Due to plummeting house prices, over a million households are now in negative equity according to latest figures.
Over the past year the average home has lost around £30,000 from its value falling from £180,473 in January 2008 to just £150,501.
According to Nationwide building society prices fell for a record 15th straight month, with January 2009 seeing a loss of 1.3 per cent, or about £2,500. This put the annual rate of decline at a new record high of 16.6 per cent, making an average home some £35,543 cheaper than at the peak of the housing market in October 2007.
Economists warn that the decline was pushing around 200,000 people every month into negative equity (where more than the value of the property is owed).
Experts predict that the current total number of households in negative equity had risen to as many as 1.2 million, up from less than 100,000 12 months ago, but that this figure could reach over three million before the current crash ends.
Whilst this only affects owners when they come to sell their properties, many householders have re-mortgaged in the past for home improvements or to consolidate debts.
As many lenders have now reduced their loan-to-value (LTV) rates, this could put vulnerable households under increasing pressure, as they wouldn’t be able to re-mortgage above the value of their home.
Debt advice organisations recommend seeking impartial help as an alternative to a secured loan, as consolidating credit debts (such as store cards, loans, overdrafts and credit cards) into a loan attached to property can often have serious consequences if they aren’t stringently maintained.
Following their free advice, a debt help organisation may suggest opting for a debt management plan or an IVA to help alleviate finances.
Solutions, like debt management plans (DMPs) gather all credit debts into one affordable payment – making balances easier to manage. Debt management is a flexible debt help solution, as payments can be altered to suit a client’s changing financial situation.
Similarly to debt management, an IVA (Individual Voluntary Arrangement) gathers credit debts into one affordable regular payment. However, unlike a debt management plan, an IVA requires the services and debt advice from a qualified Insolvency Practitioner.
The Insolvency Practitioner draws a legally-binding contract between creditors and a client, which protects the client from changing demands – once the IVA has been agreed. An IVA is typically for a set period of time (usually 5 years) after which time all unsecured credit debts are written off and the client is debt free.
An IVA is generally more suitable for debts of over £15,000.
For impartial debt advice and information on all solutions, it’s best to speak to a reputable debt help organisation. Chiltern Debt Management, Hamilton Locke and The Debt People are well established and well regarded within the sector. Their debt advice is free and their solutions, like debt management and IVAs, are tailored to the client’s circumstances.