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Negative equity: how to protect yourself
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For those prepared to take a slightly riskier approach, switching from a repayment mortgage to an interest-only mortgage could be worth considering.
This will cut the monthly mortgage payments and ease financial stress in the short term. Although the mortgage capital will not be repaid, the freed-up money could be invested to offset the mortgage when it comes up for renewal.
If possible you could increase your earnings, either by taking on a second job or a better paid job if this is an option, which might enable you to pay off your mortgage more quickly.
Even if none of the above is a solution for you, don’t panic: negative equity is only a problem if you need to move and have to sell your house for less than the outstanding mortgage.
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Find the best mortgage deal
While analysts expect the market to be tough this year, most still think a full-scale house price crash is unlikely, so if you can ride through the current storm and sit tight it’s probably worth doing so.
And the good new is that while the number of mortgage products available has shrunk considerably in recent months, there are still a number of deals available which enable you to borrow up to 95% of the property’s value.
The best two-year fixed-rate deal is with Scarborough Building Society at 5.89% with a fee of £995.
However, there is a higher lending charge (HLC) for those who borrow more than 90% – this effectively pays for an insurance policy that protects the lender in case the property has to be repossessed and sold for less than the mortgage held against it.
If you’re willing to fix for longer you can get a better rate: Cheshire has a 10-year fix at 5.69%. The arrangement fee is £899 and, like the Scarborough deal, a HLC is levied on loans above 90%.
The best deal with no HLC is Leeds Building Society’s two-year fix at 6.05%, with an arrangement fee of £999.
