Worried & Confused re house prices and remortgaging

Ducklet77

Hello - first post - please be kind.

My partner and I bought our first house last June for £215k. Our fixed rate mortgage (5.34%) will come to an end in June 09 and I'm really worried.

We put a 22% deposit down but if predictions are correct house prices will have fallen by 20% by the time we come to remortgage. Do I need to be prepared to be in negative equity? If so, what should we do?

If we aren't in negative equity but we've lost the 22% we had in the house it seems as if all the decent rates on mortgages are for upwards of 20% deposit - which we won't have because the value of our house will have fallen. What should we do then?

I expect a good number of people to tell us to 'sit tight' and wait but if I should be putting money away/asking for a pay rise I'd rather start preparing now than bury my head in the sand for 6 months...

Thank you!

dwsjarcmcd

It really depends on whether you got the property at a really good price or not, but inevitably it is more than likely to have reduced to around the size of your mortgage.
You don't say you are moving house, in which case it would be much more of an issue. Also if you have a repayment mortgage, then that will be reducing the capital, although that won't be massive in the early years.
Try to overpay if you can, even small amounts make a difference. Te only real issue you have is that you will probably be stuck with your current lender, so you won't be able to re-mortgage easily. They may offer you a deal based on your original details but they will let you go onto their SVR, which with rates predicted to fall further in 2009, may actually mean you save money. If that is the case, make overpayments based on at least your current payments.

David

dunstonh

We put a 22% deposit down but if predictions are correct house prices will have fallen by 20% by the time we come to remortgage. Do I need to be prepared to be in negative equity? If so, what should we do?

You are probably already at the point where you have wiped out that 22% deposit. You effectively bought at the peak.

This isnt anything to worry about though as house prices always fluctuate. Its just part of the cycle and quite normal. In a 25 year mortgage you would expect at least 2 cycles where house prices drop. In your case, it will probably mean you wont be able to remortgage (unless you put more money down to reduce the amount being borrowed). However, it wont stop you changing deals with your existing lender.

Then in about 5-10 years time when house prices have gone up again, you will be out of negative equity and can then move house. The only way to break out of negative equity is to wait or increase your savings to effectively buy yourself out of it.

I have 3 years left of a fixed mortgage and am a bit worried about the end of it. I'm interested to know what advice you get.

Dont let it worry you. Negative equity has no impact on your monthly payments. As long as you can afford those and are budgeting for at least 8% mortgage rates then you should be fine. Negative equity only affects your ability to move house or remortgage.

Ducklet77

dwsjarcmcd wrote: »

It really depends on whether you got the property at a really good price or not, but inevitably it is more than likely to have reduced to around the size of your mortgage.
You don't say you are moving house, in which case it would be much more of an issue. Also if you have a repayment mortgage, then that will be reducing the capital, although that won't be massive in the early years.
Try to overpay if you can, even small amounts make a difference. Te only real issue you have is that you will probably be stuck with your current lender, so you won't be able to re-mortgage easily. They may offer you a deal based on your original details but they will let you go onto their SVR, which with rates predicted to fall further in 2009, may actually mean you save money. If that is the case, make overpayments based on at least your current payments.

David

Hi David - thanks for your reply.

The house was a new build and we got it for £10k less than the asking price - we've also landscaped the garden & put wooden floors & carpets in (not sure if that would have any bearing on its value). We don't plan to move & fortunately we bought it with a view to staying here for a good while.

Is our current lender (Abbey - if it makes any difference) likely to offer us a decent rate if we stay? They're currently only offering decent rates to those with 40% deposit.

feisty1

D77........Best thing is to speak to the Abbey, they are the ones to give you an exact answer..........but as already has been stated don't worry ...........thousands in yr position

Trollfever

As Abbey is a major player in the mortgage market, I would expect their SVR rate to be competitive with the market. They cannot afford to lose the borrowers with low LTV.

Ducklet77

Thanks all for your replies - much appreciated.

I know we're not the only ones in this position. I just get so frustrated with people banging on about how great these low rates and house price falls are for 1st time buyers, when it seems as someone who was only a 1st time buyer 18 months ago we're about to get shafted. We won't benefit from either the lower base rate or the fall in value and it looks like we'll be paying more per month for a house thats actually worth less - humph!

Sorry for the moan - am I the only one to feel this way?

Turtle

I'm sure you're by no means the only one to feel this way. We bought our house nearly 10 years ago needing full renovation and have 'made' a lot of money on this house, despite the recent falls. As we'd been over paying for a few years by a considerable amount (enough to bring mortgage down from 25 to 11 years) we decided to plan for future and buy another small house to do up and rent (which we bought with some of the equity in the house we live in). We've done that now and have some regular income from it but this house is now worth less than we paid for it (partly our fault as we were a bit lazy and spent ages getting it ready for rental) and am sure we couldn't sell it now even if we were prepared to accept a loss on it. I think everyone's fortunes go up and down with properties and unless you're an expert it's hard to know what to do for the best some times. It's probably worth contacting Abbey and saving some money if you can so you can be in best position when the times comes.

space_rider

Ducklet, my mortgage is with Abbey. About 6 months before my product was due to end I went to a whole of market broker. The best deal for me in my financial position was C&G and Halifax. I began the procedure with C&G but they rejected me on affordability. House was bought for £145 with a £50,000 deposit Dec 2006. Halifax sent someone out to do valuation and valued house at £115 so the deal they could give me wasn`t very good. My house is 3 years old and I bought it when it was a year old. I phoned Abbey and they had some good products which was a relief as at the time although I could afford the SVR no point paying more than I had to. 3 months before end of product I reserved a deal with Abbey then before the 14 week cooling off I changed it and then changed it again. On the day of the Lehman bros collapse I decided I would ring them and I accepted a tracker of 1.04 with a £690 arrangement fee. This is the product I am now on. I have kept my payments as they were before the interest rate reduction as I could afford to pay 7.09%.

Abbey didn`t do another valuation as far as I am aware of and my mortgage is based on a decent LTV. When I first phoned them 5 months before the end they could tell me what they had but they couldn`t give me an fixed rates until 3 months before.

Ducklet77

Thanks Spacerider - I think the best advice has been to contact Abbey nearer the time and see what they'll offer. I'll probably also contact our mortgage broker again. Good to see its not all doom and gloom

Pobby

You do sound very worried and I am really sorry to hear that. Darned house price inflation! I think that you should read the post by dunstonh again. It makes sense.