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  • How to Avoid Negative Equity and What To Do If You Are Already In It.

    What is negative equity?

    Negative equity occurs when the value of your property is less than the value of your mortgage.

    If there is a significant decrease in the market value of your property, negative equity may result. This is particularly the case if your mortgage is a large proportion of your property’s value. To reduce the risk of negative equity put a larger deposit into the property so that your mortgage is smaller (and so that you can obtain a better borrowing rate).

    Be aware of property market conditions?

    Obviously, it is not always easy to obtain a large deposit, so it is also important to be aware of market conditions when buying. If you bought a property at the peak of the market when the housing bubble burst, the value of your property may well have fallen significantly since, possibly resulting in negative equity. Timing is critical in any market and the housing market is no different. Hence, if you are considering buying a property you should conduct research to assess the trends in local, regional and national house prices.

    What happened to cause negative equity?

    Unfortunately, the housing market is difficult to predict, even for the experts. Few people predicted the US sub-prime crisis and the credit crunch, global recession and housing market crash which consequently followed.

    The UK was not immune from the dodgy lending practices occurring in the US. UK banks practice of lending to people, who they knew were at a high risk of not being able to pay their mortgage, combined with the decline in house prices, led to negative equity affecting around 2m UK households in 2009.

    Financial Services Authority (FSA), The Council of Mortgage Lenders (CML) & Experian credit ratings agency - research on Negative Equity facts and figures

    According to The Financial Services Authority (FSA) in March 2010 there are 500,000 buy-to-let investors and two million homeowners who are in negative equity.

    As a result half of buy-to-let borrowers and one in four homeowners with mortgages are unable to sell their properties or even remortgage until property prices rise again. These figures are unlikely to decrease significantly since – unemployment is still high and the economic recovery is weak.

    The worst prediction is by research company GfK NOP, which believes that 3.8 million borrowers are in negative equity, also a further 1.2 million people will be in the danger zone this year. That's a total of 5 million mortgage borrowers.

    The Council of Mortgage Lenders (CML) suggests the following:

    • An extra 600,000 UK mortgage holders now have less than only 5% equity in their homes.

    • Also a further 500,000 UK mortgage holders now have only 5% to10% equity in their homes.

    In total, around 2 million mortgage borrowers could not raise 10% deposit from the equity in their house if they wanted to sell.

    Recent research carried out by credit ratings agency Experian shows the highest risk of negative equity in England is in the Calderwood Street postal area in Woolwich, London! Where the average mortgage is 91.1 per cent of the property value.

    Within the next 18 months the Financial Services Authority, has issued a warning that more than a million families are now in danger of losing their homes.

    Is negative equity a problem?

    Negative equity is only a problem if you need to sell your property. So the problem is not negative equity - the real problem is divorce, job loss or ill health, these are the main reasons why people need to sell unexpectedly.

    Call your lender urgently

    If you are having trouble with your mortgage repayments and can no longer afford to pay your monthly mortgage payments you should talk to your lender as soon as possible, urge debt advisers.

    Some lenders may allow you to change your mortgage payments to interest only, which lowers your monthly costs. You may find it useful to also talk to your local authority housing department or housing association.

    Of course, you may be able to hang in there – your financial situation may improve and the value of your property may bounce back. However, the housing market is predicted to remain depressed for a long time, so you shouldn’t feel too confident about your property value increasing significantly.

    Negative equity mortgages are available through certain lenders – they allow people to move home despite being in negative equity on their current home. However, the borrowing rates tend to be so high that your debt problems are likely to worsen dramatically.

    Because banks are now tightening their lending criteria, this means that many people cannot switch to another cheap mortgage deal when their fixed-rate term runs out.

    So as a result many people ask The London Property Buyers “how do I get 100% market value for my house?” Well that’s a good question to ask because our service helps many people who want to sell their property fast for the full outstanding mortgage value. So even if your home is in negative equity we can buy it today!

    I'm in negative equity - get me out of here!

    So, how can you sell your negative equity property for the full value and not lose any money?

    If you are in negative equity your property may be referred to as being “underwater”. We can help you reach the surface and relieve the stress by making you a guaranteed cash offer for your home today.

    Even estate agents can’t help you sell your house if you are in negative equity, because your bank will not allow you to sell your property for less than the outstanding mortgage amount.

    If you are in negative equity, and you don’t keep up your mortgage payments you are at risk of your property being repossessed. If this happens and your property is then sold at auction usually for less than your mortgage, then you are still liable for the outstanding amount you owe the bank, which you must pay back even if you are declared bankrupt!

    Whatever your situation maybe The London Property Buyers are confident that we can help you today, because we have helped many people just like you sell their negative equity property quickly (for the full mortgage value). So call us now on: 0800 879 9889.

  • What Effect Does the Budget Have on the Property Market?

