For years now people have been making tidy profits out of the housing market. It seemed like it could only go up, but now all of that has changed. It is possible to lose as well as gain in property, so here are some tips to avoid your house leaving you in debt.
1. Don’t Borrow the Full Value of the Property
It seems obvious and it may not even be possible in many cases and for many people these days, but don’t take out a one hundred percent mortgage. If you borrow the full value of the property and then the value of the property falls for whatever reason, you will be left in a position of negative equity owing more than the value of the assets. This could mean that, if you are unable to keep up with the mortgage repayments and need to default, even selling the house would not cover the amount that you have borrowed. Thus you would have debts outstanding even if you were to sell up. By placing a deposit you essentially leave yourself a buffer zone a certain amount the value of the property can fall by before you are placed in negative equity. This was one of the biggest problems in the housing market during the financial crash and the easiest way for your house purchase to put you in debt.
2. Do the Leg Work
Check the area you are buying in, whether it is somewhere that is on the up and not on the wane and carry out thorough and extensive surveys. Make sure you are not going to find intense structural damage that could cost a fortune to repair and check that any work you intend to carry out on the house will be possible. Make sure also that the value of the property is not likely to drop dramatically, consider any changes that may come to the local area which could adversely affect the desirability of your house. If your house collapses, either physically or in monetary terms, you may end up suffering.
3. Insure Yourself Against the Worst
Take out indemnity insurance on the property. Though unlikely, there are unforeseen problems which through no fault of your own you may become liable for. The inability to get planning permission for an extension or other work is a likely eventuality, but there are other less likely and foreseen problems too. If the house was passed down by a parent, their insolvency within seven years of the transfer could lead to the house becoming embroiled in the insolvency procedure. Indemnity insurance can protect against these losses meaning your home shouldn’t leave you in financial turmoil.
There are more ways to gain than to lose with property. It is considered a very stable asset and one which is much more likely to appreciate than depreciate, but beware of the pitfalls. Insured risks, a good sized deposit and taking the time to examine everything properly will mean your house should be making you money, not putting you in debt.
Shannen is a journalist who began her career in insurance. She writes regularly on a number of websites and blogs covering issues of mortgages, insured risks and property devaluation.