Mortgage Deposits

[fraggletits]

I've always been under the impression that when we paid the 5% deposit of our 95% mortgage when buying our house back in 2007 - that on selling that house we would get that deposit back - because in paying a deposit upfront we owned a part of the house outright.

So we own 5% of the house - if we sold it at the same price that we bought it at, we would get £10k.

Rang my mortgage company first to clarify this and they told me that deposits have nothing to do with them. They are paid to the solicitor on completion.

So - I spoke to a secretary at the solicitors we bought our house through and she was HORRIBLE about it - made me feel really really stupid for asking - she said that a deposit to a solicitor is basically you paying to buy the house, you don't get that money back and when I said 'sorry for sounding a little thick, I'm just a bit confused about it all' - she said 'you sound more than a little thick' and put the phone down on me

In my defence we were young when we bought the house and yes I did not go through every fine detail with a toothcomb - but if someone could just explain nicely without calling me horrible names I'd be really grateful

[ChasingSquirrels]

you own 100% of the house, and owe the mortgage (whatever that amounts to - in your case intially 95% of the house price) to the lender.

If the value of the house falls so that the amount you sell for is lower than the outstanding mortgage then you still owe the loan back to the lender.

This is called negative equity and basically means you are up shit creek.

Buying a house isn't a shared equity thing, YOU have brought the house, YOU are responsible for paying back the loan that you have taken out.

[LIZS]

The loan is always paid off first , the lenbder has "first charge" on the property. You get back any remaining equity less costs such as solicitors' fees) so may forfeit the money you put towards the deposit if you sell for less than or close to what you originally paid and even end up owing the lender after the sale.

[Rindercella]

Firstly at that secretary, what a horrble, rude woman! I would seriously consider making a formal complaint about her - after all, you are a customer of her firm. You should not expect to be spoken to in that matter, especially in a professional capacity.

Secondly, I agree with what ChasingSquirrels said above, apart from being in deep shit if you're in negative equity - you are only in deep shit if you have to sell, otherwise you just need to sit out the downturn in house prices.

[fraggletits]

right - so a deposit is not a small piece of equity then?

We're thinking of selling the house when prices have gone up so don't plan on being in negative equity.

[fraggletits]

Thanks Rinders! Yep - we're actually tied in to fixed rate until 2012 so wouldn't consider selling now anyway.

[ChasingSquirrels]

oh yes - totally only in trouble if you have to sell, if you are staying and can afford the mortgage it isn't an issue.

My wording assumed a sale, which would then be a problem.

[LIZS]

You pay a deposit to avoid a 100%+ mortgage situation and the higher your deposit (ie. lower loan to value ratio) usually the lower the interest rate on the mortgage amount as there is less risk to the lender of not recouping their money. It doesn't buy you a % stake in the property