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Get a Buyer for Your House in a Recession

By: Louise Smith, barrister - Updated: 15 Oct 2012 | comments*Discuss
 
Recession Finance Economy Recession

With the country apparently falling into recession, the only question on people’s lips about house prices is: how low will they go?

The prospects for the economy are uncertain, jobs are being cut and a growing number of people find that they can no longer afford to keep up with their mortgage payments. It is the worst possible time to put a house on the market, but many people have no choice.

Selling in a Recession: Be Realistic

Consider the following situation:

...The mortgage company has been sending letters about the arrears and it looks like the only option is to sell. The house was valued this time last year so the owner knows what it is really worth. However, when the estate agent comes to value it he suggests a significantly lower figure. What does he know? The house goes on the market at last year’s valuation... And it just sits there. No one comes to look and there are certainly no offers made...

If homeowners need to sell during a recession they will have to be realistic about what purchasers will be prepared to pay. Buyers will be concerned about the consequences of a potential recession and will be reluctant to pay too much if it looks likely that prices will fall.

Remember: a lower sale price achieved quickly could save thousands of pounds in additional interest and penalties resulting from mortgage arrears.

Don’t Delay During a Recession

If it is a struggle to maintain the instalments on a mortgage today it is probably going to be even more of a struggle in six months’ time.

With large numbers of people suffering the effects of the credit crunch the chances are that plenty of other people will also be trying to sell their homes. The number of people forced to sell their homes, and the number of repossessed homes on the market, will almost certainly increase. Therefore, despite the uncertainty about the future of the housing market and the economy in general, those who can no longer afford their mortgages should act quickly to get their homes on the market.

It has been said that the housing market has stagnated rather than fallen into recession. The relatively limited supply of properties has meant that prices have not fallen by as much as they might have done. However, if the market is flooded with repossessed or forced sale properties prices may fall more dramatically.

Negative Equity

The spectre of negative equity has returned to the property market. Many people who bought properties during 2007, at the top of the market, are already in arrears with their mortgages. In the run-up to the credit crunch many lenders were prepared to offer mortgages for 95% of the value of the property – or even for more than 100% of the value. It only takes a small downturn in prices for these people to find themselves in negative equity.

When a lender takes a borrower to court to repossess their property, and there is evidence that the property is in negative equity, the court’s powers to delay repossession are extremely limited. In addition, if the property is repossessed and sold by the mortgage company, the borrower will remain liable for any shortfall.

If it looks like it will be impossible to sell for an amount which will clear the mortgage it is worth trying to negotiate with the lender to see whether they will be prepared to accept a lower sum in settlement of the mortgage. There is no guarantee they will agree but it cannot hurt to ask. However, the time to negotiate is when difficulties first arise - not when the bailiff is knocking at the door.

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