What options with negative equity?

[Bupcake]

DH owned a house before we met, but it was in negative equity. I can't remember the exact figures, but he bought it for about £170k and it's now worth under £100k. He has an interest-only mortgage, which costs us £600 per month.

I own (outright) the house we live in. It's probably worth roughly £100k.

We would like to move at some point to somewhere slightly bigger. However, DH insists that nothing can be done with his house because of the negative equity. He refuses to discuss it (he's normally very good with financial matters, so I think he's embarrassed about this). I'd like to go and talk to the bank and see what our options are, but he won't do that. He says we just have to wait until it's back up to it's original value, and then sell it.

DH says we have 2 options if we want to move:

1. We sell our current house (the one I own), and use that to buy somewhere else at roughly the same value. We would still have the mortgage each month for his house. Then, when his house reaches the value he paid for it, we sell it to pay off the mortgage.

1. We keep both current houses, and take out a mortgage on a new house. We'd look at renting out one or both houses to bring in money to cover part of the mortgage. Our current house would be an investment for the future. However, I can't see any way we'd get a mortgage to buy somewhere the size of our current house (given that DH already has £600 going out each month).

I wonder though whether we might have a third option of selling both current houses, and using the combined money to buy somewhere bigger? DH doesn't think the bank will allow this, but I think it's at least worth discussing with them. Obviously we'd still have the mortgage on the interest from his original house, but at least we'd have a house with enough room.

DH feels he was 'stung' by the housing market collapse, and wants to try to claw back some of what he lost. I feel we should sell his house and move on. DH earns about £2.4k per month; I'm a SAHP at the moment, but may go back to work part time when the kids are at school. We're not big spenders, and are able to save between £500-£1000 each month after bills, mortgages and expenses. We could probably rein ourselves in a bit more if we had to.

Does anyone have any advice? What kinds of options do we have here? Is DH being sensible, or would my idea work?

The key piece of information is how much mortgage is outstanding on your DHs house. That would need to be repaid in full if the house so sold, so if it's worth less than the amount owing, you need to come up with the difference.

Is it rented out at the moment?

I would rent out DH house, if not already. Would this cover all/part of monthly morgage?
Look at what you owe, not what its worth as such. Do you have equity?
If his is rented out, tje bank would look at what you earn v what you pay out, equals what you can afford, along with the size of a deposit.

It's interest only and worth over 70k less than he owes? They'd never let you remortgage it. You won't get another mortgage on a third house, realistically. And you'll be left with less than 30k of the house you own once you pay the difference on the other house. I can't see you getting a mortgage on something much bigger if that's all you have, even once you've sold his other house. I'm at a loss as to how a relatively low value house can lose so much. I'm assuming he bought it at a very inflated price. Sorry to say, he doesn't sound financially savvy.

How much is the negative equity? So when he bought it he paid £170k and now it's worth £100k but does he owe £10k or £100k? Make sense? I had negative equity in a flat I bought in 1989 and sold in 1994 ( massive dip in house values sadly) and I took out a personal loan to repay the debt. And rented meanwhile. As soon as I paid it off I bought a house with no problems at all.

We're looking at renting his place out. The estate agent reckons we could get approx £400 per month in rent.

I'm not sure how much is owing on his house. My guess is that it's roughly £135k or so (that's off the top of my head, given how long he has had the house, and how much he's paying each month).

As I say, my house is worth roughly £100k.

So, could we in theory combine those to get a mortgage for roughly £235k, with (roughly) the same payments as currently? So £100k from selling my house, and transfer the £135k owed to the bank on his house? Or is that not how it works? Sorry for being clueless - I've never had a mortgage, so I don't really understand it all.

I think you need to persuade your DH to see an independent financial advisor. I'm no expert, but I'm not sure it's the best idea to have an interest-only mortgage when you're saving hundreds per month. It might be worth swapping to a repayment mortgage. What is the plan to repay the capital on the house? Just to sell and be left with nothing to show for your £600 per month? Is that house empty at the moment?

Also I'm not sure if it was a typo in your post, but if you sold your husbands house you wouldn't still have the mortgage on it - you would have to pay that off with the proceeds of the sale, and if the house is worth less than the outstanding mortgage you would have to pay off the shortfall.

Apologies if I've misunderstood. It seems like you have a decent amount of money and some good assets, but it doesn't sound as though you're making them work for you in the best way.

I would have thought that if a house is still so far in negative equity so many years after the price crash (given house prices have been rising steadily for several years) then it is going to be a long time before it reaches it's original price. It may not be worth hanging around that long (especially when you factor in inflation - albeit low at the moment 170K then would buy you a lot more than now (apart from houses). The prices you quote aren't high for houses so presumably you aren't anywhere near the boom housing areas.

As ceeveebee says - how much is left on the mortgage - if interest only is is for the full 170K ? Might be worth trying to switch to a repayment mortgage - then at least you are slowly reducing the interest paid.

You don't mention any income from his house - is it rented out ? Does it cover the mortgage costs ?

How long before you will be earning again ? If only a couple of years maybe hang on for a while, having converted his mortgage to repayment, maybe pay it off quicker with your "spare" income. It might be much more efficient than saving it - you are unlikely to get as high an interest rate on savings as he is paying on the mortgage.

If you then sell both in a couple of years it maybe you have enough to put down enough deposit on a bigger house, with a bit of an increase in mortgage payments.

As you say - worth working out the options and maybe talk it through with the current mortgage company (cheaper to convert mortgages in the same company than moving to another - see what they can offer).

