Classic negative equity situation.....

mrapbp

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Just wanted your thoughts on my current situation.

Now I am not looking for sympathy nor do I think of myself as a financial genius!! In fact quite the opposite, almost without exception I can be relied upon to make a mess of any financial decision I EVER make! Buy at the wrong time, sell at the wrong time and usually overextend myself....... I am financially retarded if such a thing is possible!

I bought a house 3.5 years ago and bought it for x with a 5% deposit.

After about 2 years the house price had gone up enough that we borrowed some if the equity to do some home improvements.

We now find ourselves in a situation where a an identical house is selling near us for £40k less than we bought for and with the loan leaves us in a situation where we are about £60k in negative equity.

Not as problem but we are due to come out of our fixed rate mortgage in Oct this year (another piece of financial wizardry on my part, long story but came out of the blue a bit) and it goes up by £600 pm. The idea was to re mortgage at the end of the fixed rate to cover the mortgage and secured loan, nice and tidy!

So I could re mortgage but at the current house value I wouldnt be able to get a new mortgage to cover even the existing mortgage amount let alone the secured loan. So not an option.

I feel a bit stuck here as I cannot see any way of getting out of this or getting it manageable other than to suck it up and pay the extra £600 pm. The other thing is that I am at the mercy of the variable rate now so could end up paying god knows how much.

Botton line is that my house isnt really worth £600 pm more and if the interest rates go up where do I draw the line.

Not good!
 
Go and see an IFA, and see what they can advise.
 
Hi as mjn says speak to a financial advisor but i lould also speak to your bank/building society to see what deal they can offer you, it can't hurt can it?

good luck

Cheers
 
In technical financial terms you are what is known as 'well stuffed'.

A. you can't sell because your mortgage is more than the value of the house.

B. You can't re-mortgage because you owe more than the house is worth.

Your mortgage is going to jump £600 - which is a huge amount extra to be paying so I'm guessing the mortgage is pretty large.

Are you saying you are going to struggle to pay the extra?

If so then an interest only mortgage with your existing lender may be the only option - assuming they will allow you to do this.

Otherwise you have no option (as I see it) other than stump up the difference and hold out till lower rates and more favourable lending terms come along. Which will happen, eventually.
 
I can afford to pay to extra but £600 is clearly a lot to anyone I would say. £600 more for something from one day to the next with not really gaining anything makes me a little pissy!

The main problem for me is that all I can do is weather this and wait for the house to be worth £70+ K more (so I can get a 95% mortgage) and god knows how long that could take (things are supposed to get worse if anything with house prices!)

During that time what happens if the mortgage rate goes up to 9 or more %. It will then be £1000 pm more and where do I draw the line. As I said it really isnt worth £600 pm more let alone £1000 +........ When do I pull the plug and what could that mean for us?

Any your right I am stuffed :(
 
Don't really know whare you would stand if you "pulled the plug":mad:

I may be wrong but If you fail to make payments on the mortgage then you will face repossession :( and may be your lender will try to recoup there loses by going after any other assets you have

Would you be in a position to take on a second job or extra hours until things stabilise for you

Is the option there for you to sell and take the hit and buy something a lot cheeper

Again mate good luck

Cheers:)
 
Its less about whether I can afford it or not (as I can) but how long do you carry on down a road of this nature? And as I said paying more and more for something that is depreciating seems a bit daft to me.

I am not suggesting I pull the plug and I certainly wont if at all possible but at some point it just isnt worth continually pumping money into something that is heamoraging money.

At £600 pm extra it is about a 60% increase which I think is really bad. Anything more is a joke tbh.

Don't really know whare you would stand if you "pulled the plug":mad:

I may be wrong but If you fail to make payments on the mortgage then you will face repossession :( and may be your lender will try to recoup there loses by going after any other assets you have

Would you be in a position to take on a second job or extra hours until things stabilise for you

Is the option there for you to sell and take the hit and buy something a lot cheeper

Again mate good luck

Cheers:)
 
The people who are selling for 40K less may be selling below the market valuation to get a quick sale.

And the mortgage companies go on market valuation, hence you may be not in as much negative equity as you think.

