Lost equity - Fact or myth?

In_for_a_penny

Hello,
Can someone please help clarify the following:
My wife and I currently have our house up for sale with the hope of buying and moving to another one. Our current house is fully paid for and we have approximately £50k in savings. The equity we have in our house, together with savings we have, will enable us to require a mortgage for only approximately 25% of the total value of the house we hope to buy.
If we were to find ourselves in the unfortunate situation that we couldn't pay the mortgage due to e.g. unemployment (my wife is a full time housewife and mother to our son), where do we stand if the mortgage lender were to serve a repossession notice on our new home? Particularly as we would have a mortgage for only 25% of the value.
Would we lose all our money (75%) we had paid into buying the house? Or, if the mortgage provider managed to sell the house at the going rates and recovered its 25% that it lent us, would we manage to recoup our money or most of it from the difference?
Someone has told me that we would end up losing everything if the house was to be repossessed and the mortgage lender would get all the proceeds of the sale!
Thanks.

scope

I am pretty sure the bank will take what they are owed, + any fees, etc, you will get the what is remaining.

ILW

No offense but your friend is an idiot. The mortgage company would sell your house. Use the price raised to pay any outstanding mortgage and costs and the rest would be given to you. If the situation did arise though you would probably be better off selling before they repossesed.

TEDDYRUKSPIN

From what it sounds you only want to know the worse case scenario. The answer is above. ILW is completely correct.

Radiantsoul

In theory if a mortgage company forecloses they could keep al the proceeds. In practice in the UK this doesn't happen and mortgage companies seek a possession order and remit the surplus to you.

opinions4u

Radiantsoul wrote: »

In theory if a mortgage company forecloses they could keep al the proceeds.

But not in law. Any surplus belongs to the borrower.

Dithering_Dad

Why not buy your new home with an offset mortgage. You could get a mortgage that's £50k larger but then keep your £50k savings in the offset account. You'll have the same monthly repayments as your original approach, but will have easy access to the £50k savings if necessary.

This may sound a little backwards, as you'll be increasing your debt liabilities, but with £50k of savings you will be able to make those mortgage payments for years.

Offset mortgages also allow you to make large overpayments, so while you're still in work, you can blitz the mortgage.

Alternatively, buy redundancy protection insurance, stay put in your current house or buy a smaller new house with your equity and £50k savings and continue to be mortgage free.

p.s. if in the unlikely event you get reposessed, the bank is only entitled to what you owe them with the mortgage and the hefty fees they attach.

Dan_1976

Yep, the lender has to get the best price it can, and after the mortgage and fees they pass back anything left.

Booradley_2

Dan_1976 wrote: »

Yep, the lender has to get the best price it can, and after the mortgage and fees they pass back anything left.

True. They can't do a deal without some marketing. But they may not market it as thoroughly as you would yourself. They look for a quick sale hence so many repos ending up at auction.

I am also a new fan of offsets. moving savings from the offset product across to your mortgage account is a clever way to take a mortgage holiday if you were say between jobs.

Boo

silvercar

True. They can't do a deal without some marketing. But they may not market it as thoroughly as you would yourself. They look for a quick sale hence so many repos ending up at auction.

A quick sale benefits the repossessed, as the arrears are much lower.

luckyfool

Radiantsoul wrote: »

In theory if a mortgage company forecloses they could keep al the proceeds. In practice in the UK this doesn't happen and mortgage companies seek a possession order and remit the surplus to you.

In theory? In reality foreclosure is an American term, and the scenario can be as you describe it in the US. In the UK the Bank has a legal duty to you to get the best price reasonably possible, and can only deduct the owed amounts and expenses and must return the balance to the previous owner of the property.