Negative equity
From Wikipedia, the free encyclopedia
Negative equity is a term used in the housing market, usually following a general fall in property prices, to mean that the market value of a mortgaged house or flat is less than the amount outstanding on the mortgage loan used to purchase it. This can also occur with second-mortgage home-equity loans and some loans structured to loan more than the appraised value, such as 125% loans. This means that if the borrower subsequently defaults on the loan, repossession and sale of the property by the lender will not raise enough cash to repay the amount outstanding, and the borrower will both have lost the property and may still be in debt, although a standard clause in most mortgages cancels the debt upon repossession.
The term was widely used in the United Kingdom during the economic recession between 1991 and 1996, and in Hong Kong between 1998 and 2003, which led to increased unemployment and a decline in property prices, which in turn led to an increase in repossessions by banks and building societies of properties worth less than the outstanding debt.