Either way, I'd see what deals your current lender is offering to take the sting out of the increase, and then go to an IFA if needed.
 
Its less about whether I can afford it or not (as I can) but how long do you carry on down a road of this nature? And as I said paying more and more for something that is depreciating seems a bit daft to me.

I am not suggesting I pull the plug and I certainly wont if at all possible but at some point it just isnt worth continually pumping money into something that is heamoraging money.

At £600 pm extra it is about a 60% increase which I think is really bad. Anything more is a joke tbh.

I appreciate all you say but cant really think of any other options for you sorry (am coming out in a cold sweat just thinking about the figures you are talking about)

But you are right throwing away more money on a property that may be depreciating does seem ridicules but again cant think of a solution for you

all the best
 
Looking at the longer term, whilst property prices are indeed falling now, there is no doubt that the value of your home will rise at some point. If you try and sell now you will lose a lot ( if your lender will let you sell , I think they can stop you if you will not cover the mortgage from the proceeds).

I would not see "pulling the plug" as an option if I read what you mean correctly as you would be in a right mess for years.

If you can afford the payments - your mortage moving to standard variable - riding it out would appear to be your only option. If indeed you can throw even more at your mortagage to reduce the borrowing I would do so - instead of savings etc. That way once you get your loan to value percentages correct you will be able to get decent borrowing rates.

Have you worked out what the difference is between say the best fixed rate you can get now and standard variable ? It might not be as much as you thought, and even if you had the correct loan to value % , your mortage might be giong up say £500 a month anyway. Fixed rate deals are now not as competitive as they were.

You bought your home for "x" , that was what it was worth, it will be worth "x" again , and more, it is just a question of time.

Obviously just my take on things, good luck.
 
If the OP still has some equity in his house he should certainly strongly consider cutting and running whilst the going is good.

Paying 600 quid a month more in mortgage costs for something that's decreasing in value to the extent where it's worth less than debts taken out against it is putting yourself in a very sticky situation indeed. Should the worst come to the worst and the house gets repossessed, then the lender will come after the borrower for the difference in selling price and outstanding loan. At that stage, bankruptcy is a very possible outcome.

Unfortunately a lot of people are going to be in a similar situation having taken on too big a mortgage or borrowed against equity - and then come off the 2-year fixed rate. This is one of the reasons prices are set to continue dropping steeply as they have been doing since the end of last August (based on the two main price indices).
 
I'm worrying about this too and it's 2 years until it's going to become a real issue for me. Remortgaged last year, pretty much when prices were at their peak, 95% mortgage and paying it back on an interest only basis so I can only assume we are in negative equity. Having said that houses around us still seem to be being advertised at a price well above what we owe on the mortgage , but I guess that doesn't mean that's what they're worth!
Got 2 years next month until our fixed rate comes to an end and then with our current lender it jumps up to 3% above the standard variable rate (it's a subprime lender). Of course at the time I remortgaged last year the plan was to simply remortgage again with a more mainstream lender at the end of the 3 year fixed rate with the subprime lender, sounded like a good plan but then the credit crunch hit and all best laid plans went out the window. All we can do is wait and see what happens I suppose, hopefully prices will recover in the next 2 years and the outstanding mortgage will only be 90% of the house value (or at worst 95%). That will at least give us the option to remortgage to a more mainstream lender with a rate hopefully similar to what we're paying now (or less). In the meantime I'm saving up as much as I can (I've even taken a pension break for the next couple of years) to make sure we've got some money put aside to reduce the amount we need to remortgage for if the worst comes to the worst and prices haven't recovered enough in 2 years time.
It's a tricky position you find yourself in and you don't really have many options except paying the extra or giving back the keys. Look at it this way, if your mortgage is going to increase by £600pm then how much could you save each month by renting instead of paying the mortgage? The problem is if you're in £60k of negative equity that could potentially turn into an £80k shortfall if the lender sold the house at auction and you don't want an £80k debt around your neck (although they would come to an arrangement to settle for a lot less than that I suspect). Good luck with whatever you decide to do, I suspect many people are going to find themselves in exactly this position over the coming months, keep us updated with how things pan out.
 
No expert here but this is what I'd do...

