Mortgage advice - negative equity but have cash saved up for deposit...

MeGaMaN_2

Hi all, looking for some advice!

Bought a terraced house around five years as first time buyer, paid around 115k with only a 3% deposit on an interest only mortgage.

House is now worth considerably less than I paid - I've not had it valued yet but looking at others in my street that have sold recently lets say I could sell for 95k for arguements sake, so we are talking 20k negative equity.

I've been overpaying the mortgage by £150 a month since Aug 2010 so that's £2550 in overpayments to date.

I now have two young children and the house is too small so we want to move. I've been saving up for the last two or three years and now in total have roughly £20,000 in savings (not including the £2550 in overpayments).

What are my options with regards to moving house? This is the only house I have owned so have no experience of remortgaging etc.

Let's say for arguements sake I saw a house for 150k - does that mean I am looking at applying for a mortgage for £167,500? (115 + 150 - 95 - 2.5 = £167.5k)

I'm basically asking how much can I go up to in my house hunt? I appreciate the lenders will only offer me my salary multiplied by X (not sure what X is but I am now earning a decent salary so hoping it will cover it).

I could also borrow a further 10,000 from the bank of mum and dad as I have a sharesave maturing this year which is worth roughly 10,000 which would could bring my "deposit" up to around 30k.

Any advice appreciated as I really have no idea how this works and my missus is at her wits end in our tiny house!

opinions4u

You will almost certainly need a 10% deposit for the new house in addition to clearing the negative equity.

So if you want to buy a £150k house, you will need a £15k deposit and get a mortgage of £135k.

If you owe £113k on your existing house and sell for £95k you will need to repay the lender an additional £18k from savings.

Total input from you: £33k plus fees for estate agents, solicitors, surveyors etc.

BoGoF

AFAIK it will be virtually impossible to get a lender to add the shortfall to a new mortgage.

You cannot sell the property without clearing the whole amount outstanding. Your only option would appear to be use your £20k savings to reduce your balance and hopefully achieve enough when selling to clear the balance. This of course means you have a much reduced deposit.

I am by no means an expert but your options appear to be very limited.

MeGaMaN_2

Many thanks for your swift reply guys, this is as I suspected which leads me onto my next question! Do the same rules apply when you go for a new build in one of these house exchange programs?

Hope rather than expectation as we really are desperate to move but I think we are cattle trucked

EDIT - to further elaborate there are some new builds where they seem to be struggling to sell them for the asking price. They are apparently willing to negotiate on the price and also do the home exchange program. I'm thinking rather than negotiating to get them to drop the price of their property, they instead increase what they pay for mine if that makes sense as ultimately I will owe them the difference?!?

BoGoF

MeGaMaN wrote: »

Many thanks for your swift reply guys, this is as I suspected which leads me onto my next question! Do the same rules apply when you go for a new build in one of these house exchange programs?

Hope rather than expectation as we really are desperate to move but I think we are cattle trucked

Yes same will apply and they will offer you less than the going rate.

MeGaMaN_2

Apologies BoGoF I believe I have edited my post with more information after you had read and replied!

BoGoF

The problem with your edited version is that when the new build comes to be valued by a lender they are unlikely to value it anywhere near the full asking price so will not lend you the amount you need to buy.

MeGaMaN_2

looks like I'm doomed, the missus will not be amused!

Incredibly frustrating as I earn more than enough to pay the mortgage of the new house and have impeccable credit rating. Only way around it I can think of is getting a whopping loan from mum and dad, then move, then get another whopping loan to pay them back and pay both mortgage and said whopping loan each month

DannyboyMidlands

MeGaMaN wrote: »

looks like I'm doomed, the missus will not be amused!

Incredibly frustrating as I earn more than enough to pay the mortgage of the new house and have impeccable credit rating. Only way around it I can think of is getting a whopping loan from mum and dad, then move, then get another whopping loan to pay them back and pay both mortgage and said whopping loan each month

Erm you could do. Or you could just knuckle down and start repaying the existing mortgage. £2550 over five years is a p*ss poor performance and (along with no initial deposit) is the root of your problem.

MeGaMaN_2

Thanks for the insulting reply, the reason for the "!!!! poor performance" on the mortgage front is I've also managed to save 20,000 in three years on one salary with two children. If you have nothing constructive to add please don't post, I didn't come here for a condescending lecture.

DannyboyMidlands

I wasn't trying to be insulting or codescending, just honest. I think that you need to repay some of your existing debt rather than scratching around and trying to roll it up into an even bigger debt.

Congratulations on having some children.