125% mortgage, 2.5 years to go, should I be worried?

DocHants

We were in the unfortunate position where the only option of getting a mortgage was to absorb some of our debts into it, which I know wasnt great, but when youve been throwing away £6000 a year on rent for 3 years, it was the only sensible option.

The house we bought was £120.000 and we got a 125% mortgage from Northern Rock :rotfl: @ 5.79%, we have about 2 years 8 months left on that deal. So we borrowed about £145,000 on a ratio of 95% house, 30% unsecured loan. I would estimate that the house is currently worth around £140,000, so effectively, negative equity on the total amount borrowed.

We can manage the £940 a month fine, and have never defaulted, however, I am obviulsy concerned that in a couple of years time, we will struggle to renew our mortgage. We need to worry about this now, as in 2 years time it will be too late.

Our only aim is to save as much as we can between now and then, I reckon starting after christmas, we could manage to save at least £500 per month, which would amount to about £15000 by the time we come to renew...

I know it is very difficult to predict what is likely to happen in the next few years, but should we have a genuine concern over the security of our mortgage, given these details??

Any views/opinions would be most welcome, but please no criticism over our choice of mortgage, as it was the ONLY option availabe to us, and wasting £18000 on rent over 3 years was far worse!!!

koexelek

Looks like you will have to stay with Northern Rock.

Keep overpaying as much as you can though, and try to clear the negative equity.
If you can afford he payments, it only becomes a real problem if you want to sell

MarkyMarkD

I think with hindsight that you should have revised your view of "wasting" £6k a year on rent.

You are now paying over £11k a year, for a house which is falling in value all the time. And when your mortgage reverts to NR's SVR - because you won't be able to remortgage - you'll be paying at least twice the £6k a year you were paying in rent.

Where, exactly, does paying £5k a year less - and not losing capital value - constitute wasting money?

You suggest your house is worth £20k more than you paid. If you are 2.5 years into your purchase - and I'm guessing that, because you haven't told us - then I doubt very much your house is worth £20k (or anything in fact) more than you paid.

Griptool

DocHants wrote: »

Snip... which I know wasnt great, but when youve been throwing away £6000 a year on rent for 3 years, it was the only sensible option....

We can manage the £940 a month fine.....

it was the ONLY option availabe to us, and wasting £18000 on rent over 3 years was far worse!!!

How does (owning) renting from the bank at £33840 make more sense than "wasting" £18000 on private rent.

I'm sorry to say you've been brainwashed into thinking that renting is dead money and as a result have ruined your finances for the foreseeable future.

You are in negative equity now and will be in a worse position when your fixed term ends - no one will give you a good fixed rate so you will revert to SVR. Have a sober assessment of the pro's and cons of continuing to pay nearly a thousand pounds a month to live in a house that cost £600PCM to rent.

My advise would be go see a CAB debt councilor.

MarkyMarkD

I don't think the OP needs a debt counsellor. They are already planning to save as much as they can to address their negative equity, which is exactly the right thing to do in these circumstances.

Maybe they should work even harder than they think they should, to get the debt down quicker, but that's their own personal choice.

I would suggest the OP looks hard at their mortgage repayments and finds out (from NR, if they don't already have the information) what they will be when the mortgage reverts to SVR, and plan for that hike in payments. Given that they are talking about having £500 a month to save, they can probably afford their mortgage at SVR but unless they do dramatic things to the debt in the interim, they won't be able to remortgage.

Kez100

I'd be interested to hear why you can only overpay after Christmas? If it is due to a change in income, fine. If it is due to you not wanting to then I would say, 'wake up and smell the coffee'. You are half way towards doing so - start now, mate, and you'll be closer to your goal.

Also consider cutting back even more. We spent very little on food when we had negative equity in 1994 using simple and cheap recipes. We only did this once we realised we wanted to move and our saving grace was that we had only lost 10% of 50k. You are dealing with a much bigger problem so the sooner the better and the greater degree you do it the better as well. Forget holidays and forget meals out - have romantic dinners in instead.

Don't treat it as deprivation, treat it as a challenge.

JayZed

Doc, you didn't really think that you were going to get constructive advice rather than the predictable chorus of criticism, did you?

[edit: okay, I wrote this comment before I saw the two helpful posts above!]

A bit more information would be helpful:

- When did you buy the property/take out the mortgage?
- What is your current mortgagebalance?
- On what are you basing your estimate of the current value of the house?

kennyboy66_2

DocHants wrote: »

, but please no criticism ........

You have come to the wrong place.

speedbird1973

griptool.. that is the most pointless advice.. there is no debt problem!

I think your plan is an excellent one. I wouldn't worry too much, you have over 2 years to pay off as much as you can..

You may well find house prices recovering in the next two years. I doubt very much they'll fall for long. When the credit crunch goes, so will the property slump.. There is huge demand for houses. People just can't afford them, including the vitriolic posts in your thread!

Property prices will recover and it's still a sound investment.

Griptool

speedbird1973 wrote: »

griptool.. that is the most pointless advice.. there is no debt problem!

I think your plan is an excellent one. I wouldn't worry too much, you have over 2 years to pay off as much as you can..

You may well find house prices recovering in the next two years. I doubt very much they'll fall for long. When the credit crunch goes, so will the property slump.. There is huge demand for houses. People just can't afford them, including the vitriolic posts in your thread!

Property prices will recover and it's still a sound investment.

Typical of the patronizing twaddle you get on this board - the OP bought near the top of the biggest ever property bubble and you tell him that its a sound investment:rotfl:stop it my sides are hurting.

Needing a 125% mortgage to consolidate existing debts sounds to me like someone who would benefit from impartial debt advise:-)

margaretclare

Don't wait until after Christmas to start saving - that's 3 months away!

Start now!