Negative equity
Negative equity really does spell bad news for a homeowner. Negative equity occurs when the property you ‘own’ is worth less than the amount you owe your bank or building society. Negative equity can occur when people pay over the odds for a property or when a problem is discovered after the sale that brings the value down. To minimize this risk it is recommended that you conduct a detailed survey of the property you are intending to buy and know when to walk away from the deal based on cold hard facts.
The above cause of negative equity occurs on a personal basis however on a wider scale negative equity can occur when rising interest rates make mortgages less affordable. This affordability issue results in fewer people purchasing homes that leads to less buyer activity that results in reduced house prices. This price correction can potentially leave tens of thousands of people stuck with the property they own.
