The inability to remortgage when a homeowner’s current mortgage deal ends can be a blow to one’s budget.  When the mortgage deal ends the loan is converted to the lender’s standard variable rate (SVR) and in the case of most lenders their SVR interest rates are being adjusted upward.  Just in the last few months some lenders have increased their SVR for the second time this year.  The only way to avoid these increases is to remortgage when a mortgage deal ends but many homeowners are unable to do so.

One of the reasons that many homeowners are being held apart from a new remortgage deal is because they have plunged into negative equity.  Negative equity occurs when a homeowner’s property value has decreased below the level of the mortgage debt held on the property.  In other words, there is more owed on the property than what it is worth on today’s market according to property values in the surrounding areas.  Most areas in the UK have experienced declines in property values except for London which has actually done quite well since the first recession began in comparisons to other areas.

According to the Council of Mortgage Lenders (CML) it is estimated that more than 25% of all outstanding mortgages that were secured at the height of the housing boom in 2007 are now in negative equity.  When a homeowner is in negative equity they cannot remortgage.  The only thing that can be done is to pay the debt down on the mortgage to the point where the debt is lower than the property’s value.  For many households it is difficult enough to keep up with remortgage payments and paying down more than the required monthly repayments would be impossible.

The CML report concerning mortgages in negative equity estimated that there has been a decline in the number of those in negative equity since 2011 with the number going to 719,000 from the 827,000 recorded in the first quarter of 2011.  This is a 13% decline in negative equity mortgages.  The Bank of England has consistently shown in lending reports that in the last two years more people are paying down debt rather than borrowing.