how do i get out of negative equity?

adrian_bond

hi ive been invited to post this here from another forum by Setmefree2. See what you think.

im one of those people who bought in april 2007, a 1 bed flat (bought for £103, worth £105k at the time (norwich)), and would like to move up the ladder in about two years or so. gonna start paying approx £200 - £300 a month overpayment into the mortgage starting april (should have about £3000 emergency money saved then). unfortunalty, we are certianly in negative equity, as although we improved the decor, and made the place nicer to live in, we only had approx six months growth before the peak. now i recon weve lost 12 - 15% realistically since that point. sniff.

were gonna really try and dig ourselves out of it but without killing ourselves or damaging our lifestyle too much. we love the place at the mo, but lots of people we know have had kids (generally a bit older than us (she is 23, im 27) so broody isnt the word!) which we would love to do, but really cant afford it yet, plus a 1 bed flat isnt the place for three, so will have to wait till we can afford a bigger place!

i remeber the hype about owning not renting at the time. "buy now cos if you try and save for a deposit, the houses you want will be £20k more than you can afford right now!". we still saved about £7k straight from uni which helped, plus got us a pretty good mortgage at the time (5.53% fixed for 5 years (at the time someone offered to lend us £210000! (thats 6 x combined salary.....we went for 2.8 x combined for our place!)) but who could have known that the adjustment would be so quick? i certainly didnt, but cant change that now!

any ideas that would help would be very much appreciated so please reply and dont be shy. cheers everyone :beer:

wantabetterlife

Hi adrian, me and oh in a similar position. Not because we bought at the wrong time but because we remortgaged to release equity- great idea at the time!!! Spent the money and now in negative equity.

Ideally we would like to build a house but are in no immediate rush.
I have just set up online banking so that i can transfer any leftover money at the end of the month towards overpayments.
Its hard to focus on overpayments at times especially if you still want the same standard of living but i have made so many savings from this site that have not impacted on our quality of life at all such as changing mobile phone and broadand contracts, getting more competitive insurance quotes and also by trying to pay for things up front such as insurance as then you dont have to pay the usual charges for spreading payments.
My advice to you is to try and overpay as much as you can at the minute when you have no children because it becomes much harder after that as you dont have the same disposable income. Hopefully in a couple of years the situation with property and negative equity wont be as bad. Thank goodness you didnt go with the lender offering 6 times your salary!!

Welshlassie

Check you are able to overpay if you are tied into a fixed rate. you may find that there aren't any Early Repayment Charges. Your best bet is to reduce the amount you owe. Depending on how the market continues to reduce will depend if your OP will bring you out of negative equity.

If you aren't able to OP (because of ERC), set up a regular saver and pay your OPs into that.

Also have a think about if £3000 would be sufficient for emergency funds, recommended is usually 3-6-9 months worth of income depending on how secure your jobs are.

Good luck.

CPS

I am in exactly the same boat Adrain. Bought a 2 bed apartment start of 2007 'before it was too late to afford one' for £141k. It probably reached the dizzy heights of £161k at peak. Might be able to sell it now for £100-£110k if we are lucky (we live in N Ireland where the bubble was much worse). We too are despearete to move. We are saving like mad and hope to get our mortgage down to £115k when we remortgage at the end of the year and then just keep overpaying until what we owe meets a realistice price for the place. Very frustrating seeing what we could get now. I hope to be out of this mess and meet the market at the bottom in 2-3 years!!

pixiepie99

We're in the same boat (well, on paper we have about 11% equity) but it's the same sort of thing... we'd like to move to a bigger place but if we sold right now we'd probably end up having to sell it for less than its value on paper and end up with no equity at all to put down as a deposit on a new place.

Our plan is basically to overpay as much as we can (£499 while we're on our fixed deal and then as much as we can afford after June when our fixed deal ends).

We're thinking that even though our house is losing value, bigger houses that were more expensive are losing more value so the market will contract and once prices hit rock bottom, it might not be so much of a jump from our house to a bigger one as long as we overpay as much as possible now to increase our equity.

