Negative equity...

goonernumber1

Good evening.

I have buying a flat with my girlfriend (exchange date 21st July woohoo!), but we have borrowed more than we need to. This happened because we looked at loads of flates but actually liked one of the cheapest one's so we have about £8,000 left over.

Obviously, this is nice to have £8,000 to perhaps have a holiday and do up the flat (maybe pay a few loans off as well), but a work mate said that its a VERY bad start (starting off in negative equity).

My girlfriend and I are both teachers (so we get an automatic wage increase each year for 8 years), and are also in line for promotions after a few years so our income / job etc is fairly stable.

Any thoughts / experience??

dunstonh

Obviously, this is nice to have £8,000 to perhaps have a holiday and do up the flat (maybe pay a few loans off as well), but a work mate said that its a VERY bad start (starting off in negative equity).

I really think you need to look at your priorities. You have over borrowed and put yourself into negative equity and have loans yet you are considering a holiday.

Interest rates or likely to be on a long term rise which would see mortgage costs go up. The costs of running a house are sky rocketing every year with fuel and council tax.

You really need to be getting your costs down before you blow it on a holiday. Get rid of the debt.

PoorDave

The "responsible adult" answer is pay off the debts you have as far as possible if you're at the stage where you must take this money (has it gone this far for sure?).

If you have money left over then consider holidays etc. Are 7 or 14 days of fun worth years of neg equity worry?

seven-day-weekend

Perhaps against advice of others on these boards, I would say plough it straight back into your mortgage.

The reason I say this is that you never know what may happen in the future (you may split up, one of you may not be able to work because of illness) and the last thing you will want to have is negative equity.

Every time you have a rise, pay more off your loans until they are clear.

Save up for your holidays fromn your salaries.

You'll not miss the holiday you're thinking of taking now in a few years' time when you are well on your way to being debt- and mortgage-free.

AndrewSmith

goonernumber1 wrote:

Good evening.

I have buying a flat with my girlfriend (exchange date 21st July woohoo!), but we have borrowed more than we need to. This happened because we looked at loads of flates but actually liked one of the cheapest one's so we have about £8,000 left over.

Obviously, this is nice to have £8,000 to perhaps have a holiday and do up the flat (maybe pay a few loans off as well), but a work mate said that its a VERY bad start (starting off in negative equity).

My girlfriend and I are both teachers (so we get an automatic wage increase each year for 8 years), and are also in line for promotions after a few years so our income / job etc is fairly stable.

Any thoughts / experience??

Are you sure about this,

Which lender / product are you taking and what is the purchase price / mortgage amount involved?

For example, if you have applied for a 100% mortgage then the lender will give you 100% of the valuation or purchase price of the property you are buying, whichever is lower.

Same for 125% or 115%. It is all relative to the set percentage of the mortgage you have agreed against the value of the property you are buying.

goonernumber1

AndrewSmith wrote:

Are you sure about this,

Which lender / product are you taking and what is the purchase price / mortgage amount involved?

For example, if you have applied for a 100% mortgage then the lender will give you 100% of the valuation or purchase price of the property you are buying, whichever is lower.

Same for 125% or 115%. It is all relative to the set percentage of the mortgage you have agreed against the value of the property you are buying.

With Northern Rock.

Gave us 100% which was £148000

Buying a place for £140000

AndrewSmith

goonernumber1 wrote:

With Northern Rock.

Gave us 100% which was £148000

Buying a place for £140000

If your mortgage and rate have been agreed on the basis of 100% of the purchase price then that is what you will get. 100% of £140,000.

Your mortgage offer and application will be submitted on the basis of a purchase price of £140,000. If it has been agreed for 100% then you will get £140,000.

Northern Rock do however lend up to 125% depending on the product, your income etc.

What does the quote you have been given say about the percentage being offered?


Have you had a full application submitted to them or just an agreement in principle?

Wickedkitten

Did they loan you 5% or 10% of the purchase price?

goonernumber1

AndrewSmith wrote:

If your mortgage and rate have been agreed on the basis of 100% of the purchase price then that is what you will get. 100% of £140,000.

Your mortgage offer and application will be submitted on the basis of a purchase price of £140,000. If it has been agreed for 100% then you will get £140,000.

Northern Rock do however lend up to 125% depending on the product, your income etc.

What does the quote you have been given say about the percentage being offered?


Have you had a full application submitted to them or just an agreement in principle?

We are 'receiving' £14800, with a purchase price of £140000.

And it is an offer not an AIP...

AndrewSmith

To be honest if you don't 'need' the extra money then do not go over 100%.

Also as you are both teacher's you would qualify for a 'professional' mortgage with a company such as Scottish Widows Bank. For a professional mortgage with them you not only get enhanced income multiples but also their rates for 100% mortgages currently start at 5.00% for a 2 year tracker with no extended tie ins.

Northern Rock currently have nothing below 5.99 for their 100%+ range. Having said that I appreciate that you may have already secured a rate before the recent rise in swap rates.

Or you could look at Standard Life bank who have a 3 year fixed rate of 5.3% with no extended tie ins.

Fees are considerably cheaper than Northern Rock too.

Ian_W

goonernumber1 wrote:

We are 'receiving' £14800, with a purchase price of £140000.
And it is an offer not an AIP...

I really can't understand that gooner!! Generally they'll only lend you up to the valuation of the property, even if that is less than the purchase price. Whilst they do a "125% mortgage" as I understand it that is actually a 95% mortgage [ie: secured against the property] with the rest as an unsecured loan. NR also have a nasty habit of tie-ing in to SVR, or at least a higher rate, beyond any discounted period so check that isn't the case.

Andy, or other brokers, is it really the case post regulation that a lender will allow customers to secure a loan on a property for more than it's value? Seems highly irresponsible to moi to put or allow someone to go into negative equity at the very start of their mortgage. Personally I'd avoid that scenario like the plague having been in forced negative equity in the dim and distant. Certainly wouldn't go there to finance a holiday or other short term consumer needs.