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Negative Equity and buying a new house. What does it all mean?

(44 Posts)
IfIhadaMillionDollars Sun 19-Oct-08 13:18:43

I have named changed just so people do not know my finances.

DH and I have a mortgage of £93,000 on a two bed flat.

We have a deposit of £30,000 for a new property and our mortgage co have agreed a new mortgage for a house, porting across same terms and conditions of current mortgage on a good fixed rate, due to end in two years. They have currently offered £110,000 but financial advisor said this was based on quick checks as current customers and would probably lend us a little more if we wanted it (which ideally, we don't)

Our flat was originally estimated last year before we really chose to sell (not enough deposit) at £115,000. When we put it on the market it had dropped to £110,000 and we put it immediately on at £105,000 to get a quick sale.

We were basing our figures on £12,000 equity, allowing £8,000 of this for fees/duty etc, had calculated we would be looking at £140,000 max for a property.

Now, we have had no interest in our property, not surprisingly. We know it has dropped to a stupid amount, and we don't mind not making a profit.

We just want a house with a garden. I have seen a house, its just perfect, three good bedrooms, good sized garden in good area £135,000 (so they might take offers).

The only way we can do this is to drop our price drastically, which means negagive equity.

Is there anyone out there who could tell me how on earth I could get this house at £135,000 or a bit less, while using some of £30,000 for paying mortgage co the difference and the fees too?

I am just so confused, DH and I have given up as we feel so lost with it all.

But if we can get this house, I would like to, even if we take another £5,000 on mortgage.


IfIhadaMillionDollars Sun 19-Oct-08 13:19:22

How much would I be able to accept on the flat and still be able to get the house? What is the lowest I can go?

mabanana Sun 19-Oct-08 13:26:13

Doesn't it all depend on how much deposit your lender requires and how much you sell your flat for and how much you get the house for?
So if the lender wants a 5% deposit, and you get the house for £120K then you need a 6K deposit plus 4K to cover the extra that the £110K mortgage won't cover, plus money for fees etc (You say £8K) so that's £18k - you have £30K in savings (I think) so you can afford to sell your flat for 12K less than your mortage £93K - £12K = £81K, and you will have to use that £12K plus the sale proceeds to pay off your old mortgage. If the lender wants a bigger deposit, or you can't buy the house for the price you want, then you will either have to sell for more, or buy a cheaper house, or sell or rent your flat and rent a house as prices will probably fall further. NO, I'm no maths genius, so someone will probably come and tell me I got all that totally wrong!

WideWebWitch Sun 19-Oct-08 13:29:37

I think it's a question of what you can afford to pay per month and what discount you can get and will have to give in return.

If you sell your flat for £93k then you will not be in negative equity as the sale will pay off the mortgage. If you sell for any less then you will still owe money AND have no asset to show for it so that will be negative equity. If you have £30k and are able to get a mortgage of £110k and allow £8k for fees then you have £110k + £30k - £8k = £132k available to spend. If the house is on at £135k I'd offer 30% less to start with (so £96k) and be prepared to go up a bit. It also depends on what ltv your mortgage company are asking for. But be aware that things aren't selling you if you can't get a buyer for your flat you won'#t be able to move. And you can't afford to take less than you owe imo.

IfIhadaMillionDollars Sun 19-Oct-08 13:29:38

The money we were offered was on the basis of £30k deposit, I believe that is why in this current market they are allowing us more money and to port across, we were seen as good borrowers i guess.

Fees will now be £6.5k as we were basing it to include stamp duty which wont now apply.

You say you are not good at maths, that has all gone right over my head grin.

I think, to sum it up, we can't do it right now...sad.

uptomyeyes Sun 19-Oct-08 13:30:46

If you sold the flat at £95 500 I presume your estate agency fees would be about £1800 so you could clear the mortgage, conveyancing and estate agency fees through the sale of the flat without carrying over negative equity.

You then have £110 000 plus £30 000 for the purchase of the house at say £130 000 leaving £10 000 for removals (£1000 unless you do it yourself) stamp duty (is there still stamp duty on houses in this bracket - even if there is it will be minimal) and conveyancing - circa £400.