I'd take out a personal loan of say £25k (max personal loan) which I'd repay over 5 years at £500 per month. Use the £25k towards my mortgage so I have positive equity and then look to get a more favourable mortgage deal.

Obviously this would only work if the gap between your positive and negative equity is equal to or less than £25k. You still have an extra £500 to pay but at least it's only short term.

You could ask your lender to see if paying off £25k would make a difference to the rate/deal you'd get. Just a thought...
 
The 1st post was the best idea, go see a IFA.

Secondly is the house down the road is the same condition as yours? If its " in need or refurbishment" that might be the reason for the drop, otherwise there may be another reason - quick sale, couple split up 100 other reasons? or lastly that could just be the market value for a house in the area.

Historically houses do go down as well as up but long term they are always an ivestment, plus aty the end of the day you need to live somewhere, at least your (long term) generationg equity even if house prices dont go up whne your 60? you will own your own home regardless off its worth, you pull the plug & rent for the rest of your life, what happens when you retire?

Though take all the posters points as guidence & go see proffesionals who will give you educated options, but remember none of us hold a crystal ball (well....) so any advice can be wrong, as you well know.
 
If you weather the storm house prices will always go up eventually. It may just take 10 or so years...

I am in the same position, my house is now worth less than my Mortgage and i'm set to have my repayments rise by 274pm on a variable rate as of September. Unlike the OP me and my wife don't have a lot of money sitting around so i've spent the last 3 months doing 70 hours OT a month and banking it all in Savings. I've also cut back in nearly every area but as always, rising prices negate any saving I make which is a :thumbsdow. I will continue to work as much OT as possible and should have enough savings & earnings to get by over the next few years, by which time my car loan will of gone which in turn will free up an additional £300pm. We've basically got £450 spare as of September providing I do a lot of OT, which sounds like a lot...However, if interests rise (which they definately could do) for every 1% I will have to pay an additional £80pm on my Mortgage, also the cost of living will undoubtadly knock into this but either way even £300 is enough and if worse comes to the worst I'll downsize the car drastically.

In your position mate I would certainly go and see an IFA. London and Country are 100% FREE http://www.lcplc.co.uk/ (all done over the phone which is also good) and are recognised by many companies and provided a fantastic service for us, even though in this instance they couldn't help.

Hope this helps somewhat, you are not alone believe me :smashin:

Chris.
 
The simple answer is to wait.

At the moment the drop in house prices is far less drastic than it was in the early '90's. And most people then found that it was only a few years until prices bounced back enough that they were only in negative equity.

The amount your house is worth is only a worry if you need to sell it or can't afford the mortgage due to redundancy, or some other reason.

Fortunately, unemployment is less than half what it was then, and interest rates are nowhere near what they were then either.

Of course, the situation may change, but that's where we are now compared to the last time.

Steve W
 
The simple answer is to wait.

At the moment the drop in house prices is far less drastic than it was in the early '90's. And most people then found that it was only a few years until prices bounced back enough that they were only in negative equity.

The amount your house is worth is only a worry if you need to sell it or can't afford the mortgage due to redundancy, or some other reason.

Steve W

Not quite true....

See here: http://www.creditcrunch.co.uk/home/index.php

The drop in prices is waaaay sharper than last time over a given time period. It's taken less than a year for prices to drop what took over 2 years last time round.

In terms of rates... the base rate has been much lower this time round than in the previous crash. So a doubling from 4% to 8% will hurt people just as much as the jump from 8% to 15% did back in the 90s.

What will really screw some people is the amount that people have borrowed relative to earnings. Lending people 120% mortgages is the economics of the madhouse. Ditto self certification. The amounts people have borrowed now, relative to their earnings, are way in excess of what was being borrowed in the 80s/90s. It's the greed and stupidity of the banks themselves that have led to this current situation.

Anyone with a mortgage payment over 35% of their household income is gonna be in for a rocky road if rates do start to rise. We'll then see an avalanche of repos.

Hopefully the inflation rates stay within reason so the bank doesn't have to raise interest rates any more.

Prices took a tumble for around 7 years. The upturn started in around 1997. With the full-on boom starting about 7 years ago.

