Negative equity...

Coupon-mad

I can't understand this either. I know my info is a little out of date but I used to be a Mortgage Manager (A&L), and I'm wondering if the lender hasn't been advised that the pp is £140k? (Was the valuation £148k?).

As far as I recall, even if the offer has been made it can be retracted if some info turns out to be wrong (e.g. when your Solicitor wants to complete and confirms in the Cert of Title that the pp is £140k)....bit late by then but could cause last-minute problems...?

AndrewSmith

I wonder if this is the case also, that then lender is unaware of the change in the PP.

Also, as I have posted, as a professional couple there are far better ways of funding a 100% purchase than using Northern Rock's relatively expensive 95% + Unsecured loan method.

This really does go back to my earlier post :

http://forums.moneysavingexpert.com/showthread.html?t=208160

where I ask whether this sort of lending in excess of 100% should be allowed in every case unless there is a demonstrable financial benefit in doing so. Using the 'extra' money to repay high interest rate medium term borrowing, yes, using it for a holiday or furniture then no, as these are things that should not be paid for for the next 25 years on a mortgage.

AndrewSmith

PoorDave wrote:

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?).

This should only be done if the rate payable on the existing debt is high. A calculation is needed to ensure that, in real terms, you are better off by doing this. As you will be paying for this for the next 25 years possibly, it is doubtful.

You will not be committed to taking this mortgage yet. That will happen at exchange of contracts.

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

Spot on, totally agree.

Of late there have not been the increases in property values to substantiate borrowing in excess of the purchase price. By borrowing in excess of 100% you are exposing yourself to a potential problem should you wish to sell or move in the near future.

It will also mean that, at the end of your initial incentive period, you may be stuck with Northern Rock paying Standard Variable Rate, as the portion of the mortgage in excess of 95% will be treated as an additional debt and will reduct the amount of mortgage you will be entitled to from another lender.

Who recommended this mortgage to you?

I know it may sound like we are all having a go at you but trust me this is not the case.

I personally have seen a number of people fall into the negative equity trap as a result of mortgages like this, and ususally have to end up sorting the mess out once the original broker who made the recommendation is long gone. I am just trying to offer some free advice based on my experience with mortgages. There is no motive or reason for me to do otherwise, especially as there are lenders / products tailored specifically for professionals / teachers offering 100% finance at far better rates than the Northern Rock, with lower entry and set up fees also.

Andy

goonernumber1

Thanks for your advise. I will look into some other options.

To make it clearer for some of you, yes it is a 95% and then the rest as an unsecured loan.

regularsaver1

would you want to take a loan for a holiday?

meanmachine_2

goonernumber1 wrote:

Thanks for your advise. I will look into some other options.

To make it clearer for some of you, yes it is a 95% and then the rest as an unsecured loan.

Aaaah, the truth will out.

The 125% mortgage, also known as the muppet mortgage.

No offense.

But if you'd posted on here before you took it out, the folks on here could have saved you a packet.

Personally, I couldn't enjoy a holiday knowing I'd borrowed to pay for it.

Man, I hope neither of you is a maths or economics teacher.

Again, no offense.

goonernumber1

meanmachine wrote:

Aaaah, the truth will out.

The 125% mortgage, also known as the muppet mortgage.

No offense.

But if you'd posted on here before you took it out, the folks on here could have saved you a packet.

Personally, I couldn't enjoy a holiday knowing I'd borrowed to pay for it.

Man, I hope neither of you is a maths or economics teacher.

Again, no offense.

I don't understand, it's not a 125% mortgage.

We were told we could borrow £148000, but only bought a flat for £138500, therefore £9,500 left over.

If someone can explain why this is called the muppet mortgage please?

It seemed right for us, but if anyone can suggest better>?

regularsaver1

you are borrowing more than the property value so are borrowing more than 100% - some unsecured ( i haven't said muppet there)

works for some people, not others

Old_No.7

Hi gooner, what seems to be missing in your post, if the understanding that you are not just paying the basic amount back, but also are paying interest on it. Over 25 years even a low percentage adds up to a whole lot of money. We just got our mortgage papers back, and it stated that for every pound we borrow, we'll be paying almost double that back (1.90). So in essence 8,000 pounds of free money, will end up costing 16,000. (And that's if you get it on a low rate, otherwise it'll be even more: our rate is 4.5% I believe, no doubt the extra unsecured money you are borrowing is at a higher rate than that). See if you can find a calculation like that in your papers (don't know if all of them state it so obviously as ours), and then decide if you need that holiday/sofa/whatever so badly that it's worth twice the amount you'd normally pay for it.