Moving with negative equity

BlackCat^

Hi,

First time poster in a bit of a pickle. Any advice or experiences anyone can share would be fantastic.

Basically, I bought my home (as a first time buyer) at the start of 2008 for 104,000. The Mortgage was for 93,000. So now 3 and a half years on the need has arisen to move to a bigger property.

The problem is, with still owing around 91,000 on the mortgage the chances are (judging by asking prices for similar homes on my estate) my home is now only worth around 80,000 to 85,000.

I am about to arrange a meeting with my lender (Santander) to see what options they can provide to enable me to move home if possible. But I was just wondering what I can expect them to be able to do just so I can brace myself before meeting with them?

I am in a 5 year fixed rate deal so accept that there will be an early repayment charge involved in this, but by far my biggest concern is what (if anything) the lender is likely to be able to offer to enable me to move. I can certainly afford to pay more per month and have no other loans to worry about, but the issue is the capital that I once had has now been lost in the recession.

So if anyone is aware of what Santander tend to do for people in my situation that would be a great head up as I cant find anything on their website.

Caroline73_2

Do you have savings or additional funds? You'd still need that 10% minimum of the asking price for your purchase. I think you'd struggle for a larger mortgage without it.

Being able afford the payments isn't entirely relevant if you haven't overpaid your current mortgage or saved anything. We are in the process of moving to a larger house at the moment. If we had just paid the mortgage and spent all our surplus money we would be in negative equity, but we've overpaid and saved so we have a third of our deposit in equity and the rest in savings.

JQ.

Where will you get the deposit for the new house from?

BlackCat^

Thanks for your reply.

Currently I only have around 4,000 of savings available for a deposit that would be usable after the various fees involved in moving. My target home would be around 125,000 (with the hope to sneak under stamp duty and save a bit of money there) so I am a long way off that golden 10%. It hurts to have lost my 11,000 deposit on my current home if I was to sell now; this is the equity I had hoped I would have when it next came to selling. I am able to continue to save a fair bit towards a deposit to reach that 10% but that won't be there until this time next year at the very earliest and the need to move is within the next couple of months not next summer.

FlowerPower

I'm in a similar position - although luckily I don't need to move, I just really want to, as my flat was fine for 1 person, but with 2 it is bursting at the seams! I'd be interested to find out what happens

I'm not sure what you're trying to do is possible. 10% nowadays seems to be the absolute minimum, and £4k is less than 5%. Maybe renting rather than buying a bigger place would be possible while you save up the deposit, if there really is a need to be in somewhere bigger straight away. You could rent your current place out in the mean time if you didn't want to be off the housing ladder. Plus, to sell yours and to buy another would easily take more than a couple of months.

Leon_W

As Caroline mentions, you'll need a deposit.

Historically, at times, this has been easier because you always sold for more than you'd paid. Unfortunately in this climate it is very easy to see paper profits and equity being eroded to the point where if you sold you would come away with nothing, or worse, a loss.

There are many in your shoes and the only option is to try and reduce that mortgage and hope prices perk up a bit or otherwise sell and take the hit.

Best of luck

BlackCat^

Thanks for all the responses.

I have done some googleing and found such things as 125% percent mortgages being leant by some lenders to aid negative equity borrowers to move. Are these a sensible option and easy enough to get? Would this also reduce the need for such high deposits are as in theory equity is being using from my current home or have I got this wrong? I guess its more a question of if Santander offer such things more than anything. There site isn't very good for initial enquiries unfortunately. Hopefully I will know more when I meet with them but things are sounding bleak.

beecher2

Why don't you phone them up rather than arranging a meeting. I can't see them being able to let you move until you have the negative equity and a deposit saved up and at least you'll know immediately if that is the case. Ask them what would happen if you sold up and didnt' buy a new place, and rented instead. Otherwise you may have to radically change your plans. Moving from a £80k to a £125k property maybe isn't going to happen for a good while.

hcb42

I think 125% mortgage is a mistake, even if you could get one....if the market drops again the situation is going to be even worse.

BlackCat^

Done some more digging today:

Is porting the mortgage and taking a "top up"/"2nd mortgage" to cover the extra cost of the next property an option?

So say for example, being a bit optimistic, I sell my current home for a 5,000 loss. I then take a 2nd mortgage to the value of say 40,000. Would a lender allow the loss to be added to the 2nd mortgage? With the 2nd mortgage being only 40,000 then 10% would mean a 4,000 deposit which I could manage. Then I would be left with my original mortgage to pay at the existing rate + a 2nd mortgage to pay at a different rate and possible different duration?

Am I being a bit thick here or does that work? I fear that maybe the 10% deposit is for the whole property and not the mortgage amount maybe.

beecher2

No, it doesn't work that way - you need at least a 10% deposit of the overall amount, not just the extra £40,000. You need to find a way to pay off the negative equity and save a 10% deposit on your new house. Trading up isn't really the answer to your problems at the moment.