How to avoid getting into negative equity if house prices fall: the latest property advice

Linda J. Dodson

What if you have to move house?

If you’re in negative equity and you can’t sit tight, your situation is more problematic. You will need permission from your lender to sell if the sale price is likely to be less than the remaining value of the mortgage. And you will be personally responsible for making up the difference in value.

A better option is to contact your lender and ask for consent to let out the property, says Morrey. In other words, you can become an accidental landlord. 

Be wary that rental values are likely to take a hit, particularly with the expected influx of stock from the short-term lettings market with the collapse of the travel industry. But hopefully, the rental income can cover your mortgage payments and free up your disposable income so that you can rent elsewhere while you wait for property prices to recover.

Is now a good time to negotiate a deal?

The Government has issued strong guidance against all but essential house moves during lockdown. While sales can still technically proceed, the market is a minefield. Many chains are falling through and some buyers can’t meet their completion dates.

When lockdown lifts, however, some buyers might consider the market an opportunity. If house prices are falling, “you’re likely to be able to make a cheeky offer,” says Morrey.

There just might not be much stock to take a punt at. After a crisis, “we will always see a bit of distressed selling,” says Camilla Dell, founder of the London buying agency Black Brick. “There will be some undoubtedly, but I think it will be few and far between.” The Government’s measures to protect earnings, mortgage holidays, and low interest rates will mean fewer sellers will be forced to take big price cuts.

If you are trying to negotiate, “the key to success is understanding your seller”, says Dell. If you know why, or how urgently they need to sell, you have more bargaining power.

You will also have an advantage if you “can demonstrate that you can move quicker, and anyone sitting on cash is in a great position”.

For those that aren’t may find that they simply can’t buy. Lenders have withdrawn high LTV mortgages from the market en masse. The available mortgage offering has shrunk by nearly a third and you will likely need a deposit of at least 20 per cent to secure lending. 

Which parts of the country will be safest to buy in?

In the immediate term, the impact of coronavirus and the lockdown will be “very much uniform across the country,” says Lawrence Bowles of Savills Research.

When the restrictions lift, however, “we would expect equity driven markets to recover first,” he says. In prime central London, for example, people are more likely to buy with cash rather than with a mortgage, so purchasers will be able to move more quickly.

Recovery will also be dependent on the local employment markets. According to analysis by the CEBR, 48 per cent of the UK population works across the sectors most affected by the coronavirus lockdown: manufacturing, construction, retail, hospitality and other service sectors.

But their concentrations are highest in particular regions. In Yorkshire & the Humber and Northern Ireland, 60 and 59 per cent of workers are in these industries respectively. Disruption to the job markets here is likely to have a bigger impact on the local housing markets, according to CEBR. 

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