Try offering 125 000 on the house.
I think this is emminently possible - and if in doubt take out a car loan to cover the difference - which is what DH has done every time we moved house! (cheaper than putting it on the mortgage)

mabanana Sun 19-Oct-08 13:33:59

I think that's very negative! If - if you can sell your flat for anything like the mortage amount you stand a very good chance of buying something else. Go back to your mortgage advisor and ask what is the minimum deposit you would need to borrow £100-£110K. It might be less than £30K. Put your flat on for £95K and make it clear your are open to offers, and see what happens. You can't really decide anything unless you have an offer on your flat.

IfIhadaMillionDollars Sun 19-Oct-08 13:35:02

WWW - thats pretty much what I thought, can't afford to go into neg equity. Its like pissing the money away.

I think, given the way the estate agents around here appear to be working, we might be able to reduce the total fees by up to £1000. If we get the agents who are selling the house to sell our flat, we might be able to arrange a 'deal' of some kind, plus £1300 say in stamp duty, might be able to reduce fees to £5300. Maybe with a bit of persuading.

I however, doubt very much that we will get 93k for our flat right now. However it won't cost to put it on the market with new agents and see, seeing as the HIP is already done (the current agents are crap).


Oh well. Its a shame. 6 months earlier and we would have been able to get a house i think. Maybe we should do the loft instead <hmm>

IfIhadaMillionDollars Sun 19-Oct-08 13:40:49

AAAARGH <holds head in hands>

Its just so scary. I am so use to knowing exactly what I am doing, before I do it, I have lists with fors/against and weight things up, so when I ask questions of people such as mortgage people etc I know exactly what I am asking, what I am hoping to hear, the likihood of hearing what I want to hear, alternative plans and getting answers that I an understand. This is just a mindfield, I appear to have a mental block, we seem to goa round and round in circles. What is up with me? Why does it seem so hard?!

IfIhadaMillionDollars Sun 19-Oct-08 13:42:31

Mortgage co do min 10% deposit normally but I dont know if they have given us the mortgage on the basis of 25% I will go back and take a look at the offer in a minute, had not recalled that info as did not really need to know before!

<goes off to make some lists of info people have given her>

lljkk Sun 19-Oct-08 13:43:23

I am so confused...
Is OP saying she thought she'd have 30k deposit, but that was based on selling her flat for #115k, whereas now she can only sell for 105k, so that means 10k less deposit, or 20k now as the deposit?

Assuming you need 1k as arrangement fee, and 1k as moving costs, that's still #18k, which is about 13.5% of #135k.

And there's no negative equity anywhere, is there?

OP hasn't said how much mortgage payment she can afford, either. But there are 95% LTV mortgages out there (Scarborough BS, 6.7% rate), and you can get down to 6.04% with Britannia BS and only a 90% deposit.

Just looking at the Guardian Newspaper for the mortgage deals they list. Personaly, If I were OP I would go talk to several banks, see what they each offer, then scour the relevant websites.

Funny people saying that lending is tough, those conditions are very nearly same as what we took on when we bought our first house in 1999. Only big difference is the fact that houses themselves cost so much more now.

SqueakyPop Sun 19-Oct-08 13:43:28

Do you really have to move (eg new job in different location, or increasing family size).

If not, then sit tight until you can afford to move.

We were in negative equity for much of the early 90s. We pretty much bought at the top of the market in 89. We finally decided to move when we had our third child in 1997, having basically lost our deposit and home improvement costs. However, we had saved enough to pay off our mortgage and start with a small equity in our new house (DH's company paid the indemnity insurance as a perk).

We figured that being in negative equity wasn't a bad thing for us in retrospect as it saved us at least one move. Had we moved when we had our first two children, we would probably have moved to an in-between place, and would have to have moved again later. The place we did get is fine for us, our five children, our aupair and our dog - and its value took off soon after we bought it. No idea what it is worth now, but it must have peaked at 3x what we paid for it.

uptomyeyes Sun 19-Oct-08 13:44:30

Million dollars - are you overestimating the stamp duty? £1300 seems an awful lot for a house that may cost £130 000. In aprevious post you also said it won't now apply.