Also, hopefully banks will loosen their lending criteria a little so that a 10% deposits come back which will make moving up the ladder more affordable.

Basically, it sounds like you're doing exactly the right thing. Overpay as much as you can whilst still maintaining a reasonable standard of life such as the odd meal out and drinks with friends.

StuartGMC

Firstly, my sympathy to you here caught in this situation. Whilst many people "worry" about the reduced valuation of their property few are actually impacted as it only affects you when selling or remortgaging. In your cases of course you are affected as you wish to move up the ladder.

To augment the comments on OP which is sound or to save if there are penalties preventing OP, do remember to have savings to cover all the costs associated with selling and also buying another property. Fees I assume could be around £6k for those cited here, and you don't want to add that to the loan.

You do need to live so have some budget per month for this (£50?), but have you undertaken a very careful household budget review and therefore full knowledge of what is achievable?

Do save as soon as you are paid, based upon your known spending and any items needed that month e.g. pair of shoes. When I graduated (no dinosaurs around but "gulp" 22yrs ago!) I found I didn't seem to save much because I'd do so at the end of the month, putting money away straight after pay day increased the savings by 15-20% per month especially if you "won't touch the brick fund".

It is very difficult to call the "bottom" in the market, things could level out this autumn, or not until Spring 2010, but just when prices will lift is anyone's guess, purely governed by the lenders actually offering loans again I think. Therefore, ensure you have funds required for the move whenever it happens, reduce the capital owed via OP but remember prices will eventually recover but (perhaps we should hope) may not climb at the rate like they did in the past at least for a year or two?

Best wishes

rover25

Hi, In the same type of situation.
We bought in early 2007 for 175,000. 3 bed semi. Prices have fallen dramatically (based in NI).
Really dislike house as grew up in country and hate hearing noise frm next door and seeing people all the time in the park (how weird am I? !, Believe me I didn't think it would be such a problem and that I wouldn't mind an urban area.
Anyway we are getting married this year and from then, hope to pay £1,000 over payment each month to get mortgage down either to somewhere near where we can sell or can rent place out while we rent another place in the country.

setmefree2

and good luck

adrian_bond

rover25 wrote: »

Hi, In the same type of situation.
We bought in early 2007 for 175,000. 3 bed semi. Prices have fallen dramatically (based in NI).
Really dislike house as grew up in country and hate hearing noise frm next door and seeing people all the time in the park (how weird am I? !, Believe me I didn't think it would be such a problem and that I wouldn't mind an urban area.
Anyway we are getting married this year and from then, hope to pay £1,000 over payment each month to get mortgage down either to somewhere near where we can sell or can rent place out while we rent another place in the country.

hi rover,

my brother had a similar problem with noise from his neighbours always annoying him. He could actually hear every word of each conversation from the people in bed in the next house! he eneded up buying some sound "deadening" material from a diy shop and fixing it to his wall. he had to screw wood batterns to the wall and lay the stuff (looked a bit like insulation wool in the loft) inbetween. Her then put new plaster board over the top and repainted the wall. it worked a treat. took about two inches off the room but made it much cosier and quieter!

im planning on doing it at some point in my bedroom in my flat as the floorbaords in the flat above creak like a coffin everytime anyone moves. really annoying if youre just drifting off at night!

as for the park bit, you could put up a fence or a hedge, or get a dog and enjoy the place. i was the same (misserable) after a while with my place, but just learned to love it in time and were much happier now.

cheers :beer:

cupid_s

You are in a much better position than many - because you took out a sensible amount compared to your wage. That should give you room to overpay by an awful lot - if your mortgage company allows. If it doesn't save the money and pay off a lumpsum at the end of the fixed period. We did this and we now only owe 22k on our mortgage, down from 66.5k 2 years ago (and we don't earn all that much).

It is suprising how much money you can save in various areas without actually damaging your lifestyle very much.

rover25

Cupid, that's a huge difference. Down from 66 to 22k. That's 44k over 2 years. How much were you's paying extra per month. Fair play to you's! :T