How UK Property Buyers Avoid Negative Capital
Analysts disagree on how much housing prices in the UK will fall due to the outbreak of coronavirus and the subsequent freezing of market activity, but they are unanimous that there will be a fall. The fall in housing prices expected by UK real estate market experts will mean that buyers with high LTV mortgages (credit / collateral) may end up with assets worth less than they were at the time of the loan. That is, you own property that costs less than it cost when you took a loan to pay for it.
Indeed, many buyers are worried about avoiding negative net worth from the very moment of the transaction. Buyers who receive high interest rate mortgages are most at risk. For example, if you paid only 5% of the value of your property with your own money, you will quickly find yourself in a state of negative equity if housing prices fall by 13%. But this does not mean that you should immediately sell your property at a loss to yourself.
If you are able to wait out the situation on the real estate market until prices rise again, you should not panic. According to analysts, during each five-year period, prices eventually rise. Most professionals agree that prices will rise again in 2021.
Many lenders have revised high interest rates for new buyers. If you have a mortgage, discuss its terms with your lender. If you cannot pay it, then at the end of the current transaction you will be transferred to a standard mortgage with a variable rate. Although costs may be higher than you paid before, the difference will be mitigated by the fact that the Bank of Great Britain's base rate is currently at a historic low of 0.1 percent.
If you have negative net worth and you cannot wait for price increases, the situation becomes more problematic. You will need permission from your lender to sell. The selling price is likely to be less than the remaining value of the mortgage. And you will be personally responsible for compensating for the difference in cost.
The best option is to contact your lender and ask for consent to lease the property. Keep in mind that rental prices are likely to decline as well, especially with the expected volume inflow from the short-term rental market due to difficulties in the tourism sector. However, rental income may cover your mortgage payments.
The UK government has issued strict guidelines regarding travel during the coronavirus. But, when the situation with COVID-19 is resolved, foreign investors will be able to consider the market as an attractive investment opportunity amid falling prices. Although some experts predict only a minimal leap.
«After the current crisis in connection with COVID-19, we will see a drop in prices, but not so significant. I think that there will be few offers at a super price. Government revenue protections, mortgage vacations, and low interest rates will mean that fewer sellers will be forced to make significant price cuts», said Camilla Dell, founder of London-based purchasing agency Black Brick.