HSBC graduate mortgage... no way out!

Mic

I signed up for a 2 year HomeStart mortage 2 years ago with HSBC. I paid £6000 deposit on a house worth £101,000 and took out a mortgage for the remaining £95,000. The first 2 years of repayments were interest only at a rate of 6.59%. It will now move on to 1 year interest only repayments at variable rate followed by the remaining years interest and capital repayments at the variable rate. This week I received a letter from HSBC stating, "As an existing customer, we are pleased to offer you a range of fixed rate deals available until 24th August 2009 for your peace of mind". I would prefer to have a fixed rate mortgage as I prefer to know where I am and I thought that as a loyal customer who has paid all monthly payments promptly, there would be no problem with this. When I phoned HSBC I was told that my mortgage was interest only and therefore classed as a 100% mortgage and so there was nothing available for me. I couldn't believe this as I had put down a £6000 deposit originally (not great I know, but at least it was something!) and now it seems to count for nothing. Anyway, she said the only deals available now are 75% mortgages so I am basically stuck with no way out as I am a teacher with no where near that amount of money! Is there anything I can do or do I just have to save as much money as a can from the lower repayments that start in September and hope the situation will change? Thanks in anticipation.

maninthestreet

If you put down less than a 6% deposit 2 years ago, you are in negative equity now. No other mortgage lender will be prepared to offer you a mortgage, as your property is worth less than the sum owing on your mortgage. Make overpayments and hope the housing market recovers as soon as possible.

beecher

Your LTV will be over 100% as your £6k deposit is wiped out due to house prices going down. Work out how much your house is worth now - possibly £80,000? - and then work out how much you need to overpay your mortgage to get down to a 90% LTV. Then you need to seriously work out how you'll overpay your mortgage to come down to that level.

Go onto the Debt Free Wannabee forums for help on cutting back on expenditure - get rid of sky/gym/car. Any payrises you get, fling them at the mortgage - don't just overpay by the amount you're saving when you go on the variable rate as you need to get the outstanding balance down, and be prepared for when variable rates go up. Hoping the situation will change isn't really an option.

Mic

Ah ok, this is worse than I thought I didn't think that negative equity was too much of a problem unless you wanted to sell your house. I have £6000 in savings and my wage will go up in September, so would it be better to save as much as possible in case the interest rate shoots up so I can keep up repayments or try to make over payments now to reduce the capital but risk having nothing to fall back on? I don't have sky or gym etc. and can't live without my car. Many thanks for your help!

_Andy_

If you can afford to change to capital repayment now, do so.
The problem is at the moment you have low payments due to being interest only but you're not paying back any of the debt each month.