Negative equity is already causing debt problems as property price falls hit over stretched home owners.
We have been contacted by two people today who are slipping badly into debt as the equity in their houses diminishes because of the fall in value of their homes.
Their stories have been quite harrowing and serve as a warning of worse debt problems to come.
One person had taken out a £40,000 secured loan with a major lender last year. In those days of cheap credit, this loan took his total borrowings to 125% of the value of his property.
That was fine whilst his house was increasing in value, but things are looking grim for him now that house prices are falling so much.
He needs to sell his house and move into rented accommodation. There is one major problem though. Once his mortgage is paid off, there will only be enough equity to pay off £10,000 of his £40,000 secured loan.
He will still owe the secured loan lender £30,000. It is likely that he will also have to pay them additional early redemption fees.
In a desperate situation, he contacted us to see if there was anything that we could do to help.
It struck me that this person needs debt management professional help fast. He needs excellent advice to prevent further debt problems and to help him resolve this dire situation.
Although there are commercial debt management companies available, we recommended that he contact one of the debt management charities that exist to help people in these bad situations.
I recommended that this person contacted the Consumer Credit Counselling Service as soon as possible. I hope they can help him.
If you are in a position in which your mortgage and loans are sending you into an negative equity tail spin, then you should also contact CCCS or a similar organisation as soon as possible.