    The new coalition government’s budget was delivered on 22nd June 2010, and Chancellor George Osborne had warned that it would be tough with many people being ‘hit hard’. This article will look at how the budget will affect the housing market.

    Budget Changes to Capital Gains Tax will affect those with second properties

    Capital Gains Tax is another issue that may affect the housing market. This applies to second homes; either holiday homes or properties bought as buy-to-let investments, while your primary residence i.e. the family home is exempt from capital gains tax.

    The government has said that those who pay higher rates of tax will be subject to a 10% increase in capital gains tax, rising from 18% to 28%. This came into effect immediately and as it stands those of you who are higher rate tax payers, who earn more than £44,875 per year (i.e. if you’re taxable income is more than £37,400) are subject to the new rate. For those on a low or middle income who pay income tax at the basic rate, capital gains will continue to be taxed at 18%.

    Capital Gains Tax only applies, if a profit is made from that asset – so in other words, the increase in its value from what you originally paid to when you sell it. For example, a property bought for £200,000, which you sell today for £300,000 would only be taxed on the profit you make, of £100,000.

    Is there a Capital Gains Tax exemption for the elderly?

    As a result of the budget elderly homeowners who move into care homes may have to pay Capital Gains Tax when later selling their home.

    1 in 4 of the UK’s 380,000 elderly care home residents are also homeowners. Many elderly people decide to keep their family home for several years even when they move into care, with the hope that one day they will return back home when they become well again. This means that if they have lived in the care home for 3 years the HMRC deems that as the primary residence.

    Therefore when they decide to sell their family home to pay the growing costs of being in care, their own home would have the same status as a second home or buy-to-let property. Capital gains tax will then apply to the second home if the house increases in value by more than £10,000 during the 3 years the owner is in the care home.

    Stamp Duty Tax

    Stamp Duty Land Tax (SDLT) is another issue to be reviewed as a direct consequence of the new budget. Stamp Duty is a tax that is applied whenever you purchase property or shares. For all property purchases SDLT must be paid. The budget has revealed that the government has promised to review whether further amendments to SDLT rules is needed to prevent tax avoidance on higher value property transactions. Meanwhile, they will continue to review the period known as ‘Stamp Duty Holiday’, which is a relief of the tax for first time buyers. The review will take into account its impact on affordability and value for money.

    Council tax payments

    The government has promised to freeze council tax payments in 2011-2012. This will require the government to work with local authorities but this is good news for those who pay council tax.

    How does Housing Benefit affect landlords?

    Another large issue regarding changes to the housing market is the Chancellors announced plans for a major reform of the Housing Benefit system beginning in April 2011. The idea is that the reform will make the welfare system fairer and more affordable and the Chancellor is quoted as saying that the measures they plan to implement will reduce Housing Benefit costs by £1.8 billion by the end of Parliament.

    Here is a list of some of the measures the reform will include[1]:

    • re-setting and restricting Local Housing Allowances

    • increasing deductions

    • reducing certain awards

    • new maximum limits on housing benefit: from £250 a week for a one-bedroom flat, £290 a week for a two bedroom property, £340 a week for a three bedroom property and £400 a week for a property of four or more bedrooms

    • time-limiting the receipt of full Housing Benefit for claimants who can be expected to look for work

    • restricting Housing Benefit for working-age claimants in the social rented sector who are living in a larger property than their household size warrants

    • re-adjusting Support for Mortgage Interest (SMI) payments - currently 1.58 percentage points above the Bank of England Base rate; from October 2010 SMI will be paid at the Bank of England’s published Average Mortgage Rate

    These new measures have done little to ease public anxiety regarding the current property market. Even Labour MPs warn of a housing crisis in the South East and London, where rents are much higher. In London about 170,000 families receive the local housing allowance and pay rent to landlords.

    Seven of the most expensive local authority areas in London such as: Camden, Hackney, Hammersmith & Fulham, Kensington & Chelsea, the City, Tower Hamlets and Westminster - local private rents are much higher than the benefit cap within the borough. In all the other London boroughs families on housing benefits will not be able to pay the rent because larger properties cost much more than the cap.

    As stated in a previous LPB article, it was anticipated that Capital Gains Tax would rise to 50%. Whilst the increase was only to 28% there is a worry that this will still weaken demand for property by second home buyers and buy-to-let investors.

    For example, many London boroughs are cutting the housing benefit allowance. Therefore landlords who rent their investment properties to the council for long-term periods for guaranteed rent now have to rethink their strategy. This means that this once profitable monthly cash flow will soon stop, resulting in landlords looking to rent out their properties privately.

    However, The London Property Buyers could provide you with a good alternative to your property problems. We are happy to rent out properties long term with a guarantee rental payment to you every month regardless of whether your property is empty or not.

    To find out more about our unique services and to reduce the cost of Capital Gains Tax we can help buy your property today, as well as providing other useful solutions to everyday property problems. So call The London Property Buyers now to find out how we can help you today: 0800 879 9889