Experiences of negative equity

[LBP]

Am awake with a non-sleeping baby and a lots of thoughts swirling around my head about our house/financial situation and would be grateful to hear from those that have been in similar.

Basically we bought a two bed house at the height of the South Wales market in 2007. Price £125k. Not long afterwards we had to relocate for work and as we were tied into a three year fixed rate mortgage decided to let the property until that was up, we were settled in our new location and then sell up/buy here. House required a lot of work to get it up to letting standard, which we had planned on doing gradually whilst living there but at a distance involved us getting in lots of trades and taking our total expenditure up to around £140k (i.e. new kitchen, bathroom, boiler and radiators, rewiring, redecoration).

As our second lot of tenants have just moved out we thought now might be the time to sell. Having done lots of research on house prices in the area now we were expecting to make a loss but to a degree were happy to take that in order to move forward with our lives.

Went to the property yesterday to check out the tenants and meet three estate agents to get valuations and it seems that despite overpaying massively on the mortgage in the past 5 years, we are in a position where we would have to pay someone to take it off our hands. Mortgage is around £87k now and agents suggest marketing at £90k with a view to getting between £80-85k offer. Fees and solicitors costs would be around £3k so as you can see we would be looking still at a £5-10k shortfall. In addition the property seems to have developed an issue with damp that will need sorting (more expenditure) or taking account of when setting a price.

On the plus side all agents said if damp sorted it would let again easily as generally nice airy house, good garden etc. Likely rent £470 (which we have been getting to date) and mortgage interest is £300 so there is scope to cover costs until market picks up. But that could be years/decades!

I think we have little option but to continue letting but just wanted to hear from others in similar positions now or in the past on their views.

TIA

[Forgetfulmog]

OP are you me?! I could have written your post. The only difference is that we haven't let out house as we didn't want the added stress of being a landlord etc. we desparately want to move, but can't because of the negative equity. I'm afraid I have no advice, but just wanted to add my sympathy

[NoGoodAtHousework]

We bought our house when the market was pretty good with a 100% mortgage and are in a lot of neg equity. We want to move but are tied here at the moment.

Again no advice but definately sympathy!

[LBP]

Thanks for the sympathy. I feel sorry to hear that you are in the same situation also :(

I wonder if there are any posters out there who were in this position back in the early 1990s after the last big house price falls and what they did then and whether they would do it again? In other words, did they cut their losses as soon as they could and write off huge sums of money or sit tight and wait for prices to recover? Looking at a graph of house price trends last night it seems that prices took 12 years from 1989 to yet back to their last 'high' so if this dip is anything like that we could be looking at 2019, which seems to tally with predictions I have read in the press/online re: prices being flat until 2020.

I am normally very carefully with money so the thought that we have essentially 'lost' the best part of £60k is awful, in addition to the ongoing limitations having this rental property creates. I know it is not life or death and am grateful that we have our health, jobs etc but it still smarts.

[bruffin]

I bought a flat in 1988 for £54,000 with a mortgage of £42k. I got married in 1991 and DH then ended up working the other side of London and by 1993 we had to move because of dh commute. Around that time was when house prices crashed after a big rise. I bought my previous flat in 1983 for £24k with my sister and she bought me out in 88 for £54k.

We found a new built that were prepared to do a part ex. They basically paid off my mortgage of £42k but from what we heard they only got £27k for the flat when they sold it on the day we moved. We were very lucky.
A young couple moved into a flat downstairs from me and paid the same price and had a 100% mortgage.
I would have kept the flat if we couldnt sell it. I have just look and a flat in the block is going for £124k

[sandyballs]

We bought a flat in 1991 for £60K with 100% mortgage. Spent 8 years there and saw it dip to between £40-50K, for a long time, eventually sold it for £84K so it was worth hanging in there. Just hope it is the same for you. We are still in touch with a neighbour from the block and hers is on the market for £235,000!! It's a one bedroom flat . DH regularly says "I told you we should have kept it and rented it out" but we could never have afforded to move without selling it. Had to scrape every penny together to move up the property ladder into a semi. Paid £135K for that and it's now worth about £350K, but we have spent a lot of money doing it up over the years.

Good luck. Things will improve but its whether your circumstances allow you to stay put and ride it out.

[springlamb]

The flat I bought for £52,000 in 1988 was only worth £40,000 in 1992. I let it for a couple of years (as we had moved into a family-owned house) but the situation just got worse, and the poor quality tenants were wrecking the place. I sold it mid-90s for £38,000, so owed the mortgage company £14,000.
Now luckily that first mortgage had been an endowment so the surrender values covered a large part of the shortfall. Sold the car, had a loan from family and managed to cover the shortfall.
However, I sold a house last year that I had been renting out for a very long time and made a £175,000 profit after paying off the mortgage.
The difference of course is in the timing. Also, the tenants were families rather than singles so tended to look after the property more. The rent was double what the mortgage payments were which enabled me to use more management services than otherwise so it was less stressful. I also used the profit to keep it well insured, invest in maintenance and have good contracts for boiler/electrical/water repairs. I hope you are aware of the need to convert to a buy-to-let mortgage as your ordinary mortgage won't cover a rented-out property, only under certain very short-term conditions.
If the rent can enable all this it may be worth hanging onto for 5 years. But if it's going to be endless stress, bite the bullet and get rid.

[noddyholder]

Do you have a repayment vehicle in place for the capital? If not then I would sell now as market may not pick up

[LBP]

Thanks all again.

Yes we have a repayment vehicle in place, so amount owed is gradually going down and at present we have consent to let from mortgage co, landlord insurance etc so all good on that front.

Have got quotes now for the damp work and it is costing less than I feared to rectify - around £700 with a 10 year guarantee for the work.

I think we have decided to stick with it for now in the hope that the market has bottomed where we are, but I am curious about your post HappynFun What is in it for you buying up these houses?

[noddyholder]

Is it interest only? If it is then the capital stays the same,if it isn't you don't eed a repayment vehicle so you could cash it in and pay some of te balance.

[LBP]

It's a typical repayment mortgage. I just keep a note of the interest element of this as it is only this interest that can be deducted from rental income for tax purposes :)

[HappynFun]

Sorry LBP I posted an explanation, and for some reason the moderator has taken it down. Apologies

[greenfolder]

we had nightmare in 1990s, bought in 91- 3 bed house on 100 % mortgage, £65000. we were stuck there for 5 years, eventally sold for £60000. But in those days, options were limited re porting neg equity and renting out. is this stopping you buying a home where you have relocated to? i think that has to be a factor as well. are you spending money on renting a place now, when you could be buying- you need to look at the whole picture- the opportunity cost of tying so much in a house you cant live in