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whats the best thing to do when we have little equity in our house?

13 replies

chosenone · 23/03/2009 11:44

We always planned to move in 2008 as our house is a starter house and we are really outgrowing it! We obviously left it too late and valuations have been done recently and we have approx £6000 equity which leaves us with no deposit therefore impossible to move!? Our tracker mortgage has got lower and lower and we overpay by £150 a month on a £118,000 mortgage and Im hoping that in 2 and a bit years we'll have a bit more equity and can sell. Is this the best thing to do? What if house prices continue to fall will the overpaying be a waste of time, will we be stuck here? Should we also get it as nice as possible and spend on a new kitchen or just keep paying the balance off? Any ideas?

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lalalonglegs · 23/03/2009 12:12

The overpaying won't be a waste of time as it could save you from negative equity and could (in the, imo, unlikely event that prices pick up significantly) mean you have a larger tax-free deposit. If you do not want to consider selling at break even price and starting again - perhaps in rented for a while - then there is not much you can do. Renting it out is a possibility for some but generally you can only get BTL mortgages if you have 25% or more equity. Rather than spending significant amounts tarting it up for sale, is there any chance you could extend to give yourselves more room?

chosenone · 23/03/2009 12:34

Yes we got quotes for a loft conversion and they were quite high due to meeting regulations, plus we'd have to borrow more so it seems pointless because we don't want to stay here long term, 5 years maximum.

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noddyholder · 23/03/2009 12:38

I would keep overpaying and consider a room in the roof if you really need space as i think prices will fall much further in teh next 2 years and it will be years before they rise.

lalalonglegs · 23/03/2009 12:45

Hmm, well if you can't afford to move, you're going to be stuck there anyway. Extending does at least mean that (a) you have a home that better meets your needs (b) a more valuable asset when you do come to sell. I don't know when you had the quotes for your loft conversion done but prices may have come down a bit in the past 18 months as many builders find themselves twiddling their thumbs.

DaisyMooSteiner · 23/03/2009 13:11

Sorry to put a dampner on things, but how will you borrow more money if you haven't got much equity left in the house?

lalalonglegs · 23/03/2009 13:27

You can get improvement loans that will work in the projected value of the finished product from providers such as BuildStore.

chosenone · 23/03/2009 15:10

Thanks for that but... if we're going to get a loan to impove a house we don't particularly want to stay in couldn't we get a loan and use that to put down as a deposit on another house? I know its dodgy and probably a bit risky (and expensive) but it seems to make more sense than borrowing on this house, or not

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DaisyMooSteiner · 23/03/2009 15:34

Can you not overpay a bit more every month than you are doing so you have more equity?

georgimama · 23/03/2009 15:40

Overpaying is the most sensible thing to do, because regardless of how much the property is worth, you still owe what you took out in the first place - avoiding negative equity in a falling market is the best thing you can do, as you never know when you may be in a situation where you have to sell.

As for getting a loan and using that to boost your deposit to move, a mortgage lender is going to want to know where the rest of the purchase money came from. They would not be very happy to know it was another loan, I would imagine. They would expect the deposit you put down to be cold hard, strings free, cash.

Sorrento · 23/03/2009 16:00

You cannot use credit to obtain credit that would be fraud.
And you'd never get away with it because your lender would see the loan on your credit file.

chosenone · 23/03/2009 16:03

Right, I see. DH thinks we should make the most of it as it is a nice victorian semi, with private child friendly garden etc and a quiet road. Will try and overpay by £200 and when DS goes to school next jan we can overpay more, think I will try and save for a new kitchen and improve the big kitchen diner space we have and see where we are in a few years! Had a look at part ex with a new build company and it made me realise how lucky we are, we'd have to borrow around 80,000 more to live in a poky new build with the extra bedroom in roof anyway, tiny garden and noisy estate, so off to count my blessings! thanks all

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Sorrento · 23/03/2009 16:06

Sounds like you're in a good position.
We've rented huge houses which is what I thought I wanted but the £200 a month council tax, water, heating bills and the extra £200k we'd have to borrow have put me off for now, I'm more than happy where we are and going on holiday 3 times a year.
There's alot to be said for living within your means.

chosenone · 23/03/2009 19:44

Yes very good point. cheers

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