Stratford-upon-Avon
13 The Courtyard
Timothy's Bridge Road
Stratford-Upon-Avon
Warwickshire CV37 9NP
Negative equity occurs when the value of an asset, typically a property, falls below the outstanding balance on the loan or mortgage secured against it. In other words, the amount owed on the mortgage is greater than the current market value of the property.
Example:
Imagine you bought a house for £200,000 with a mortgage of £180,000. If the value of the house drops to £150,000, but you still owe £170,000 on the mortgage, you are in negative equity by £20,000 (£170,000 owed – £150,000 value).
Causes of Negative Equity:
- Falling Property Prices: A decline in the housing market can reduce property values, leading to negative equity for homeowners who bought at higher prices.
- High Loan-to-Value Ratio (LTV): If a homeowner took out a mortgage with a high LTV ratio, they have less equity in the property. A small decrease in property value can push them into negative equity.
- Interest-Only Mortgages: Homeowners with interest-only mortgages do not pay off the principal balance, which can lead to negative equity if property values decline.
Implications of Negative Equity:
- Selling the Property: If you are in negative equity and want to sell the property, the sale proceeds won't cover the outstanding mortgage balance. You would need to find additional funds to repay the lender.
- Mortgage Difficulties: Refinancing or switching to a new mortgage can be challenging if you're in negative equity because lenders typically require some equity in the property.
- Limited Mobility: Negative equity can limit your ability to move house, as you may be unable to sell your property without incurring a loss.
Dealing with Negative Equity:
- Overpaying the Mortgage: If possible, making overpayments can help reduce the mortgage balance faster, potentially bringing the mortgage back to positive equity.
- Renegotiating with Lenders: Some lenders may be willing to restructure the mortgage or offer alternative solutions if you are struggling with negative equity.
- Waiting for Market Recovery: If you can afford to stay in the property, waiting for the housing market to recover may eventually restore your equity.
Negative equity is generally considered problematic because it limits financial flexibility and can lead to losses if the property must be sold.
Grenfell James Technology Adoption Index
How does your business perform against others adopting financial tech? Find out with our interactive diagnostic:
1.
How does your business receive invoices?
A)
Invoices are mainly received in paper form
B)
Invoices are mainly received by email
C)
Invoices are emailed then automatically forwarded to a designated mailbox
2.
How are purchase invoices processed?
A)
Invoices are entered manually
B)
Invoices are attached to manually raised invoices
C)
Automated software (e.g. ReceiptBank, 1Tap, HubDoc etc) collates invoices
3.
How are accounts processed?
A)
Using Excel/paper-based
B)
Using Computer-based, offline software
C)
Using cloud-based accountancy software
4.
How often is business data revised?
A)
Data is updated annually
B)
Data is updated quarterly
C)
Data is updated monthly or more often
5.
How is banking updated for your business?
A)
Banking is updated manually
B)
Banking is updated by imports
C)
Banking is updated via a live feed
6.
How are bank payments made?
A)
Bank payments are manual
B)
Bank payments are made using bulk imports
C)
Bank payments are made directly via accounting software
7.
How are bank receipts reconciled?
A)
Receipts are chased and reconciled manually
B)
Receipts are chased and reconciled automatically
C)
A third-party platform is used to chase debts and collect fees
8.
How often are management reports produced?
A)
No reports are provided
B)
Reports are provided but often too late to be valuable
C)
Reports are automated with real-time information
Score 8-12:
Curious Exploration
Your financial technology phase is Curious Exploration
% of respondent businesses are in this phase too.
Switching accountancy systems may seem like an upheaval, but can be much more straightforward than most businesses imagine. From talking to our clients, they have found moving from paper invoicing and desktop-based accounting software to the cloud and apps quickly makes the transition process a worthwhile investment of time. Digital accounting solutions bring in streamlined processes, up-to-date business data and greater confidence in the accuracy of information when making financial decisions.
Grenfell James works with your team to fully assess the needs of your business and minimise the impact of any transitions for solutions we recommend.
Score 13-19:
Measured Discovery
Your financial technology phase is Measured Discovery
% of respondent businesses are in this phase too.
Once cloud accountancy software is in place, there’s still plenty of scope to improve your accountancy processes and make sure your business is maximising the benefits of adopting a digital accounting solution. Grenfell James assesses each business to understand how any implemented solutions are being used, identify areas for improvement and the needs of the business overall to support your business goals and achieve success.
Our team of experts can discuss a range of time-saving automation and get different apps and cloud-based solutions talking to create and manage a digital accountancy eco-system to help your business grow.
Score 20-24:
Bold Innovation
Your financial technology phase is Bold Innovation
% of respondent businesses are in this phase too.
You know the benefits of accounting technology and the impact it can have on your business goals. If you want to take it a step further, our team can conduct a systematic review of your processes, apps and business goals to ensure your digital accountancy ecosystem is keeping pace with the changing needs of a growing business.