Negative equity question

The_White_Horse

Can someone answer this, as I don't understand it.

Lets say I have a house that was worth 250k and a mortgage worth 225k.

Lets then say that property crashes, and the house is now worth 195k.

I am now 30k in negative equity.

Lets say I have a good job and I am quite easily paying the mortgage - in fact I am overpaying.

If i think to myself, I would like to move to a bigger house because the price has reduced and my family is getting larger.

Why can't I be lent, by the same lender, 300k on a house worth 300K?

Therefore, I sell mine for 195k and pay off the mortgage. They are now owed 30k by me. They then lend me a further 300k and I buy the house worth 300k.

Before they were owed 225k on a house worth 195k (they are 30k down - 13.3% as a percent)

Now they are owed 330k on a house worth 300k (they are 30k down - 9% as a percent)


therefore, what difference to the mortgagee bank, provided you have a good credit history? why can you not, as a matter of course, take your NE with you?

Really2

The_White_Horse wrote: »

Can someone answer this, as I don't understand it.

Lets say I have a house that was worth 250k and a mortgage worth 225k.

Lets then say that property crashes, and the house is now worth 195k.

I am now 30k in negative equity.

Lets say I have a good job and I am quite easily paying the mortgage - in fact I am overpaying.

If i think to myself, I would like to move to a bigger house because the price has reduced and my family is getting larger.

Why can't I be lent, by the same lender, 300k on a house worth 300K?

Therefore, I sell mine for 195k and pay off the mortgage. They are now owed 30k by me. They then lend me a further 300k and I buy the house worth 300k.

Before they were owed 225k on a house worth 195k (they are 30k down - 13.3% as a percent)

Now they are owed 330k on a house worth 300k (they are 30k down - 9% as a percent)


therefore, what difference to the mortgagee bank, provided you have a good credit history? why can you not, as a matter of course, take your NE with you?

A) Becuse you will not be able to get a 110% mortgage.
Because you would have to fulfill your current loan before been given a new mortgage, because you do not have the equity you can not fullfil the loan.

The_White_Horse

yes, but effectively you have one already - so what difference to the bank? they are not losing anything (provided they only offer the facility to those with perfect credit rating and a history of overpayment etc).

The only difference to the bank is they are better off in that they are "down" as a smaller percent of the property value.

The_White_Horse

Really2 wrote: »

A) Becuse you will not be able to get a 110% mortgage.
Because you would have to fulfill your current loan before been given a new mortgage, because you do not have the equity you can not fullfil the loan.

they are not reasons though. they are just moronic arguments by the banks.

say it is a portable mortgage, then you are not having to fulfil your loan. you take the same one with you - they just lend you more (on a more valuable home).

LadyIndecisive

I'd be interested to know people's thoughts on this too.

I read in another post that people were able to move with NE during the last crash/recession.

Really2

The_White_Horse wrote: »

yes, but effectively you have one already - so what difference to the bank? they are not losing anything (provided they only offer the facility to those with perfect credit rating and a history of overpayment etc).

The only difference to the bank is they are better off in that they are "down" as a smaller percent of the property value.

You are offering no secutity.

You are in effect in arrears in your NE propery by £30k why give you more money if you can not pay the other off?

Numenor

I think the point was that the OP would have demonstrated that they CAN pay it off, by virtue of the fact they have been overpaying every month.

The_White_Horse

Really2 wrote: »

A) Becuse you will not be able to get a 110% mortgage.
Because you would have to fulfill your current loan before been given a new mortgage, because you do not have the equity you can not fullfil the loan.

they are not reasons though. they are just moronic arguments by the banks.

say it is a portable mortgage, then you are not having to fulfil your loan. you take the same one with you - they just lend you more (on a more valuable home).

Generali

Numenor wrote: »

I think the point was that the OP would have demonstrated that they CAN pay it off, by virtue of the fact they have been overpaying every month.

Well a mortgage is a secured product so the risk is reduced by lending against an asset as much as ability to pay.

NRK mortgages at the height of their folly not withstanding, generally you can't borrow secured against an asset at a greater LTV than 100%.

What may be possible is a structured product including a mortgage against the new house and an unsecured loan at a much higher rate of interest to make up the shortfall. A bank would do that if it appeared to be profitable, especially if the low rate mortgage was being paid of in advance of the unsecured loan. Not very MSE however.

Really2

The_White_Horse wrote: »

they are not reasons though. they are just moronic arguments by the banks.

say it is a portable mortgage, then you are not having to fulfil your loan. you take the same one with you - they just lend you more (on a more valuable home).

Ok to port the mortgage you need to pay the NE otherwise you can not port it. Those are the rules they do not have to lend you money.

If you had repayed the £30K by overpayments fair enough.

Your next problem would be a 100% mortgage.

Lending is done on risk so unfortunatly in NE and 100% mortgage is very high risk and not somthing they would want to do.

The_White_Horse

Really2 wrote: »

You are offering no secutity.

You are in effect in arrears in your NE propery by £30k why give you more money if you can not pay the other off?

you are offering the same security as you have already. they are 30k down. at the new property they are 30k down. But, the house value is more - therefore, as a percent, the deficit is smaller.

You can demonstrate that you can pay the monthly repayments, just not pay of the NE in one lump.

as I say, this makes no difference to the banks - they are just being awkward really.