Selling a City Centre Flat and in negative equity - when to take the plunge?

Trigger79

Hi everyone,

I'm a first time poster so be gentle with me!

I have a newly built flat in Birmingham City Centre (in the Digbeth area) - I bought it in spring of 2006. It's a shared ownership property that was valued at £75000 for a 50% share. There is £70,000 left to pay on the mortgage.

Like many areas of its kind, there was quite a bit of mortgage fraud and reposessions after the crash which have brought the values of the properties down quite significantly. For example, apparently one person bought the entire block opposite me and then went bust. The local market has been flooded with cheap flats.

Also I suspect the flat was overvalued in the first place.

If I sold the flat now, based on what prices are going for I'd probably sell it for about 60,000.

I have money saved up, and can buy myself out of the negative equity, but am trying to decide whether the prices might rise over the next year and whether I should wait.

Importantly, the reposessions and auctions (and therefore flats going at around 40,000) seem to have dried up now, and there is now only one SO flat of its kind in the block up for sale. There are only 5 flats for sale in total in the area that I'm in.

Of course the estate agent is saying I should put it up for sale now, but then it's obviously in his interest to say that.

What I'm thinking about is that since March 2006, according to Nationwide, modern properties have dropped by about 5% - in this area the drop is 23% - 30%. Would I be shooting myself in the foot if, now the reposessions have stopped, the market bounced back a bit to come more in line with the national average?

Does anyone have any knowledge of this area? Or of city centre markets in general?

If not, where would you suggest me asking for advice on this?

NB I'm not looking to make back what I spent, but if waiting a year meant I only lost 5K instead of 10K then this would be worth it.

NB 2 Unfortunately, yes, I do need to sell as I'm moving to London this year and won't be able to cover the mortgage with my potential rent.

Thanks,

Tim

BitterAndTwisted

Get out as soon as you can. I see no reason to suspect that prices of properties such as yours won't f
drop further in the next 12 months. Plus, it's shared ownership and therefore not that attractive a prospect for the more astute buyer.

FATBALLZ

The prices could bounce back, on the other hand they may fall further. My personal opinion is that they will probably stay roughly where they are for a bit, and possibly fall gradually in the future. But that's just my opinion, there are lots of different ones, and even the 'experts' rarely agree with each other.

These new build type flats were the worst affected in the crash, for the reason of them being a bit crap and there not being the demand for the number that were built. I've lived in (rented) a couple and the landlords have lost a lot of money, the first one is now worth about half of what it was in 2007 and the one I live in now is down about 30%. My current landlord really regrets buying the place.

I'd suggest you are unlikely to recoup the money, or gain back any significant amount of the losses you have already incurred. But you need to decide for yourself, you will got lots of conflicting advice.

Accountant_Kerry

agreed, your type of property and area is very unlikely to rise, get out whilst you can.

brit1234

All the house price surveys have been negative for months. All the economic fundamentals are pointing to further falls. House prices are way overvalued, mortgage lending is getting tighter, interest rates going up, inflation out of control, unemployment rising, oversupply of homes for sale and taxes going up.

You are better selling now fast or you risk more negative equity.

princeofpounds

Broadly I am in the prices will suffer camp if you are looking for a poll!

But more generally speaking, a known liability is always less risky than an unknown one in terms of volatility of net worth.

If I were you, and trying to step away from the prices up/down debate for a moment, I would assess your situation in the following way - if prices fell 15%, how much worse off would I be? If they rose, how much better off?

You might find that in the worst-off situation you are in more trouble than the benefit you get in the rising situation. Sure you could be a bit wealthier on paper if things went well, but if things go badly you risk adding another layer of trouble - being trapped in a situation you cannot buy yourself out of, as you can at the moment.

Negative equity is doubly insiduous precisely because of these unequal payoffs.

The lack of competition is a big bonus if you do decide to move now.

Acc72

Hi Trigger,

Not sure if I understand correctly - you owe £70k and would potentially sell for £60k and would therefore need to find another £10k to clear the debt ?

Please also remember that negative equity only become "real" when you sell.

Also, you need to factor in the fact that if you sell this flat you will need to live somewhere else - and pay a mortgage or rent (not to mention solicitor and estate agents fees).

Therefore if you sold and moved, you would face costs of approx £13k and would then still need to pay rent on your new place ?

hazyjo

Why are you thinking of selling? Just because of the negative equity? If you don't need to sell, personally, I'd stay put. My opinion only - not an expert! If you're having to sell now, or maybe in the next couple of years, I'd consider selling now as the negative equity could get worse. Depends if you bought it as an investment or as a home, I suppose. I bought in the '90s and lost about £7k as I had to sell in a recession. If I'd been in a position to hang on 3 more years, I'd probably have increased its value by about 30%. Swings and roundabouts when you buy. As it happens, I bought somewhere else and made over 50% on it - not as a planned investment, but it helped me move to something bigger when the time was right. Don't think you should sell unless you have to...

Jx

Trigger79

Hi everyone,

Thanks so much for the responses so far.

In response to @hazyjo and @Acc72 - unfortunately, yes I do want to sell as I need to move away from Birmingham and although I can technically rent the place out I'll be losing money on it month on month, so I'd really prefer not to do this (especially as I need to move to London).

@Brit1234 and others - it seems fairly unanimous what you're saying.

I would agree 100% that house prices are overvalued across the country and agree that they will probably go down further.

My question was specifically about city centre areas with lots of new builds where prices have dropped so much more than the average (am I right in saying 25-30% is far more than the national average?) - if there has been a lot of fraud and repossessions it would seem to make sense that eventually they'd come back more into line with the average (which would mean a rise). I don't believe there's an oversupply in Birmingham now as they stopped building any new flats as soon as the recession hit. As I said there are only 5 on sale in the whole area at the moment.

However, it seems like a fairly unanimous verdict on this theory! (i.e. a big fat no.) This is very useful indeed - thank you very much for your input.

Does anyone else disagree with this?

LilacPixie

how long have the 5 flats for sale in the area been for sale? TBH I think prices will stay pretty much stagnant from this point until wage inflation catches up, I don't see a mega crash on the horizon but like everyone else this is just my opinion.

SO properties I think the pool of lenders willing to lend on the property is smaller so that may add a further issue into already tight mortgage lending.. TBH if you need to move from the area then put it up for sale. I cannot see you making up the 10k paper loss for years and years

Trigger79

@LilacPixie - good question. A few have been on there for quite a while I think (6 months+) but I can't be sure. Very good question!

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