Real life negative equity dilemma

[bigandclever]

Right forum? Wrong forum?

So my missus bought a flat at just the wrong time, for top money, on a 95% repayment mortgage for 35 years (FFS) and will shortly be coming up to the end of the 2 year introductory rate period and will need to remortgage.

I'm fairly sure she'll be in negative equity, based on similar flats in the same block are currently being marketed at 30k less than she paid. I don't have a figure for selling prices yet. I'd guess that her current lender, and any other lender for that matter, will revalue the flat downwards to a figure significantly lower than her debt.

Her mortgage currently is already about 50% of her net income, so I can see her struggling with increased repayments. No savings, no assets to speak of.

What are her options? And how much is it going to cost me

For example, I can see a quick, short-term fix of swapping to interest only, but she still won't have a repayment vehicle in place. And she'll still have to negotiate a reasonable rate to make that plausible. Please help

[GT03ROB]

bigandclever said:

Right forum? Wrong forum?

So my missus bought a flat at just the wrong time, for top money, on a 95% repayment mortgage for 35 years (FFS) and will shortly be coming up to the end of the 2 year introductory rate period and will need to remortgage.

I'm fairly sure she'll be in negative equity, based on similar flats in the same block are currently being marketed at 30k less than she paid. I don't have a figure for selling prices yet. I'd guess that her current lender, and any other lender for that matter, will revalue the flat downwards to a figure significantly lower than her debt.

Her mortgage currently is already about 50% of her net income, so I can see her struggling with increased repayments. No savings, no assets to speak of.

What are her options? And how much is it going to cost me

For example, I can see a quick, short-term fix of swapping to interest only, but she still won't have a repayment vehicle in place. And she'll still have to negotiate a reasonable rate to make that plausible. Please help

I think as you know she has bit of a problem.... no easy solution methinks. If you have around £50k sitting around it will help, but I think she'll still be in bit of a mess.

Not a nice position, but she's not alone.

[thesilentpartner]

Will the mortgage simply not transfer to the banks standard variable, which can't be particularly high at the moment ?

Can't see a remortgage being an option unless there's a lump of money somewhere to throw in as a deposit.

[scotal]

1.Who is her lender?

2. What does the mortgage parperwork say about when her fixed rate comes to and end? (I'm betting it either goes to a tracker or SVR both of which will most likely be lower than she is currently paying.

[Dr_Gonzo]

Did she plan that she could actually afford the mortgage after the introductory period? If it's an SVR then it's still the going to be incredible low at the moment. Sounds like she bought something that was way more than she could ever afford.

[Hobo]

In answer to the OP's questions, I think the simple answer is to stick with the banks standard variable as remortgage doesn't seem an option.

There will be a large number of people in same position, so saying she's bought something she can't afford seems a little harsh.

[bigandclever]

Dr_Gonzo said:

Sounds like she bought something that was way more than she could ever afford.

No st Sherlock. I spent a night on the sofa when I pointed that out, "harsh bd" that I am. You could probably have heard our dicussion about 35 year mortgages from the moon

Anyway, I guess I was exploring any potential avenues other than reverting to SVR. To be honest, not knowing the actual numbers of her current deal I don't know whether the SVR will be greater or less than her 'introductory' rate, but it sounds like the expectation is that it may well be lower. I much prefer her to have a choice rather than being forced into a decision though... I think this might end up being one of those expensive life lessons.

Scotal... it's the Alliance & Leicester.

[Planet Claire]

I too bought at the peak and my fixed rate mortgage (with the A&L) is coming to an end in August. Personally I can't wait for the interest rate drop. My boyfriend came off his fixed-rate, also with A&L, a year ago and the SVR is around 1.something% at the moment. Mine is fixed at 5.89% so I'll be quids in, can't wait. Won't your girlfriend experience something similiar with an interest rate drop?

I know I'll struggle to shop around for another mortgage lender due to the possibly negative equity or a 100% mortgage situation so I'll just have to sick with A&L.

[scotal]

A&L's SVR is currentyl 4.99%.
so she will either go onto this rate for the foreseeable future, or if there is a tracker element to her mortgage, and there might be, she will go onto whatever the mortgage offer says (i.e. some form of base rate tracker for the life of the loan.)

oh and if her rate drops, tell her to keep the motnhly payment the same, and eat away at the outstanding debt through overpayment. The faster the debt comes down, the faster she'll be able to do something about a remortgage.

Edited by scotal on Wednesday 22 April 14:24

[Planet Claire]

scotal said:

A&L's SVR is currentyl 4.99%.
so she will either go onto this rate for the foreseeable future, or if there is a tracker element to her mortgage, and there might be, she will go onto whatever the mortgage offer says (i.e. some form of base rate tracker for the life of the loan.)

This is what I can't understand, you look up their SVR and it's relatively high but my boyfriend went onto the SVR from his fixed and it's current 1-2% - is there a different SVR rate for existing customers, rather than those who would be a new customer? I'll be kicking up a fuss with A&L if I'm not on the same rate as him in a few months time.

[scotal]

Planet Claire said:

scotal said:

A&L's SVR is currentyl 4.99%.
so she will either go onto this rate for the foreseeable future, or if there is a tracker element to her mortgage, and there might be, she will go onto whatever the mortgage offer says (i.e. some form of base rate tracker for the life of the loan.)

This is what I can't understand, you look up their SVR and it's relatively high but my boyfriend went onto the SVR from his fixed and it's current 1-2% - is there a different SVR rate for existing customers, rather than those who would be a new customer? I'll be kicking up a fuss with A&L if I'm not on the same rate as him in a few months time.

