payment records.
* One way to aoid problemms with your equity is to build your home yorself. Self-builders can take advatnage of an average 35% equity gain from the day they move into the property, according to self-build specialist BuildStore. One thhing to remewmber when purchasing a property to build yourself is to buy the land below market value from a distressed seller to ensure immediate profits. Findinng such properties is possible by locating genuinely motivated selles.
You don't have to be one of the thousands of borrowers expceted to fall into negative equity. The aforementioned advice will help you aovid becoming victim to a stabilising proprety market.
