Mortgage advice re negative equity

austinslide

Hi folks,
Hoping someone here can give me some advice.
My house is currently on the market, bu tlike many Ive slipped into negative equity.
also, my current mortgage is interest only
My agent is advising a price drop. If i do this, I will be selling for less than the value of the mortgage.
There would be two possible things I would do
1) sell and buy another house of same value with the money with no change to mortgage or
2) sell and buy another house at lower value, use the difference to take a chunk out of my mortgage and switch to a repayment mortage

My questions are
1. Can i do either or both of the above?
2. Do I need to inform my mortgage company?
3. Would my preferred option (option 2) be the best plan and are my mortgage company likely to allow me to do this (also, as mentioned, do i need to ask/ tell them in advance?)

cheers

Thrugelmir

austinslide wrote: »

Hi folks,
Hoping someone here can give me some advice.
My house is currently on the market, bu tlike many Ive slipped into negative equity.
also, my current mortgage is interest only
My agent is advising a price drop. If i do this, I will be selling for less than the value of the mortgage.
There would be two possible things I would do
1) sell and buy another house of same value with the money with no change to mortgage or
2) sell and buy another house at lower value, use the difference to take a chunk out of my mortgage and switch to a repayment mortage

My questions are
1. Can i do either or both of the above?
2. Do I need to inform my mortgage company?
3. Would my preferred option (option 2) be the best plan and are my mortgage company likely to allow me to do this (also, as mentioned, do i need to ask/ tell them in advance?)

cheers

You should speak to your lender first and see how they can help you.

Transfering negative equity to a new lender would prove very difficult in the current market.

Could you increase your mortgage payments to at least start reducing your debt? I assume that if you can afford to move then you have capital saved.

austinslide

No capital saved and no plans to swtch lenders at the moment.
Planning to sell house and buy at same or lower level, as stated.

Thrugelmir

austinslide wrote: »

No capital saved and no plans to swtch lenders at the moment.
Planning to sell house and buy at same or lower level, as stated.

You need to speak to your lender. As a potential sale could stall if they are unaware.

austinslide

Thats kind of what I was looking for clarity on. how would this happen? Is the lender informed by the solicitor? How would the lender know or become involved?

Thrugelmir

austinslide wrote: »

Thats kind of what I was looking for clarity on. how would this happen? Is the lender informed by the solicitor? How would the lender know or become involved?

In simple terms. Your lender holds the title deeds to your property without which your solicitor is unable to process the sale. During the sale process your solicitor will contact your lender to notify them and also obtain a settlement figure for your existing mortgage. The mortgage will need to be discharged in order for the solicitor to release the title deeds to your purchaser. So if the funds aren't available the solicitor will be unable to complete the transaction and the deal will breakdown.

austinslide

Thanks a lot that clears it up.
Appreciate it.

Conrad

Lender must agree to your plan up front. Most will expect you to clear the negative equity out of your own funds.

The down sizing bit I can't get my head around.

g_attrill

As mentioned there is no way you can do anything without the mortgage company knowing everything. Also basically no matter what you do you will still owe the difference between what you owe on the mortgage and what it sells for, you can't magic this away by trading down, in fact the LTV would be even higher.

Thrugelmir

g_attrill wrote: »

As mentioned there is no way you can do anything without the mortgage company knowing everything. Also basically no matter what you do you will still owe the difference between what you owe on the mortgage and what it sells for, you can't magic this away by trading down, in fact the LTV would be even higher.

Trading down would require less total borrowing, and therefore make capital repayments possible. At the moment the OP is on an interest only basis so not actually clearing any debt.

In these circumstances lenders may well feel inclined to help the borrower. As ultimately they have a reduced and dimishing exposure.