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

[chosenone]

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?

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?

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.

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.

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.

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?

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

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

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

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.

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.

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

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.

Yes very good point. cheers