A Painful but Practical Lesson in Home Ownership

News just out gives a perfect example why mortgaging your house to the maximum limits can be very risky.

Housing prices have slid down again for the fourteenth month in a row. This is great news for buyers, but not good at all for sellers.

The average cost of a property in England and Wales is now £161,000, almost £7,000 less than in June 2004.

If you borrow to the limit on your home and values continue to decline you could find yourself in a situation where you owe more on your home than you can generate from a sale. If you can’t come up with the difference, you may be stuck in your home or lose it to repossession.

In the US, the troubling practice of lending up to 125% of a homes value has created real problems. Many people are now trapped in their homes because they owe so much more than it’s worth and they can’t payoff their mortgage. Those same types of loans are also available here. At times when property values are decreasing, these 125% mortgages are very dangerous financially. Stay away from them. And while you’re at it, in a declining property value market, stay away from the 100% mortgages as well.