Selling a Home with Negative Equity

jmtalire

Hi Guys, hope you can help.

Me and my wife have a 50% shared ownership mortgage. The house was worth £125,000, so we got a mortgage for £62,500 (50%). This was in 2008, just before the housing market collapsed.

We got the house valued a couple of years ago, and had lost some of its value. Since then the market has not got any better, and the house has probably lost more of its value, plunging us into negative equity.

We are planning to start a family soon, and are wanting a bigger house. As this is our first mortgage we are unsure about how mortgages work: if you want to move home but havent finished paying off your mortgage. Plus we are in negative equity. Our mortgage length in 30 years, but we dont want to stay where we are for the next 30 years.

Do any of you have any experience / advice on moving home with a mortgage that hasnt been fully paid off, as well as being in negative equity? Is it easy to transfer onto a new mortgage with a new (bigger) house? (if that sounds right)

Thank you in advance for your comments / advice.

beecher2

How much of a deposit have you saved up? You'll need 10% as a minimum, and in addition you'll need to pay off the negative equity.

DannyboyMidlands

"Is it easy to transfer onto a new mortgage with a new (bigger) house?"

It is if you have some decent savings. Otherwise you might have to stay put for a few years and pay down the existing mortgage. Or, if you think that prices will keep falling, you might be better off selling now and cutting your losses. In this last case you'll have to pay your lender back out of your own pocket.

hcb42

Moving when you have a mortgage no problem, most of us do that several times. You cannot move the mortgage as such though, it is a new application, although the rate might be portable.

You will need to pay off the negative equity, AND then save 10% or so minimum for a new deposit.

pararct

You will not be allowed to carry forward 'any shortfall' onto a new mortgage.

This is going to be extremely hard work for you, you need to save up at least 10% preferably 20%of the value of your potential new buy. This will be your deposit towards a new mortgage.

At the same time you need to save an amount of money to clear your existing mortgage, impossible to say at this stage what that would be but it is the shortfall of your selling price to your existing mortgage once the deal is done. In the midst of all this you should not forget the usual disbursements that come with selling and buying property.

I don't suppose there is a term in your purchase contract that allays 50% of the lost equity to the other party? They were pretty switched on when they worked that out!!

I am sorry you got suckered in to the shared ownership thing. It has not done young couples like yourselves any favours at all, more like lumbered a millstone around your necks. Many could see the pitfalls of it in a falling market but the Government of the day went all out to promote the scheme which it seems was solely another tool to keep property values high and rising.

DannyboyMidlands

@pararct

What? Surely if you own 50% of the equity, you're only liable for what happens to that 50% rather than for the entire loss to both parties?

pinkshoes

Why isn't the property suitable to start a family in? Even a 1 bed flat is big enough for a baby up to 1 year.

To move to a bigger house, you will need to save up enough cash (i.e. NOT a loan) to pay off any negative equity, and then a 10% to 20% deposit on the house you want to buy.

So assuming a bigger house will be around £150k, and yours has dropped to say £100k, you'll need £12,500 to pay off your negative equity, £15k for a 10% deposit, then around £2500 moving costs (solicitors, EA etc...)

So you'll need around £30k cash!

SG27

Phone up your lender and ask what your options are. Some lenders offer negative equity mortgages so I've heard.

If this isn't an option and you are desperate to move the only other option is to save up enough to cover the mortgage shortfall and rent someone bigger?

Cash-Cow_3

There used to be bridging loans for this sort of thing, I think. But these have probably gone the way of 80s leg-warmers and big hair.

timmyt

most people sell their houses with outstanding mortgages, so that deals with that point.

selling with negative equity means you have to find the extr money to malke sure it is repaid. if you are buying a new property for more money, then make sure the borrowing is enough to fnd the higher priced new property and the negative equity balance to pay off the old mortgage.....plus all legal fees , agents fees and moving costs on both of course.

do a statement of all you owe, all you will need to pay to move, and them the price of the new property . you will then see what the amount of the new mortgage sgould at least be.

geoffky

but hamish told us all this is not possible?