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

[IfIhadaMillionDollars]

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.

Help?

This is all very confusing.

You have a mortgage on your flat. You sell the flat.

Your 'profit' is the selling price minus the mortgage minus the fees.

Your deposit on your new house is what you have saved up plus the profit from your old house.

The cost of your new house is the accepted offer plus the fees and moving costs. The new mortgage is the total cost minus your deposit.

Your new mortgage has to be significantly less than the market value of the new house, otherwise you pay an arm and a leg in indemnity insurance.

This is all very confusing.

You have a mortgage on your flat. You sell the flat.

Your 'profit' is the selling price minus the mortgage minus the fees.

Your deposit on your new house is what you have saved up plus the profit from your old house.

The cost of your new house is the accepted offer plus the fees and moving costs. The new mortgage is the total cost minus your deposit.

Your new mortgage has to be significantly less than the market value of the new house, otherwise you pay an arm and a leg in indemnity insurance.

squeaky - thank you. Think that explains it much clearer to me! I am a simple soul who needs basics. Real basics.

And the negative equity. That comes into the 'profit' selling price minus mortgage minus fees (so could be negative profit).
OK, I think I got it.

Then deposit would be money saved minus -profit. OK.

View it as two separate transactions.

You sell for say £93k so paying back current mortgage then use some of your deposit money to pay EA fees and solicitor(say £2-3k?). Anything your flat achieves over and above 93k is a bonus. Only if you sell below 93k do you have negative equity which you have to fund out of your deposit money first.

Am I correct in thinking you don't want a mortgage of mroe than 98k ? In which case allowing for solictors (no Stamp Duty at that level) and removals you need to allow possibly £2k fees.

This leaves you with a deposit of perhaps 25k(not allowing for any mortgage arrangement fees) plus 98k mortgage max offer price of 123k,. Touch and go on a 135k house. tbh that assumes you can afford to pay back a 98k mortgage and that a company will give you up to 80% loan to value.

OK so like this.

We sell at 90k (agents think this is more realistic figure of what we might get for it, lets go on this, if we get more, great). Fees to sell £3k, Fees to buy, moving costs £3k, offer accepted on new house £120k

So 90k - 3k - 93,000 = -9k ('profit')
£30k savings - 9k - £21k deposit.

£120k + £3k = 123k - cost of new house.

123k - 21k deposit = 101k mortgage?

Is that right?

Um, if (IF) you sell your flat for only £85K you will have a negative equity of £8K - ie after paying the proceeds to the mortgage company you will also have to find £8K out of savings. So your deposit of £30K willbe reduced to 22K. However, you may well find that a house on for £135K can be bought for £120K or less. So even though you have 'lost £8K in negative equity, you will regain it by paying less for your next property. Yes, you will have less deposit, but that's when you go back to your lender and say, right I have a deposit of £22K, and I now need to borrow only £100K, is that doable? And I bet they say yes.

But if you seriously think you can sell for £100K or £98K, then you aren't going to be in negative equity at all, and every thing is hunky-dory.

is your 30 grand deposit in a savings account separate from your mortgage

or

is it in the equity of your flat?

a house on for 135 WILL NOT sell for 135 in this market

this is the time for silly offers

LIZS - ideally would prefer not higher than current mortgage butcan afford to go up to £110k if we have to with some room for movement, but not much.

luva the £30k deposit is savings not equity. It is real hard cash not possible money!

So realistically, I could offer £120 for the house. But then, in that token, if I put my flat on the market for 95k, I am likely to get offers well below 90k aren't I? THAT is what worries me. If we can sell this place for 98k we will be fine, but I just can't see it.

Your calcs are about right, million. Obviously the unknowns are the actual buying and selling prices, could vary considerably.

30k savings when you are talking about prices in the region of £120 is healthy, so gives you options, and lets you handle small shortfalls in your estimates.

squeaky it is all about estimates. IFs and BUTs, but if we go on this basis, we have a little room to move, either side. And if we can't do it with this or a little movement either side, we won't do it.

Thank you all so much for helping me get my head around this. I feel more scared and nervous and anxious and worried about not getting this house than I did the first time! It is so scary I almost don;t want to do it .

If it does not work out, we can put the new baby in a pulled-out drawer to sleep in, will be fine! .

I have jotted down the figures from how you spelt it out and will explain to DH when he gets home. It will be hard work as he is worse at grasping this kind of thing than me!!!

I'm very debt averse, million, so would moving would be the last resort for me.

We went through a patch of being over stretched and having a few unsecured loans. We found that everything we had was gobbled up in interest. All our decisions at the time were very well thought out and rational, but the one thing that escaped us was that we couldn't actually afford the lifestyle we were living.

Having gone through that, we now live debt-free apart from our mortgage. It is so liberating.

I get nervous when people recomment short-term loans to get over house move difficulties, because that is exactly what we did and it turned out to be very painful. It is much better to live within your means, especially in uncertain economic times.

Squeaky - that is our dilemna right now. I think I have to take my materialistic eyes off for a moment and look at the picture more clearly.

I can take £30k of my current mortgage. Already looked into it. I can save 72K in interest if I did this, cutting the mortgage from current 27 years to 11 years, if we continue to pay as we are now, which is our plan. OR, we can reduce our monthly payments to £300 per month.

Our plans were - overpay, if we start to struggle financially in the future for whaever reason we can stop/reduce payments as we would be significantly overpaid, and if we don't need that provision, the amount of mortgage left when we do come to sell will be significantly less.

I am currently in the living room taking down all the cluttering ornaments, putting my Buddhas in plant pots instead of the shelves, reclaiming some space for when DH comes back. I want him to start thinking of this space as good enough.

I think, we might still go back and look again at the house and ask the agents to put ours on see what happens, we can change our minds any time.

Oh, I don't know. .

OP, if I didn't HAVE to move I wouldn't in this market. So I think you should stay put and keep £30k as rainy day money tbh. Or reduce the mortgage with it.

That would be my instinct too, WWW

You're in a fantastic position, to hell with the flat, you knock the difference off the next house up the chain, it's people moving down or sideways that are in trouble, you'll save a fortune here.
Make an offer of at least £30k less than the asking price on the house you want and then reduce yours to what ever it takes to sell it.

My instinct would be not to move in this market but what Katie says does make sense ie better to trade up when prices are low.

So I think I would be looking at how secure your income is. If you are confident that it is secure then I probably would go for it, if you felt not then I would definitely keep the 30k, pay off some of the mortgage and keep the rest in ISA's in case you need it.