Mortgage advice for next time buyers with no equity?

cam101

Good evening, I am really in need of some advice here. Before I continue, please no-one come back with judgemental replies about whether we can afford/ever should have been given a mortgage/wider society issues

Husband and I have been in our house almost 4 years, currently not in a deal and paying a very reasonable SVR. The problem is, our house is just too small and we are keen to move on and start a family soon. Here are the facts and figures (they may not look particularly pleasant!)

2007: 100% mortgage taken out for 133,000. At the end of 2010, 128,500 was still owing on this.

2011: Based on similar prices in the area, we suspect our house will be valued at a top price of around 120,000. We have requested some valuations to confirm/advise us on this. We have made loads of improvements to the house and garden, it is immaculate. It is also on a larger than average plot etc etc. In all reality although this might hold up the price, we appreciate the reality of our situation and our inevitable negative equity (which we could only hope to minimise).

We have seen a house priced at 179,950 with a new home builder who offer part exchange or obviously we could try and sell ourselves.

We have nothing to go on here, as we also have no deposit. Obviously we need some sort of substantial cash injection to get things going and give us any hope of moving, however we are wondering about our exact options.

Do we have to pay off our negative equity first? Could we instead take it to a new deal provided we can come up with a deposit? If even an option, would this then mean we could only stay with our current provider?

We have a 100% mortgage. If applying for an extra 60,000 would we need a deposit on this amount or on the full amount of the property?

We have parents and grandparents with equity/collateral/savings who we know would be willing to support us, but we obviously can't do anything that risks them.

So, we are keen to investigate any options open to us in any way whatsoever, and would appreciate any advice anyone can give to us.

Thank you in advance

Thrugelmir

In a couple of years you won't have repaid much capital off your mortgage balance. If you are serious about moving then you need to start to overpay your mortgage immediately. Cutting out any expenditure from your budget that you can. There is no easy answer to your plight. The choice is yours to make, as to how much of a priority it is.

poppy10_2

You need to be able to pay off your negative equity before you will be able to move. Start overpaying like mad.

InMyDreams

cam101 wrote: »

We have a 100% mortgage. If applying for an extra 60,000 would we need a deposit on this amount or on the full amount of the property?

You are not applying for 'an extra 60,000'. You have to first pay off the existing mortgage (usually by sale of the property plus make up any shortfall from savings/other means) and then take out a completely new mortgage for the full amount you wish to borrow on the new property. These are two completely separate transactions.

cam101 wrote: »

We have parents and grandparents with equity/collateral/savings who we know would be willing to support us, but we obviously can't do anything that risks them.

I can't see how you would avoid putting them at risk if you are using any money that they hope to get back. If they gift you the money then they are not at risk (as they are not expecting anything back) but then I'm assuming that's not what you/they have in mind, unless I've misunderstood.

cam101

Thanks for replies so far, it's just difficult isn't it... even if we over pay the 8,000 we will still then have to save up a deposit of almost 20,000 to be able to move on and up the ladder. In the longer term we can afford substantial monthly payments for a number of years, but it's all the upfront expenditure that's so crippling. Reality bites.

We have 2 bedrooms so technically it's not urgent to move, but then we get into the territory of one of us possibly having to give up work for child care, which means we'd never get a new mortgage anyway. I'd hate to look back in the future and realise that we kept our family small purely because of the number of bedrooms in our house!

Oh the turmoil. Thanks again, keep the advice coming please

PasturesNew

It's better you're in a cheaper house, surely, if you're also thinking of one giving up work.

poppy10_2

cam101 wrote: »

Thanks for replies so far, it's just difficult isn't it... even if we over pay the 8,000 we will still then have to save up a deposit of almost 20,000 to be able to move on and up the ladder.

So you'll need to make £28,000 of payments in order to move to a house that is worth over £50,000 more than the one you are currently in. Seems fair enough, really.

In the longer term we can afford substantial monthly payments for a number of years

Which raises the question: If you can afford substantial monthly payments, why have you only paid off £5,000 of your mortgage since 2007, despite interest rates being at an all-time low for most of this time?
I know you didn't want judgmental responses, and I'm not trying to be snarky - it's just an important question to consider before you make the decision to shoulder an additional fifty thousand pounds worth of debt while you are already deep in negative equity

DVardysShadow

To move on, you need to budget

• Your negative equity
• 10% deposit for the new place
• Legal fees for sale and purchase
• Estate Agent fees for sale
• Removal costs

Which I am guessing is £24,000 plus the negative equity based on your selling and buying values. This is a tall order, although I imagine you might be able to cut down if you can find a 95% LTV mortgage.

The negative equity is something of an albatross around your neck, so as the others say, you need to work on getting this paid down quickly.

The other point to be aware of is if you go for new build. These devalue immediately you move in - you should budget 10%. So if you do manage to port your negative equity, be very aware that you will add £18000 to that negative equity on a new build. Although newbuild is attractive in respect of taking your current property off your hands, the cost in terms of negative equity is insane. I think you would do far better to cast your budget in terms of a resale property.

hcb42

Ye, I agree. If you go for a new build now, having overcome those hurdles, you are right back where you started.

I would put together a 2 yr plan, overpay like mad, make do with what you have (even with a baby I presume that is doable) and review in a couple of years.

cam101

Thanks everyone, lots of sense being made here. We have discussed much more since I posted and have come pretty much to the exact conclusions that others have also made. We came out of a three year high % fix last summer, and really should have optionally overpaid since then but just never got round to it (totally our fault of course).

To be honest, like many many others, I just don't know where our money goes each month. When we work out on paper we have quite a bit left over, but it just gets swallowed up by groceries and other bits and pieces. If we commit to regular overpayments then that money is gone and we can't "forget" to do it. Like advice above, I think we will overpay like crazy and cut out any unneccessary spending (easier said than done but essential) then review it in a year.

Yesterday I was feeling particularly stressed out, we'd seen a house we loved and couldn't afford :-( Also, a friend of ours is a stay at home parent of 2, has a husband who earns 11,000 a year and yet they live in a detached property and eat out/go on holidays thanks to the taxpayer. It just really upset me that we work so hard yet are in this situation.

C'est la vie I guess.

Thanks everyone, now... back to the ironing.

hcb42

a lot of us are in that situation, but it's better than depending on the state.

Good luck with the economising! I am sure you will get there eventually.