negative equity

jcodling

Can anyone help me, I bought my house in Dec 2007 with a 100% mortgage on a 2 year fixed deal, but I am now really worried that next December when I come to look for a new deal that my house will be in negative equity so I will not be able to get a new deal with anyone unless I put an amount of money into the house that I don't have.:beer:

beecher

If you're in negative equity next year you'll not be able to get a new deal with another bank. You'll probably go onto the SVR, unless you're very lucky and your lender offers you a deal. I'd advise working out working out how much your payments will be on the SVR and saving the difference between what you're paying now and what you'll pay then so as it isn't too big a shock.

silvercar

Next December is a long way away, hopefully the mortgage market will have eased.

In the meantime start saving so you have a cash sum to reduce your mortgage if necessary.

_Andy_

You'd be right, you won't be able to remortgage to another lender. You will need to contact your existing lender nearer the time to see what deals are available.

As you don't have the money to overpay there isn't anything you can do at the moment so now point worrying unless you want/need to sell up.

jcodling

What is an SVR

Albee

jcodling wrote: »

What is an SVR

I think it stands for standard variable rate.....I'm sure some one will be able to explain it in more detail than I could so I'll say no more!

_Andy_

jcodling wrote: »

What is an SVR

Standard variable rate - this is the rate you go on to once your initial deal is of. It was detailed in your mortgage offer.

beecher

jcodling wrote: »

What is an SVR

Standard Variable Rate.

If you dig out your mortgage offer, or mortgage statement it'll tell you what you go onto once your fixed rate comes to an end. It may be the SVR though some lenders go onto a tracker. If you post the details of your lender and what it says on your offer someone will no doubt help you more.

sarah_elton

Contrary to what a worrying number of people seem to think these days, if you have a 2 year fixed rate deal, that doesn't mean that your mortgage contract only lasts two years, and at the end of it you HAVE to apply for a new mortgage.

As others have said, what a 2 year fix means is that your interest rate on your loan is fixed at x% for two years, and after two years the interest rate changes to, usually, the lender's standard variable rate. Your mortgage wasn't for two years - it was for 25 or 30, whatever you specified when applying. The 2 years ONLY applies to how long the introductory interest rate lasts.

So for instance, a bank website might say "Fixed for two years at 5.99%, followed by our standard variable rate, currently 6.49%." That means that at the end of the two years, the interest rate changes to whatever the lender's standard rate is at the time and your repayments go up (or down) accordingly. Being a variable rate, it generally rises and falls in line with the Bank of England base rate which is what the news goes on about all the time. (But some lenders currently aren't passing on base rate cuts to their customers).

If you are in negative equity, you won't be able to remortgage to another lender or a new deal with your existing lender as mortgages for more than 100% of the home value no longer exist. All that will happen is your interest rate will change, and your repayments will probably go up (unless the base rate has come down a lot and banks have followed it). This isn't a problem so long as you can afford it.

There are some benefits to being out of the fixed rate period - usually, if you sell while on a fixed rate, you have to pay a penalty fee to the bank. Once on an SVR, you usually don't. So you could sell the property if you wanted, but obviously if in negative equity you'd have to have the money in the bank to repay the mortgage shortfall that the sale didn't cover.

martinfollower_2

Just because your 2 year fix is up, doesn't mean you have to remortgage...

My first mortgage (with Halifax) ends it's 2 yr fix in Jan, and having spoken to the Halifax today, if I stay with them, it will cost £999 to arrange a new 3 or 5 yr fix, or a 5 yr tracker, and any of those 3 options will realistically cost the same as if I just move onto the SVR in January.

The 'new' mortgage has a very slightly lower monthly payment, but if you allow for the £999, over either 3 or 5 yrs, it not much better! Unless rates go down (which they prob will... I guess/hope), a tracker at 1.89 over base is actually more expensive than staying on the SVR (currently 6.5%).

I'm a novice, and everyone's situation is different, but make sure you ask all the providers, including your current one, before you panic!! Good Luck