You and he both need to read your mortgage paperwork. That'll tell you what deal he's got, and what you have coming.
Its entirely possible he thinks he's on SVR but is in fsact on some form of Base + x tracker.
Equally its entirely possible you will be on a different rate.

[Road Pest]

scotal said:

Planet Claire said:

scotal said:

A&L's SVR is currentyl 4.99%.
so she will either go onto this rate for the foreseeable future, or if there is a tracker element to her mortgage, and there might be, she will go onto whatever the mortgage offer says (i.e. some form of base rate tracker for the life of the loan.)

This is what I can't understand, you look up their SVR and it's relatively high but my boyfriend went onto the SVR from his fixed and it's current 1-2% - is there a different SVR rate for existing customers, rather than those who would be a new customer? I'll be kicking up a fuss with A&L if I'm not on the same rate as him in a few months time.

You and he both need to read your mortgage paperwork. That'll tell you what deal he's got, and what you have coming.
Its entirely possible he thinks he's on SVR but is in fsact on some form of Base + x tracker.
Equally its entirely possible you will be on a different rate.

A lot of A&L deals revert to .99% above base when the deal finishes.

[bigandclever]

I'd forgotten about this topic

As suggested, and as it stands, her mortgage will revert to SVR and there's no problems from the mortgage end. Slightly more worrying is that my suspicion of negative equity is now a cast iron certainty. The flat upstairs is currently on sale at £92,995. She bought hers for £150,000 in September 2007. Ouch. I haven't told her, the sofa's no good for my back

[Deva Link]

bigandclever said:

I'd forgotten about this topic

As suggested, and as it stands, her mortgage will revert to SVR and there's no problems from the mortgage end. Slightly more worrying is that my suspicion of negative equity is now a cast iron certainty. The flat upstairs is currently on sale at £92,995. She bought hers for £150,000 in September 2007. Ouch. I haven't told her, the sofa's no good for my back

My daughter and her intended are in exactly the same position ratio wise, but their values are double your OH's. Double ouch.

They really want to sell (house in rented out for less than half the mortgage at the moment) and are thinking of just taking a deep breath and auctioning if off. At the moment they're just hosing about a grand a month down the drain.

Edited by Deva Link on Sunday 7th June 11:28

[Soovy]

bigandclever said:

I'd forgotten about this topic

As suggested, and as it stands, her mortgage will revert to SVR and there's no problems from the mortgage end. Slightly more worrying is that my suspicion of negative equity is now a cast iron certainty. The flat upstairs is currently on sale at £92,995. She bought hers for £150,000 in September 2007. Ouch. I haven't told her, the sofa's no good for my back

I reckon the flat above will be sell for about 80k then.

Harsh, but she's in big trouble here. She now understands that investments can go down as well as up.


I assume she knows that if she hands the keys back to the mortgage company they will sell the flat at auction without reserve, and then pursue her for the shortfall until she dies??


She might has well have had a bonfire with 70,000 quid in cash!!!


Ouch.

[bigandclever]

It's not good for us, but fortunately it's not all doom and gloom. She's been 'encouraged' to change jobs and that's come off so fingers crossed she'll be able to overpay to the monthly limit for the foreseeable. I'm certainly not going to take charge of her finances, I can barely cope with my own, but we have an agreement in place... she doesn't waste her money on fripperies (clothes, handbags, food and whatnot) and I stop banging my head on the fridge in exasperation.

It's not even a particularly nice flat

[mk1fan]

I don't quite see what the problem is here.

Her fixed mortgage deal (that she can afford - just) is reverting to a cheaper option due to the current interest rates. Thus reducing her monthly payments (that she can still afford) and giving her the opportunity to over pay and reduce the term of the mortgage.

Is she trying to sell the flat? Is she behind on her mortgage payments?

If the answer to both of those is 'No' then I don't see why the current market value of the flat should be of any concern.

If she is thinking of selling becuase you now are living together then why not rent the flat out instead?

[bigandclever]

No, no, no... the original question was raised because I didn't know what would happen when her mortgage came to the end of the initial 2 year rate. In my simple mind, I thought that what would happen would be the mortgage company would say "Right, you want to remortgage for £140k, because you've paid off some of the original loan. Smashing. Unfortunately we now think the flat is actually worth £100k, so your collateral is worth less than the debt. So, if you want a mortgage with us, you need to pay off the £40k differential before we give you a £100k mortgage". I know my missus doesn't have £40k sloshing around. So, if her mortgage company wouldn't remortgage then she would have to go out to the market, at which point the same dilemma would occur - the value of the flat wouldn't cover the loan required to pay off the original mortgage company. Does that make sense? As I say, it was my lack of understanding.

I still think it's wk that she has a loan of £140k on an asset worth, say, £90k. And that's possibly optimistic. Sorry if the numbers are a bit duff, but you get the gist I hope.

[mk1fan]

I'm with you.

It's a lot easier than the last time though. Then, the interest rates were going up so people couldn't afford to pay the mortgage.

It is a kick in balls situation but until people stop thinking that their houses are their to make them money and start to live in them as homes then we are 'doomed' to repeat this situaton every 15-20 years.

[Deva Link]

bigandclever said:

So, if you want a mortgage with us, you need to pay off the £40k differential before we give you a £100k mortgage".

There was some fear that this would happen, but so many people are in negative equity now that there would be absolute carnage in the market in this process was followed. Lenders would lose out massively as they re-possessed property and prices would go into an horrendous downward spiral - who knows where the bottom would be.