Landlords Concerned with Negative Equity

Though a general air of confidence does seem to be building around rental property, there is still an overriding worry which could leave some landlords in a difficult situation. House prices are still falling and that could leave landlords in negative equity. Early estimates suggested that the number of landlords in negative equity could rise to around 30% by the end of this year, but even a more conservative estimate could mean serious financial problems for some landlords.

Is Negative Equity a problem?

Not necessarily: if you’re in a position where your tenants are paying your mortgage comfortably and you are hoping to hold onto your property for a few more years, then a negative equity is unlikely to have any impact upon your investment. It’s likely that property prices will continue to fall for at least a few months, but we should reach the bottom of the trough soon. Even if prices remain flat, a negative equity situation can be resolved with no net loss if you generate enough income from your tenants.

Access to Finance

However, there will be impacts of falling into negative equity on your financial potential. You will find that taking out extra loans on a property that is in negative equity almost impossible, and you might find it tricky to take on another mortgage on another property if you want to expand. Keeping your options open is a wise idea, so make sure you’ve got a reasonable overdraft or some savings and a good landlord insurance policy to protect against the worst.

Selling Up

If you’re in a position where you’re desperate to sell, negative equity could be a serious problem. If you absolutely can’t wait, your best bet may be to pay off your mortgage as much as you can, and hope to cover debt you owe with savings. It may be worth consulting a financial advisor for a full range of options.
Negative equity is a difficult concept to get your head around and it’s even more tricky if you’re working with old valuations. If you’re not selling anytime soon then it’s unlikely that you have too much to fear, but do be aware of the implications on your financial power.