surviving the recession

Most Brits are worried about property prices falling. It makes things that much harder in a recession. Drawing down equity becomes impossible and trying to remortgage to lower your payments also becomes difficult. And if you lose your job, the option of simply selling your property to pay off your mortgage isn’t there (if the property price falls below your mortgage, you are still liable for the difference after the property is sold, so you could end up unemployed, homeless and have a debt on top to repay).

So what are your options?

First, find out what the damage is. The Financial Times has a handy negative equity calculator.  Plug your numbers in to see if you are in negative equity (negative equity is a phenomenon where your mortgage is greater than the value of your house).

If it turns out that you are in negative equity, don’t panic.  Check the terms of your mortgage to see if you can make capital repayments at any time without penalty (this is sometimes referred to as overpaying your mortgage). Making capital repayments will reduce the loan outstanding, and hence reduce any negative equity you have (or if you are in a positive equity situation, increase your equity further). Reducing the loan may also make it easier to get a remortgage. Plus it has the effect of reducing your outgoings, as the less capital you have outstanding, the less interest is charged.

But where to find the money to make the capital repayments. Make sure you don’t touch your emergency savngs (and if you don’t have emergency savings, build some before doing anything else). Then look at your budget to see how you can reduce outgoings (I will be posting ideas on this blog about how to do this).

You can also try to increase your income. The UK government has a Rent a Room scheme, where you can rent a room in your home, tax-free for £4250 per annum (£354 per month). You should be able to increase your income sufficiently this way to raise money to overpay your mortgage. And if the worst happens, and you lose your job, at least you will have some money coming in.

You should also check the website Entitledto.com, which tells you what tax credits and benefits you may be entitled to. In particular, people in work, who have children are entitled to generous tax credits (a form of tax relief), and the boost in income may be sufficient to help you raise money.

I will be posting a series of articles on other ways to increase your income in the near future.

Finally remember that paying your mortgage and paying your council tax are top priorities - your home can get repossessed if you don’t keep up payments. Try to do absolutely everything you can to ensure you meet those payments.

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