What to do if you fall into negative equity

• Top Tips
• Published: 08 Oct 2008 in Money and Mortgages

When house prices fall, those who took out mortgages to buy their homes when prices were higher could well fall into negative equity - i.e. the value of the property is less than the amount of the outstanding mortgage. Although you can do nothing to reverse the trend of falling house prices, there are some things you can do to ease your struggle out of the negative equity trap:

• Repay more of your mortgage - a short-term sacrifice to make longer-term gains lies in repaying more of your mortgage each month. Your lender will probably impose a penalty if you exceed a certain limit, but by reducing the amount you owe, you will obviously be reducing the amount of interest you pay each month.
• Windfalls - if you are fortunate enough to receive an inheritance or bonus from work, use it to pay off your mortgage, rather than on any other of life's luxuries.
• Savings - if you have reached the lender's limit for how much you can overpay in to your mortgage, then make sure to get the best rate of interest on any savings you can afford. This could mean, for example, taking advantage of your Individual Savings Allowance (ISA) of £3,600 a year. By having savings working hard for you, this will help you boost any equity should you remortgage or move.
• Avoid more borrowing - avoid borrowing from other sources (which will all be more expensive) to repay your mortgage.