Increasing mortgage amount with NE - unusual situation.

larry_lamb_2

3 years ago I got my first time buyer student mortgage with HSBC. It was a 100% mortgage for £110k with which I bought my flat and have lived alone ever since. I have been paying £503 each month as the first 3 years have been fixed interest only and this will end in August. The repayments will then be around £370. I've never missed a payment.

I now live with my girlfriend in my flat (I'm 27 and after 10 years together decided it was time to live together:rolleyes:) and we find the amount extremely easy to pay off now we only have one set of bills to pay. But because we have lived apart neither of us have any real savings but also no debts either. Basically, we can now afford a lot more together but have none of it saved up.

We still owe the £110K but the flat is probably only now worth 95-100k on the market.

Now we have the chance to buy a lovely 3-bed house for about £125k but it will go soon and we have no deposit but can afford the payments on an increased mortgage with ease.

The question: will we be able to increase the mortgage with negative equity? Any advice out there?


Cheers for any help guys.

Cannon_Fodder

No.

You need a deposit to move. (and pay off the negative equity)

Dropping onto a lower rate after the fix is great while it lasts, but get prepared for the SVRs to rise, within the year.

Save hard - either for a deposit to move, or for a cash lump to put you back out of negative equity to remortgage for a better deal.

opinions4u

larry_lamb wrote: »

3 years ago I got my first time buyer student mortgage with HSBC. It was a 100% mortgage for £110k with which I bought my flat and have lived alone ever since. I have been paying £503 each month as the first 3 years have been fixed interest only and this will end in August. The repayments will then be around £370. I've never missed a payment.

Are you paying interest only? If so, you need to find a way to start reducing the capital balance on this loan. Consider transferring to repayment if you aren't already on that.

I now live with my girlfriend in my flat (I'm 27 and after 10 years together decided it was time to live together:rolleyes:) and we find the amount extremely easy to pay off now we only have one set of bills to pay. But because we have lived apart neither of us have any real savings but also no debts either. Basically, we can now afford a lot more together but have none of it saved up.

Time to get saving.

We still owe the £110K but the flat is probably only now worth 95-100k on the market.

Let's work on a worst scenario of £90k in the current market. What similar properties are on the market for is rarely what they will sell for.

Now we have the chance to buy a lovely 3-bed house for about £125k but it will go soon and we have no deposit but can afford the payments on an increased mortgage with ease.

Time to review your dreams I think.

The question: will we be able to increase the mortgage with negative equity? Any advice out there?

A mortgage is a loan secured against a specific property. So the question asked as worded says "can you raise money against your flat to pay for another property?". The answer in the current climate is a resounding NO!

The circumstances you need to come together are this:

- you need a buyer for your flat
- you need the sale price for your flat to repay the mortgage or you need to find the cash from somewhere to top up the sale price to repay the mortgage. That means if you sell for £90k and owe £110k you need to find £20k from somewhere. Plus legal and estate agent fees (another £2,500 at a guess).
- in the current market you need a deposit for the new house that you want to buy. Typcially the minimum is 10% or more. The bigger the deposit the better the mortgage deal. But working to minimums, you need £13k plus legal fees (£500ish) plus valuation fee plus a product fee, and a mortgage secured against the new house for £117k (or less if your deposit is bigger).

In other words, to move house you need somewhere close to £40,000 and a buyer. The better the sale price is over £90k, the lower the £40k requirement comes. It's an unpleasant situation. But it isn't unusual.

Get saving hard. And start finding ways to reduce your mortgage debt at the same time (e.g. transfer to repayment, overpayments etc).

www.moneysupermarket.com/savings

Sorry for spoiling your Sunday.

Coffee?

_Andy_

As stated above, the answer is 'no'.

Not sure what the 'unusual situation is' though?

nw_man

Opinions4u,

It isnt coffee he needs after your response :rotfl:

daveb975

larry_lamb wrote: »

Basically, we can now afford a lot more together but have none of it saved up.

This is a bit of a bizarre statement!

As the other replies have mentioned, a lender will expect to see some commitment from you in terms of a saved deposit. The fact that you obviously earn enough to 'afford a lot more', but have nothing to show for it will not be enough.

I am slightly surprised that after being 'burnt' with a 100% mortgage and negative equity already you are planning to do exactly the same again!

larry_lamb_2

We have 2 salaries but had each had our own flats. We each lived to our means and, as such, have no debts but also no savings.

Moving in together means we still have 2 salaries but only 1 flat to maintain and pay for. Therefore, we have no savings but now have a lot more money each month as a couple.

We simply have the opportunity to buy a nice house cheaply from a family member and was just wondering what our options (if any) were.

Not really sure why the sentence you quoted is a bizarre situation. If you have less tom pay for you therefore can afford a lot more.

Cannon_Fodder

...and the other flat didn't provide any equity, either...(or was rental)

Interest Only is poorly thought of, in part because of your scenario. Would suggest you avoid it, next time.

Set yourself some tough targets to save hard. As you hint, you're not just saving 1 rent/mortgage, but also a Council Tax, water, electric/gas, telephone/broadband, TV licence, building/contents insurance, etc, etc

That should be a sizeable deposit in a years time.

Consensus is that prices won't run away, there'll be further drops in the autumn/winter.

daveb975

larry_lamb wrote: »

Not really sure why the sentence you quoted is a bizarre situation. If you have less tom pay for you therefore can afford a lot more.

The problem is that extra monthly cashflow does not mean that you can afford to buy a bigger house, you can afford the monthly payments but always need a deposit for that, now more than ever.

There are two options as far as I can see:

1. Stay where you are for a few years, saving the extra income to create a deposit to buy somewhere bigger in the future.

2. Move out to a larger, rented house. Your extra monthly cashflow should allow you to rent a bigger property. The problem with this is that you will not be able to save as much as a deposit to eventually buy a house.


It is a shame that you cannot move if you are being offered the new house at a potential discount, but there is never any harm in staying in the flat and living well within your means for a while (unless you have a growing family to consider)