So some people could be looking at 6-7 years of negative equity.
 
Dont panic, stick with it, if you can afford the extra payment hang in there, you have to live somewhere and if you sell for less than you owe on it you will still be paying off the difference when you down size, nothing could be worse than paying for something you no longer have!

As most have said take professional advice and then make an informed decision i am sure you will be able to get a mortgage deal you are comfortable with somewhere when you need to.

There is nothing more certain that prices will go up, when is another matter, the only thing for sure, it will be just after you sell, then you will be realy stuffed.

I went through exactly the same last time round when rates were at 10% +. You just have to rise above it all.
 
as state above dont panic! there is always a solution

first of all, if you can afford an extra £600 a month, why werent you overpaying? you could knock down your lending time massively with those amounts. if your mortgage doesnt allow overpayments then you should save what you would of overpaid and made a lump sum when they allow overpayments.

here is my situation

2 identical houses (semi detached to each other)
1 went for 103k back last year.
2 went for 105k last sept
i bought the second house(identical other than being mirrored) which came with a garage I paid 109k, that was this May. I was paying more even though the price of houses was going down. (suicide i know but we loved the house and baby due next month)

so you would say considering house prices have gone down id be in negative equity. yet the valuation for my house and the neighbours was still around 109k when i bought my house.

so even if house prices are going down, doesnt mean your house has gone down in price, afterall i have bad credit and they still gave me a 90% mortgage for it(was allowed 95% but we had the money), its mearly the expectation that you will get less for it.

anyway, mortgage is £765pm, we arent allowed to overpay so £500pm is going into savings till the 2yr fixed period is up. by the time its up il have 12k to knock of the mortgage.

If i can consistantly knock off and extra £500pm then our mortgage will be paid up in 8yrs instead of 25 (even less if i can get a rate below 7.99%! :rotfl:)

so dont panic, overpay from now till oct if you can (£1200 to £2400 capital off your mortgage depending how your payments fall)

and try to shop around!

as a last resort, go interest only and save all you can pm towards capital at the end of the term!
 
No expert here but this is what I'd do...

I'd take out a personal loan of say £25k (max personal loan) which I'd repay over 5 years at £500 per month. Use the £25k towards my mortgage so I have positive equity and then look to get a more favourable mortgage deal.

Obviously this would only work if the gap between your positive and negative equity is equal to or less than £25k. You still have an extra £500 to pay but at least it's only short term.

You could ask your lender to see if paying off £25k would make a difference to the rate/deal you'd get. Just a thought...

I may be wrong but I don't think any lender would go along with this.
 
Not quite true....

See here: http://www.creditcrunch.co.uk/home/index.php

The drop in prices is waaaay sharper than last time over a given time period. It's taken less than a year for prices to drop what took over 2 years last time round.

In terms of rates... the base rate has been much lower this time round than in the previous crash. So a doubling from 4% to 8% will hurt people just as much as the jump from 8% to 15% did back in the 90s.

What will really screw some people is the amount that people have borrowed relative to earnings. Lending people 120% mortgages is the economics of the madhouse. Ditto self certification. The amounts people have borrowed now, relative to their earnings, are way in excess of what was being borrowed in the 80s/90s. It's the greed and stupidity of the banks themselves that have led to this current situation.

Anyone with a mortgage payment over 35% of their household income is gonna be in for a rocky road if rates do start to rise. We'll then see an avalanche of repos.

Hopefully the inflation rates stay within reason so the bank doesn't have to raise interest rates any more.

Prices took a tumble for around 7 years. The upturn started in around 1997. With the full-on boom starting about 7 years ago.

So some people could be looking at 6-7 years of negative equity.



We had the same scare stories last time around. One edition of Panorama ran with the strapline "In Negative Equity For the Next 20 Years". Do you know anyone who'll be in negative equity from the early '90's until 2012?

With negative equity and property prices there a 'zone' of those effected, and that's how many people had bought property at 100% (or over, or close) just before the crash. It's far, far fewer people this time. The amount of reduction isn't the only issue. Indeed, a quick large drop may help stabalise things better than a long, protracted downturn.

