What does Negative Equity mean?

Negative equity is that unfortunate scenario when your outstanding mortgages/loans with your home as collateral, exceeds well over the real market value of your property. For example, if the sum of your loans/mortgage is £150,000 but the real market value of your home is £180,000, which makes up £30,000 negative equity. So, even if you are willing to sell your home in order to cover debts, you still owe the outstanding £30,000.

Reasons why people fall into negative equity are many; sometimes it is own fault by not being able to manage well own resources, but sometimes it is the market fluctuations especially real estate market ups and downs which make such gaps into the financial status of individuals.

The simple illustration of how the market negatively influences equity is the following: almost two decades ago you purchased a home which’s value on the market was £180,000, and your mortgage was of £160,000 for example. With the passing of time, middle nineties you realized that your property’s real market value is no more than £145,000 due to the house prices dropping drastically over that period. Say you wanted to sell your property, which means that you could sell it automatically with £15,000 less which is quite a difference.

When the UK was swept by economical recession in the mid 90’s the first to feel it were the property owners who had a mortgage above their had, as the outstanding loans exceeded well the real market value of the homes which led to mass repossessions.