If it is of any comfort. DH and I were in negative equity in the housing crash of 1989 (£55k neg equity!) and we've come good.

SqueakyPop Sun 19-Oct-08 13:45:01

How can a car loan be cheaper than a mortgage?

uptomyeyes Sun 19-Oct-08 13:46:04

Over the term of the loan - if you pay £7000 over 25 years instead of over 3 years then you will pay a lot more in interest.

SqueakyPop Sun 19-Oct-08 13:48:17

You have to look at APR.

Put the money on equity release and pay it off over 3 years.

IfIhadaMillionDollars Sun 19-Oct-08 13:51:46

ltkk. I still have 30k, but cant sell my flat for 105k, will need to drop very low to sell. so the 30k instead of being just deposit will now be deposit/fees/any money owed to morgage co.

I can afford £750 per month, and in 18months this will go up to £950, however I am allowing for the fact that soon after that my morgage fixed rate ends and could go up, so don't want to rely on that additional £200 per month.

Also, I don't want a new mortgage as still in fixed rate of 5.9%, for another 2 years, can't afford the ridiculous redemption charge. The mortgage offered is same terms/conditions as current mortgage, all ported across.

Negative Equity - the reason I posted was that in all likelihood the ONLY way I can sell this flat is to drop below the price I paid. As to how much I don't know for sure, but £3,000 would not be far off, maybe more.

Squeakypop - we don't 'have' to move. And in reality staying put is cheaper as the £30k will go into current mortgage and where we want to move is a bit further out so higher travel costs, plus all the additional costs of moving from a flat to a house. BUT, this place is small. And we are top of each other, and I want another baby sad

IfIhadaMillionDollars Sun 19-Oct-08 13:53:19

Uptomyeys - that is why I said I need to deduct it. My original estimate of £8k fees etc was based on stamp duty included, as it still applied when we first did our figures. No longer applies so all gone. Originally it was 1%, which I make £1300 for £130k house.

uptomyeyes Sun 19-Oct-08 13:53:38

Just checked - stamp duty not payable under £175 000 so factor that out of your equation million dollars.

Car loan or other funds only relevent if there is a shortfall. Which may not even be the case here if million dollars can sell her flat for over about £95k.

mabanana Sun 19-Oct-08 13:53:49

I wouldn't worry so much about the negative equity IF you can get the same amount or more off the price of your next house, and if you plan to stay in it a long time.House prices will recover eventually.

uptomyeyes Sun 19-Oct-08 13:54:30

Crossed posts - sorry - when you said deduct it - I thought you were deducting it from your equity not from your calculations as such.

SqueakyPop Sun 19-Oct-08 13:54:50

bunk beds

luvaduck Sun 19-Oct-08 13:57:00

i haven't read all the posts (too tired to deal with the maths at the mo) BUT if you are upsizing a falling market is good for you. if that house is on at 135, put in an offer of say 115 to start with. i bet they have also had no interest, and would look at offers. nothing is moving right now.

so if you take a percentage drop of , say 10% then you should aim to pay 10% less for your dream house

if you wait a few years, your flat WILL have gone up, but so will this other house, by the same percentage - but this will be more money!

so i'd do it now if i were you

good luck

IfIhadaMillionDollars Sun 19-Oct-08 13:58:19

mabanana - see that is what people keep saying to me.

But I do not get it. If I get a £110k mortgage for a £135k house (assume that is what I pay for it). I need £20k deposit. If I have to pay the mortgage co any money, then the amount of desposit I can offer is reduced from my £30k right? So if I got 20k of house, and dropped 20k I would owe mortgage Co 20k and then only have 10k left (not including fees?) which means I do not have the 20k deposit needed. Is that not right? Or not?

uptomyeyes Sun 19-Oct-08 13:58:33

Sorry if I'm being a bit dim - but if the flat is on for £105K and you need to drop by £3k to satnd a chance of selling then as LLJKK says you aren't in negative equity.

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