This article, written by our Managing Director Fiona Watts, first appeared in the October 2021 issue of French Property News.

WHAT HAPPENS IF YOU GO INTO NEGATIVE EQUITY?

Q. Due to the pandemic, my friend finds herself in negative equity on her property in Nice. If the bank were to repossess, would they look to her for repayment of the difference between the outstanding mortgage and the sale price? name supplied

Fiona Watts of International Private Finance, specialist brokers of French Mortgages for non-residents replies:

A. Unfortunately there is no cut and dry answer to this as the banks don't have hard and fast rules, it seems.

Falling into negative equity had thankfully become a lot rarer in more recent times due to a general uptick in house prices and the requirements to put down a lager deposit before borrowing, but the pandemic has dramatically changed many people's financial situation in a very short timeframe. It is very likely that the bank would ask your friend to make up the difference between the outstanding mortgage and the sale price. After all, ultimately the bank does not want to find itself out of pocket, and will require the loss to remain with their client, your friend.

Many banks will wait until the property is sold rather than losing their valuation so if the property does sell for more then the guide price (which can happen, particularly if it is sold at auction) the bank will only ask for the shortfall.

With regards to your friend's position, the only way to be certain as to how her mortgage provider will act in her case would be to ask their after-sales department directly. Every bank will have different policies and these aren't always set in stone or followed 100% of the time.


15 Nov 2021