We often hear the refrain “the UK is not the US”. When it comes to a potential housing crisis, though, that doesn’t always work in the UK’s favour.
Because British banks hadn’t issued mortgages quite as excessive as the subprime loans handed out by US banks prior to the 2008 financial crisis, the UK didn’t have either the same scale of housing crash or nearly so many repossessions or foreclosures as America did. But there is one crucial difference between how British and American mortgages work that makes being unable to afford the loan on your home there – though still terrible – not quite so bad as here. In the US if you hand back the keys to your home to your lender, that’s it, it’s over. In the UK, if your home is worth less than the amount of debt you have at the point where it’s repossessed, you still owe the bank the outstanding amount. This is what’s known as negative equity, and it can leave people trapped in homes they can no longer afford, stuck with the dilemma of huge debt if they sell now or battling repossession if they can no longer afford their repayments.
Content from our partners
