Classic negative equity situation and questions

[Zanderman]

Morning all,

though I would ask the question here as there may be some more financial savvy people than me.... (not hard tbh!!!) Oh and by the way I do realise that I am by no means a financial wizard!!

I bough a new ish house 3 years ago and we (like many others I am sure) find ourselves in a situation where our mortgage is going up shortly by nearly 600.00 per month from a 4.9% to a 7% base rate on interest only.

The problem here is that last year I had the house valued (by 2 independent people) at a price that allowed us to borrow an amount of money for home improvements. The house has now dropped to a point where is is worth less than I paid for it 3 years ago (by 40k.............) so we are in massive negative equity.

The plan was to re mortgage for the whole amount when the fixed rate was up, job done nice and easy!

So the obvious problem is that my mortgage is now 600.00 per month more than is was (which is a bh tbh, 600.00 per month more for exactly the same thing as I had yesterday) and it seems like the value of the house is dropping and may drop further and the mortgage repayment MAY end up going up?? I cannot remortgage because the house isnt now worth anywhere near as much as I owe so I am somewhat stuck! I can afford the 600.00 p.m. by selling my car which I will be doing shortly but that makes me a little sad.............

So any sensible ideas of what I can do here? Just suck it up and get on with it? Torching the place seems like a good idea to me at the moment but I guess would be frowned upon!!!

I cannot see any way of getting this sorted and am worried that I am now paying way over the odds for a house that is decreasing in value. Even if thing get better it is going to take quite some time before we can even break even. All seems a bit stty to me but still..............

Cheers!

[B16JUS]

excuse me for asking by what sort of figure mortgage are we talking about to increase by £600 a month with just 2.1% increase in rates ?

J

[ALawson]

£400k ish at a guess.

You either cut your losses or batten down the hatches.

Edit: Just realised that its interest only. Ouch.

Edited by ALawson on Friday 29th August 08:23

[B16JUS]

as above if you can afford the payments ride it all out its only a loss etc if you sell up

J

[xiphias]

It's only negative equity if you're looking to sell it.

[Eric Mc]

Not the first person and not the last to find themselves in this situation. Many of us were in the same boat 17-18 years ago.

The only solution is to grin and bear it. The main problem is not the negative equity situation but the immediate cashflow difficulties caused by the increased mortgage repayments. Negative equity only becomes a real issue if you are intending to move - or worse - are being forced to sell. The ultimate horror situation is that you could find yourself owing money to a mortgage lender - and not having a house at all.

The only solution is to tough it out unfortunately. No doubt, house prices will recover (they always do) and the value of your house will eventually start to go up again.

The situation is compounded at the moment because the lenders have virtually shut up shop regarding offering competitive lending choices. They are currently licking their wounds after the failure of their profligate lending policies and it will be some time before they are ready to start being generous again, I would expect that in a year or two's time matter will start to improve on the lending front as the banks and building societies get their confidence back. I think property values are not going to recover for another three or four years.

[bull996]

Torching it is no good. The insurance will re build it but you will still owe the cash.

Just do a runner, go to the grave yard and find someone your age who has died (make sure they have a good credit rating) and change your identity.

[ALawson]

Canoe to Panama?

[Pickled Piper]

Suck it up and ride it out.

As Eric Mc mentioned the same situation occured 18 -19 years ago. At that time there was no point in handing back the keys to the house as the lenders were still pursuing borrowers for the difference between the sale price and the amount they owed.

pp

[Jasandjules]

ALawson said:

Canoe to Panama?

I THINK the insurers may just look into any Canoe missions in future..

AS above, until you need to sell, it's not really a problem, so if you can afford the repayments, you just have to bite the bullet.

[Swilly]

If it is interest only then the amount you borrowed isnt decreasing i suppose.
Which means in 5 years time you will owe the same amount to the mortgage company i suppose.

When you say you own the house, do you really !? In fact the mortgage company does and you are in effect renting it off them as you dont own any equity in the property.

How will the knowledge of possibly increasing negative equity play on your mind ? How much will that cost you in non-monetary terms ?

In this situation the gut instinct may be to hold on and tough it out. To wait for the market to turn and house prices start rising again.

I wonder when the market will turn again, and prices start rising again. I'd say in 5 years, given it is 2 years till the next election and the conservatives win and then 3 years for them to sort the current mess out. But who knows.

It is then a question of how long it will take the rising price to match the price you payed for the property in the first place. That could be a number of years again.

My instinct says to do a calculation. Calculate what you are going to be paying on your mortgage against what you would pay on a loan for the amount of negative equity and the cost of rent for a similar property as you live in now.

If you can rent and maintain a similar standard of living AND pay off the neg equity debt to the mortgage company for less than you are paying now, then i would consider trying to sell before your neg equity increases.

Who knows what interest rates are going to do in the coming months and years and who knows how much stress this may cause you.

[Eric Mc]

As long as property values are declining across the board, iff you sell a house to try and get out before the value of the property falls any further, surtely the same problem will arise with the next property you buy?

What would you have achieved by carrying out this strategy?

[205lad]

Made your bed, now time to lie in it.

[JakeR]

Any idea what will happen to the cost of the mortgage if we get the rate cut that is expected before Chrimbo?

[Zanderman]

I get that it isnt a problem until I need to sell but it sort of is at the moment. As mentioned I had intended to re mortgage covering everything when the fixed rate finished, this would have capped what was going out. Because the house isnt worth anywhere near what is owed I cant do this so am a little stuck. Cant sell, cant re mortgage.

I also get that I will probably have to grin a bear it but I also wondered at what point you cant or wont grin and bear it. Hopefully it wont come to this but what if the mortgage rate goes up by another 2% increasing my mortgage by another 700.00 pm? Do I grin and bear that? My house isnt really worth what I will be paying let alone if the rate goes up and I end up paying more.

Also I know eventually the house will go back up in value but it will take many years before it gets back to the value it needs to and things may well get better before they get worse. I could end up paying way over the odds for years.................

Just a 'funny' situation I find myself in and whilst I am a big boy and happy to take responsibilty for my actions I am not sure we have done anything especially wrong here. Have never felt this trapped before!!

[Zanderman]

Seriously mate I am happy to have people take the piss etc but that was fking weak even for a trolling fool!!

205lad said:

Made your bed, now time to lie in it.

[hugoagogo]

Zanderman said:

Seriously mate I am happy to have people take the piss etc but that was fking weak even for a trolling fool!!

205lad said:

Made your bed, now time to lie in it.

harsh but true though, you've over-reached yourself a bit, no safety margin. you'll just have to take it for a few years until the value is back up above what you owe

then you can sell up and pay it off, or keep on paying

[Herman Toothrot]

With the lending situation at the minute will people who have a lot of equity in a house say over 50% still be hit for high borrowing rates? Considering the base rate is still very low how can the banks justify charging so much more to people who are very low risk?

[_Batty_]

bit late to be asking these questions now isn't it?

surely you did alittle research before gambling a few £100k's?

because although houses are a fairly safe bet, they are a bet all the same, and when you gamble you have to accept sometimes you may lose...

grin and bear it....

[hornetrider]

Can we get some figures into the debate?

Amount paid for house, deposit put down, current repayments, estimated payments when rate goes up? It's easier to offer advice given all the facts.