There is a lot of talk about mortgages, secured loans, equity and a whole host of other terms that refer, in large part, to the value of your home. But who decides this value?
When you have purchased a home, for example, and you have a mortgage of £200,000, who decides that your home has lost value while you are living in it? Why can one get "negative equity" when the home is not up for sale and thus technically has no value?
Home Value Estimators
Home values are chosen in two distinct ways. The first way uses a statistical formula or a "Value estimator" - it looks at the age of your home, the condition of your home (estimated), the square footage of both the home and the yards and the location. All of those can be quantified, roughly, using an analysis of how much other homes recently sold for in those areas and the approximate difference in square footage, location, and demand to figure out what homes in that area are worth.
The other way is with an actual personal appraisal. The in person appraisal looks at similar aspects of your home against the same formulas, but it also gives a somewhat subjective appraisal based on the condition of the inside, layout, and other amenities that end up convincing other people how much they want the home (which eventually decides the final value). This type of valuation will normally be done by a surveyor, often on behalf of a bank or lender.
Both of these use some quantitative tools, but at the same time there is some subjectivity to them, and absolutely none of them are static. At any given point there can be 1 person, 10 people or 100 people interested in a certain location that boosts up the value dramatically. Thus the home values are never completely accurate because they constantly change.
However, equity - as in, the value of your home minus what you owe - usually uses one of these more simply quantifiable formulas in order to figure out what your equity is , because one cannot sell the home first (to find out its present value) only to take out a secured loan on it.
So if your home value looks like it is going down , and it appears that you are in negative equity, while it is absolutely necessary that you make all of the payments that you need to make sure you do not default, there is also no need to panic in full, because the true value of your home will never be known until it is sold.