negative equity

goose_514

this is my first post so please go easy on me. Was just canvassing people's opinion on my current housing situation.
I bought a house with a friend almost two years ago, at the peak of the market. we are now in negative equity. My house mate is wanting to move out. the value of current negative equity is around 5K. is it reasonable to ask for a cash sum, up to half the negative equity. Clearly we will both lose more if it is sold, with fees etc. He cant really keep it on, as his half of the mortgage will paid from his savings, which then arent available for him to use when starting his new life.
Am i being unreasonable to ask him to buy his way out? i have spoke to some financial advisors, who have been inconclusive at best.
Just wondering if anyone has experienced this, and what they did to solve it.
We are currently in deadlock.
Can the arguement that the house market will change eventually be enbough of a reason to let him out without him paying the current debt?

Many thanks

Goose

ad9898_3

Your friend is liable for any shortfall as well. If you want to take the house on yourself you will have to find the difference between your mortgage and the new valuation, otherwise your bank will not remove your friend from the mortgage.

You will also have to be earning enough to take on the new mortgage otherwise again you will be turned down.

You're in a tough situation, I wish you well.

lostinrates

what was the nature of the agreemnt under whih you went into this purhase? Did you have a plan for how you would divide any 'profit' (I presume no plan for this situation). If so I'd divide the loss in the same way th profit was to have been.

sarah_elton

Let's suppose the market had gone the other way, and the house was worth £20k more than when you bought it.

If he wanted to leave, he would ask you for £10k - his share of the profit. He would think it totally unreasonable if you argued that prices would go down in the future so he shouldn't get anything. He hoped to get half the profit when he left - it has to work the other way too. Even paying you half he's a lot better off than if you sold it and he had to pay half the fees as well as the equity. He can also get out a lot quicker as many houses are taking months to sell at the moment.

My personal view is that if he wants out now, then the finances of his leaving are based on the value now. Therefore yes, he should pay you half of the current negative equity. His other choice is to wait until the price rises so you're not in negative equity, and then he could get out for free.

Otherwise, suppose for some reason you were forced to sell in a month, you'd be left with all the negative equity.

Unfortunately this does highlight why, when buying with a friend, it really is important to have a contract drawn up stating what happens in the event someone wants to leave.

The difficulty you'll have is agreeing the figure. The negative equity may be even more than you think. If houses nearby are on the market for £5k less than you paid, it doesn't mean they'll sell for that. You need to have a firm idea of what price you would realistically achieve to gauge how much the negative equity amounts to and thus what he has to pay to get out now.

Really2

goose_514 wrote: »

this is my first post so please go easy on me. Was just canvassing people's opinion on my current housing situation.
I bought a house with a friend almost two years ago, at the peak of the market. we are now in negative equity. My house mate is wanting to move out. the value of current negative equity is around 5K. is it reasonable to ask for a cash sum, up to half the negative equity. Clearly we will both lose more if it is sold, with fees etc. He cant really keep it on, as his half of the mortgage will paid from his savings, which then arent available for him to use when starting his new life.
Am i being unreasonable to ask him to buy his way out? i have spoke to some financial advisors, who have been inconclusive at best.
Just wondering if anyone has experienced this, and what they did to solve it.
We are currently in deadlock.
Can the arguement that the house market will change eventually be enbough of a reason to let him out without him paying the current debt?

Many thanks

Goose

If you are joint owners you will have to buy him out and get a mortgage for the whole of the property in your name.
You cant just say "give me £2.5K and I Will pay the mortgage". He will still own half of the property.

Cannon_Fodder

Are you happy that you can afford the entire mortgage bill each month?

You will probably need his share of negative equity - which as SarahE says needs accurately calculating - to help the transition to you having to pay the whole mortgage.

PasturesNew

At the moment there is a mortgage paper that has both your names on.
The only way to get his name off that mortgage paper and him out of the house ownership is for you to raise a mortgage on the whole amount.

e.g.1
£200k - bought house for with a £200k mortgage
£190k - house now worth
You would need to put down a £19k deposit, raise a mortgage for £171k and him to agree to give you £5k for half the negative equity

e.g.2
£200k - bought house for
£180k - mortgage together
£20k - £10k deposit each
£190k - house now worth
You would need to raise £19k deposit and get a mortgage of £171k. That provides a pile of £190k sitting on the carpet, less the £180k to settle the original mortgage: you'd divide that in half and both pocket £5k.

Whichever way you cut it, you need to be able to raise the whole mortgage and settle the existing one. To raise a mortgage you will need a 10% deposit. Without further information being forthcoming I'd suggest to you that you don't meet the mortgage criteria to be able to buy him out.

You have limited ways forward. He could continue to own half and either pay you half the mortgage or allow you to rent his half from him, the property would continue to fall in value and you're storing up a bigger problem ahead. This would prevent him from getting his own mortgage alone or with somebody else until this first one was settled. It could be 10+ years before you managed to buy him out.

However, on the downside, to sell the house you might be losing another £20-30k just to get it shifted. And you'd both have to make up the difference between the selling price and the outstanding mortgage to be allowed to do this.

You're stuck between a rock and a hard place. It's going to cost you sleepless nights and a lot of money I fear.

Only likely easy resolution is if you have rich parents who can come up with the big deposit and raise the additional mortgage and buy the property with you. But by doing this you will be pushing your whole family into owning a house that is still falling in value, which can easily cause problems in the coming years.

GDB2222

A few points:

The property futures market is pointing to a further 30% drop in house prices.

If you do decide to take over the whole mortgage, you should get an independent valuation from a surveyor to find out what he thinks the place is really worth. The actual neg equity could be much more.

Why should he pay nothing at all for the fees? It's a liability that you may face in the future.

I know you need somewhere to live. Can you afford all the costs of the mortgage etc on your own? If not, sell up now and cut your losses.

goose_514

Thank you all for posting, alot of helpful thoughts. we have had the house valued, and i understand that we could reasonably expect alot less than that. However, i am strugling to him to agree to half the negative equity as it is.
I have checked with my lender that i can afford it, they are happy to allow me to continue paying the mortgage. we already have one agreed, so i can take it on. I have requested a transfer of deeds into my name (they send out a pack). I m also going to see a financial advisor towards the end of the month to see if there are any lenders out there (i doubt it) and i expect to continue on to the higher rate of borrowing that is written in the current agreement.

Many thanks again, i feel more encouraged to continue pressing for the money i feel is fair.

mrstinchcombe

goose_514 wrote: »

However, i am strugling to him to agree to half the negative equity as it is.

Well then you can't sell it and he will have to continue paying the mortgage wont he!

Half the negative equity is his, if he doesn't play ball then he wont be able to get out.

wymondham

goose_514 wrote: »

I have checked with my lender that i can afford it, they are happy to allow me to continue paying the mortgage. we already have one agreed, so i can take it on.

Another angle ....

If you can take on the whole mortgage, then the negative equity question does not come into it does'nt it? Assuming you keep the same mortgage (with no more valuations etc) then no reason why your friend can't just walk away? This way you stand a hope of keeping the friendship!