How does negative equity affect my credit rating?

Will Negative Equity Affect My Credit Rating?

  • Will Negative Equity Affect My Credit Rating?

    One of the first questions we’re often asked at Negative Equity UK is ‘will negative equity affect my credit rating’?

    Clients are often worried about how their current property debt situation will affect their ability to borrow in the future, whether it’s to buy another house or take out personal loans to cover any other expenses that might arise.

    What is a credit rating?

    A credit rating is essentially an estimate of a person’s ability to meet their financial commitments based on their financial history. When you apply for a mortgage or other personal loan, your lender will use your credit rating to determine whether or not you qualify for a particular product.

    When you apply for a loan, your credit rating will determine whether or not your application is successful. Your credit score will determine the interest rate that you end up paying.

    Borrowers with a higher credit score are seen as being more able to meet their repayments and therefore presenting a lower risk of default to the bank.

    Some factors can affect your credit rating including:

    1. How much of your available credit you’re using and how much debt you have in total
    2. Your history of making repayments on any loans you’ve taken
    3. Public records showing any country court judgments (CCJs) against you.

    Will negative equity affect my credit rating?

    Having negative equity on your property won’t affect your credit score in and of itself, but if you run into financial difficult circumstances such as: 

    1. If you can’t keep up with your mortgage payments
    2. You need to move house while your current property is in negative equity
    3. Your interest only mortgage is up, and you can't afford the capital on it
    4. You have recently divorced and are sitting on a house with negative equity you cannot afford

    Some of the ways we can help you deal with this property debt might affect your credit score.

    To help you deal with your property debt we will always try to come to an agreement with your lender to write off as much debt as possible. In some cases, where an informal agreement isn’t possible, an Individual Voluntary Arrangement (IVA), or even bankruptcy might be suitable.

    Because in these cases you won’t fully repay the money you owe to your lender, they will have a negative impact on your credit rating. However, this shouldn’t put you off dealing with your unaffordable property debt.

    Dealing with your negative equity house and coming to an agreed settlement will be seen as a "settlement" by the creditors.  This solution will have less of an impacted on your credit score compared to letting the problem go any further. A lot of Negative Equity UK clients were eligible for a new mortgage just 18 months after settling. 

    A poor credit score can be fixed over time by paying bills and other loan payments when their due. You will fix your credit score a lot faster by dealing with your property debt as soon as you realise there’s a problem, rather than waiting for the situation to get worse.

    We can help.

    If you’re struggling with unmanageable property debt, whether your home is in negative equity, you’ve fallen into arrears, or you can’t afford to repay the principal on an interest-only mortgage, contact Negative Equity UK  to arrange an initial free, no-obligation consultation and begin the process of becoming debt free!

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