Another option might be to work out if there is any way you can add value to his house before selling it ? Eg new bathroom, kitchen etc, decorate all help to increase the value.

Maybe a place to start is to actually find out the numbers - how much are both houses worth (obviously it is only worth what it sells for in the end), how much is left on the mortgage, and how much a new bigger house would cost. Then you will have a better idea of what you are dealing with.

Tigger, he managed to buy at the absolute peak of the market, the month before it crashed. He's good financially in terms of not spending loads of money, not getting into debt etc, but I think in this case his parents were pushing him to buy, and he just took their word for it that it was a good idea, without having much of an idea how it all works.

This is why I'm nervous that he's trying to "claw some money back" by keeping one or both houses as investments. I just don't think either of us have enough of an idea what we're doing to pull that off! I'd rather have a home and a mortgage that we know we can pay off.

If he has an interest only mortgage then he is only paying off the interest. He will owe 170k minus his deposit. So however long he's been paying and however much he's paid is irrelevant. And the amount of a a mortgage is based primarily on income. Not what you're currently paying.

I still can't see how a house can drop such a large percentage of its value. I suggest you see a broker. But you won't get anything like you think you will to spend on a new home, I'm sorry to say.

So he has a house with a massive negative equity, an interest only mortgage and ITS SITTING EMPTY?! Dear god......

And you're thinking about buying a third house?

Sorry you need to get real.

You need to save the difference between his mortgage and whatever you'd get selling yours, then sell yours and use the proceeds of your sale and your savings to pay off his mortgage IN FULL. Then sell his, save some more for a deposit, then buy somewhere else.

Also, his mortgage company may let him let out the house without much fuss, but if they wish, they can insist on a BTL mortgage, which with those figures, he will not get anywhere.

DH says they wouldn't let him swap to a repayment mortgage, but he hasn't actually gone to the bank to ask. I'm hoping to persuade him to at least try.

Hobbes, the plan is to pay off the interest and then sell, being left with nothing. But that's over 25 years.

I think that's the issue with renting it out, Tigger - he thinks he'd have to switch to a buy to let mortgage. We're currently looking into it (well, he is), but I think he's burying his head in the sand.

I'm trying to figure out the best-case scenario, so I can try to persuade him to at least talk to the bank.

It'll be about 4-5 years or so before I'm working again, probably - once the DCs are at school (youngest starts school in 4 years). It'll be part-time. My background is in IT, so I have reasonable earning potential, but I have an anxiety disorder which makes it hard to actually go out to work, so realistically my options are limited.

There's nothing to stop him making extra payments, Rhys nearly as good as a repayment mortgage. Sorry to say, you sound clueless about how it all works, (not a criticism, just a statement) and don't realise the mess he's (well, you're both) in. He actually sounds a liability.

Rhys = that's

Oh dear! Poor chap duped into interest only mortgage! At this figures he needs to cut his losses I think. If you are saving money at the moment pile everything you can into switching to a repayment only mortgage but he must take responsibility for this, head in the sand won't work. It's his debt not yours. Ask the lender for options - they may have suggestions. Independent advisers are good too but don't get yourself into more debt by buying a new house with this one round his neck.

Also, Titchy, I'm with you! I think it's insane to think about buying a third house! I'd rather consolidate all the assets into 1 house. I'm just trying to figure out how much, roughly, we would end up with to spend if we did that.

So, basically, assuming we sell his house for £100k, and he still owes £135k, then we'd use the £100k to repay a lump sum and still owe £35k on that mortgage, right? If we also sold my house for £100k, then we'd use £35k of that and have £65k as a deposit for another house.

If we wanted to buy a house at £200k, we'd need to borrow £135k as a mortgage. But given that interest rates are now lower, I imagine a repayment mortgage on that isn't going to be much more than the £600 per month we're currently paying (interest only)?

Is that roughly correct? Obviously there'd be fees and so on for mortgages, but I'm ignoring that for now, just to get a rough idea.

You don't seem to be clear if the mortgage is interest only (in which case he still owes whatever he originally borrowed), or a repayment - in which was he will have wittled it down a little.

I think at the very least you need to go the current mortgage company - get a statement of the current situation and explore the options of renting it out (and implications for the mortgage) and also renegotiating the mortgage so that it is a repayment and maybe over a longer term (maybe reducing the interest per month and allowing you to pay off more of the capital).

Tigger, I freely admit that I'm clueless about this! That's why I'm trying to get my head around it all. If I can get it clearer in my mind, then I've more of a chance of getting him to talk about it.

He does have a financial advisor, but I'm not convinced the guy knows what he's talking about (I've met him once, and found him really vague). Either that or DH isn't asking the right questions.

Yes that sounds about right. You would have to use some of the proceeds of the sale of your house to pay off the shortfall on his mortgage. You wouldn't be able to have see his house and have an outstanding mortgage though.

He really needs to take his head out of the sand and sort out his problems though.

throkenholt, it's definitely interest only (according to DH). So basically he would still owe the full £170k in that case, right?

Thing is, if he's paying £600 per month over 25 years, that's £180k in payments, and he wouldn't even own the house! That's more than the house is worth. That doesn't make sense, does it? Surely interest payments couldn't be that amount?

Something's just not adding up. I wonder whether he actually is on a repayment mortgage, and doesn't realise.

He has not paid anything off what he's borrowed if its an interest only mortgage! He should be getting an annual statement from the mortgage company.

You CANT sell a house that's in negative equity - you can't have a mortgage of £35k on nothing. Mortgages are secured on a house. You'd have to sell yours first and rent, then sell his and use the proceeds of the sale to pay off his mortgage.