Again, the important thing to remember is that the price of your house/size of your mortgage only matters if you have to move or sell.

Steve W
 
I may be wrong but I don't think any lender would go along with this.


All mortgages are calculated on affordability in one way or another with other commitments taken into account, so it definitely wouldn't work.
 
here's my 2 cents, i'll try and make it short but apologies if it's not that sweet...

there are a number of factors why we are in the current economic position..

- high oil prices + greater demands on scarce resources (basic rule of supply & demand) which in turn impacts on inflation
- higher levels of debt with higher rates of defaults on loans, cc, mortgages, etc..
- high level of corporate and investment companies that have borrowed heavily and have very large balance sheets, now that these capital investments are becoming worthless they are frantically sourcing additional investment...i.e. share rights issue, borrowing from govt, etc..
- damn right shoddy mis-management of public funds by the govt. (sorry, just had to add that in)
- finally, and the most worrying of all...house prices have been overpriced for the last 5 years compared to the average household income (are the banks, govt, estate agents really going to tell you house prices are overpriced...that's like committing suicide for them...but it's a fact we have to accept....the sooner the better)

i hate to be the bearer of bad news (and this is just my opinion), but i can see house prices dropping by another 20-30% over the next year or two..

what this govt and the financial institutions must do is tell the truth and state exactly how much of a financial mess we're in rather than throwing money at a situation which is ultimately delaying what will happen....

higher unemployment, higher businesses going bust, higher inflation and interest (remember, its now harder to control these as currency is no longer backed up by Goal like before...you only need to see what's happening across the pond in the US..increase in $ circulation has led to weak dollar against the £ and €)

we have experienced the highs and now its time we roughed out the lows..
obviously there are a lot of people to gain in times like these...the Warrent Buffetts, Bill Gates, Lakshmi Mittal, etc who will buy a number of investments at rock bottom prices and then sell once the market has stabilized and peaking in years to come...

all i can say is i hope i am proved wrong..
 
We had the same scare stories last time around. One edition of Panorama ran with the strapline "In Negative Equity For the Next 20 Years". Do you know anyone who'll be in negative equity from the early '90's until 2012?

With negative equity and property prices there a 'zone' of those effected, and that's how many people had bought property at 100% (or over, or close) just before the crash. It's far, far fewer people this time. The amount of reduction isn't the only issue. Indeed, a quick large drop may help stabalise things better than a long, protracted downturn.

Again, the important thing to remember is that the price of your house/size of your mortgage only matters if you have to move or sell.

Steve W

Wrong. As the OP has experienced the amount of equity is important when you come off of a fixed rate and either go onto the SVR or remortgage.

You can't remortgage when you are in negative equity or (typically in this climate) have less than 10% equity. As many have discovered, the SVR is often 50% or more per month than they are currently paying. In some sub-prime cases you could be looking at a doubling of payments.


And should something happen - you lose your job or your household income drops - then being in negative equity means you are in jeopardy of losing the house and ending up tens of thousands of quid in debt to boot.

As you note, you're also constrained from moving house as you won't be able to sell the old one without permission from the mortgage lender if you are in negative equity. Some lenders might let you carry the negative equity to a new mortgage as this situation gets worse and drags on; But this is untested as yet.

I'm not trying to depress people, it's just a financial fact of life that they should be aware of when borrowing maybe over 100k to buy a house. Anyone who is still in equity but faces hefty rises in their repayments soon and negative equity shortly if the market continues downward should bear in mind that selling whilst they are still ahead might be the smart choice to make.
 
Wrong. As the OP has experienced the amount of equity is important when you come off of a fixed rate and either go onto the SVR or remortgage. You can't remortgage when you are in negative equity or (typically in this climate) have less than 10% equity.

Certainly, this is not the tiometo re-mortgage to build a new patio - I think we're all agreed there.

And should something happen - you lose your job or your household income drops - then being in negative equity means you are in jeopardy of losing the house and ending up tens of thousands of quid in debt to boot.

Yes, that's why I said:

"Again, the important thing to remember is that the price of your house/size of your mortgage only matters if you have to move or sell."

When I included "...or sell" I was thinking of just such a situation.

Steve W
 

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