Stuck in negative equity

whizz011

Morning,

I purchased a 1 bed apartment in Romford using the First Time Buyers Initiative in May 2007.

Quick breakdown
Price: £185,000
Half paid by FTBI - £92,500
Deposit - £8000
Mortgage - £84500.

The scheme gives me 50% of the purchase price however after 3 years, a fee is payable of 1% (£90pm) on the value of the governments contribution raising to 2% (£186pm) after 4 years and 3% (£280pcm) after 5 years.

The other annoyance is that my service charge has increased dramatically and is currently
£225 including Ground Rent.

Currently I am paying:
£346 Mortgage
£225 Service Charge inc Ground Rent
£90 Govm't Rent
-£661 pcm

My concern is that in May that will go up by £90 to £750 and then the rumours of BOE raising rates could cripple me.

Therefore I am now concerned with what to do??? And feel I need some advice.

Current Market Value
Buy: £150,000-155,000
Rent: £725-750pcm

The good news, If I sell in negative equity and cannot pay the FTBI loan back in full, the amount I will pay is calculated by subtracting the outstanding balance on my mortgage (excluding early redemption penalties) from the agreed sale price of my property.

Any advice would be greatly appreciated. I am open to all options.

Regards

James

whizz011

Hiya,

Can anyone suggest somewhere I should go to get advice? I'm probably being really stupid but not sure where I should go. Solicitors?

James

Rov

Will it sell for the market value you stated? You know you need to get an approved valuation for the FTBI? and then sell at that price.

If you sell you're looking at a loss of your original £8k plus anything paid off the mortgage (think of it like you were renting if this is what you decide to do), if you dont sell you're risking losing over £40k which would probably bankrupt you.

Thinking positively, you might be able cope with the extra charges coming in over the next 5 years or so, and might be able to sell at a small profit. Without knowing the detail of your local market no one can advise whether this third option is likely or not.

You could rent it out on the quiet (dont tell the FTBI as they want a cut if you do), but you'd need to find somewhere to live in that case.

Good luck!

whizz011

Thank you so much for the response and for your suggestions.

Out of interest, I don't understand the 40k loss part, how do you come to that number?

getmore4less

Whats your mortgage deal?

Is it interest only at around 5% or a repayment on a better rate?

If you don't sell whats your exit plan.

If you can get out without owing money you might be lucky.

These shared style deals are traps unless you get good increases in wages or windfalls.

whizz011

Mortgage is tracker for life at 1.25 or 1.75% above base rate. Repayment.

I have no exit plan as it stands, really not sure what to do

JJM07

I am in a very similar position! Here's my story;

I bought my 2 bedroom apartment in June 2007 through FTBI (now called Housing Options Plus)

Purchase price £180,000 our 50% share = £90,000 no deposit required.

I noticed a few properties in the development exactly the same as mine coming on the market at £95,000 and £100,000. After digging a little deeper I found that FTBI have a clause in the contact that should the owner decide to sell FTBI will take a reduced amount.

Basically this is how it works;

Original purchase price = £180,000
50% Share mortgage = £90,000
FTBI Share 50% = £90,000

Properties re-sale price = £95,000
Our mortgage paid off in full and FTBI take the remaining amount = £5,000.

The scheme was originally designed for first time buyers and its now been taken advantage of by investors!

So your not in that bad a position really.......... you stand to lose your £8,000 deposit but you should be able to sell pretty quickly should you want to?? Unlike everyone else who bought in 2007 and in negative equity!

Have a look on rightmove/zoopla for other properties in your development, see if they are selling at a reduced price??

Maybe worth reducing your mortgage to interest only and see your outgoings drop?!?!?

Good luck mate!

xxxpaulaxxx

I'm completely confused by this!

We bought a 3 bedroom flat on the ftbi scheme in oct 08
The flat was valued at 115,000
Our contribution was 60,000 at 52% no deposit
govt put remaining 55,000

We are now looking to sell, got the flat valued recently at 115 by estate agent (I think we could get slightly more?) but after speaking to ftbi they advised we have to get a independent surveyor in and then that is the price the flat has to go on the Market for once agreed by them?

So if that is correct and we sold for say 120, do we get 52% and govt get 48% of that amount and likewise if we sold for a loss?

I thought it was a good scheme but reading about others I'm worried I've missed something?!

boonkoh

xxxpaulaxxx wrote: »

I'm completely confused by this!

We bought a 3 bedroom flat on the ftbi scheme in oct 08
The flat was valued at 115,000
Our contribution was 60,000 at 52% no deposit
govt put remaining 55,000

We are now looking to sell, got the flat valued recently at 115 by estate agent (I think we could get slightly more?) but after speaking to ftbi they advised we have to get a independent surveyor in and then that is the price the flat has to go on the Market for once agreed by them?

So if that is correct and we sold for say 120, do we get 52% and govt get 48% of that amount and likewise if we sold for a loss?

I thought it was a good scheme but reading about others I'm worried I've missed something?!

You have to get at least the price the valuer hired by the FTBI comes back with.

If I remember correctly, any gains above the original price is shared between you and the FTBI, in relation to your equity shares (48 and 52). Any losses, and after the mortgage is paid off, the FTBI have first right to anything left.

billymadbiker

So is this a risk-free way of purchasing now then?
With prices currently low could I buy a £100k house (so pay £50k toward it)
then, if I pay intrest only it would cost about the same as my current rent so no 'loss' there,
Then, sell in 2 years time.
If the value has dropped to £80k my mortgage will be paid off and I will lose nothing but what I would have spent in rent anyway.
If it sells for £120k I pay back the £50k mortgage and make 10 grand?

Wickedkitten

JJM07 wrote: »

I am in a very similar position! Here's my story;

I bought my 2 bedroom apartment in June 2007 through FTBI (now called Housing Options Plus)

Purchase price £180,000 our 50% share = £90,000 no deposit required.

I noticed a few properties in the development exactly the same as mine coming on the market at £95,000 and £100,000. After digging a little deeper I found that FTBI have a clause in the contact that should the owner decide to sell FTBI will take a reduced amount.

Basically this is how it works;

Original purchase price = £180,000
50% Share mortgage = £90,000
FTBI Share 50% = £90,000

Properties re-sale price = £95,000
Our mortgage paid off in full and FTBI take the remaining amount = £5,000.

Hang on, if you have a 50% share, how do you figure you get 90k?

Right in their handbook it says when it is time to sell, then you have to repay the assistance , so if they gave you 50% of the total and you sell it for 95k, then they get 47,000 not 5,000, which leaves you with the other 47k and in negative equity.