How_Money_Works_-_The_Facts_Visually_Explained

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PERSONAL FINANCE

Wealth-building investments

Negative equity

If the value of a property falls, generally as the result of a real-estate

slump, to the point at which it is lower than the amount of mortgage

loan owed on it, then the property is said to be in negative equity.

£

£

£

Equity

As the mortgage is paid

off and/or the property’s

value increases, the level

of equity goes up.

LOAN

REPAYMENT

£147,000 Loan

-£27,000 Equity

£160,000 Loan

£40,000 Equity

House value = £200,000

£80,000 decrease

in house value

0 5

100

0

200

300

400

500

600

700

Negative

equity

VALUE OF PROPERTY

IN THOUSANDS OF POUNDS (£)

YEARS OF OWNERSHIP

10 15 20 25

LOANS, VALUE, AND EQUITY

Equity fluctuates depending on the market value of a property and

the amount of any mortgage held against it. If a house is bought

for £500,000, with a loan of £400,000, the equity in it is £100,000.

If after five years, the loan has been paid down to £300,000, but

the value falls below £300,000, then the house is in negative equity

as the loan is greater than the market value.

Equity

Loan

£13,000 of loan paid

off over five years

New house value = £120,000

minus new loan value = £147,000

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