Negative Equity

westlothian

My partner purchased a flat at the height of boom in late 2006 for just over £100,000. (2 bed, relatively new build, nice block, North Lanarkshire)

It was initially on the market from June last year at OIRO £100,000. The estate agent advised that the price be reduced to £93,000 in the hope of "catching a buyer" in early autumn.

£93,000 was pretty much a break-even point in terms of the property. There are now four properties for sale in this development. All 2 bedroom flats. The only real differences relate to block, floor and decor as they are all similair in terms of size and features.

The prices are as follows...
£95,000 (Fixed Price)
£93,000 (OIRO) Home Report Value on Rightmove £100,000
£80,000 (Fixed Price) recently reduced
£79,995 (OIEO) recently reduced- Home Report Value on Rightmove £95,000

The two lower priced properties were purchased in 2003/4 so the owners have more flexibility in terms of price.

What could my partner do/offer realistically? I know that this is a difficult situation but should we accept that we are stuck with the flat in the short/medium term?

BitterAndTwisted

As long as there are other similar properties priced lower than hers, you are never going to find a buyer who will pay more than £79,995 Unless there are really substantial differences in finish and fittings. I can't think of any that would induce me to pay an additional fourteen grand

What strategy has your partner in place to find the cash for the difference between the amount borrowed in order to settle the mortgage and any likely selling-price? If none, they are stuck. Live in the property for as long as possible and over-pay the mortgage until the two values are the same, or the mortgage less.

westlothian

BitterAndTwisted wrote: »

As long as there are other similar properties priced lower than hers, you are never going to find a buyer who will pay more than £79,995 Unless there are really substantial differences in finish and fittings. I can't think of any that would induce me to pay an additional fourteen grand

What strategy has your partner in place to find the cash for the difference between the amount borrowed in order to settle the mortgage and any likely selling-price? If none, they are stuck. Live in the property for as long as possible and over-pay the mortgage until the two values are the same, or the mortgage less.

I totally agree that £79,995 is the maximum anyone would pay given the similarites in the properties. Given supply and demand (4 flats and few buyers), I would say that the eventual sale price could be a little less.

Strategy wise, well so far it has been to remain hopeful. However, the recent price cuts have been a reality check. I would have expected them to be sold VERY quickly at those prices but that has not been the case.

GDB2222

The Halifax House Price Index (now part of Lloyds) shows that prices in Scotland are down about 15% from Q4 2006 to Q4 2011.

So, on that basis, £85k sounds a reasonable valuation. However, that assumes that your partner did not overpay in the first place, and of course Scotland is a big place with lots of variations in house values locally.

westlothian

GDB2222 wrote: »

The Halifax House Price Index (now part of Lloyds) shows that prices in Scotland are down about 15% from Q4 2006 to Q4 2011.

So, on that basis, £85k sounds a reasonable valuation. However, that assumes that your partner did not overpay in the first place, and of course Scotland is a big place with lots of variations in house values locally.

I think had we been on at £85,000 last year it would have sold VERY VERY quickly. I think things are a little slower hence others dropping price. I think the price paid was pretty much the top price for this development- however, there was competition for the property back then

GDB2222

Well, time will tell what the correct valuation is, when the other 2 flats sell. However, that will set a precedent for future sales.

westlothian

GDB2222 wrote: »

Well, time will tell what the correct valuation is, when the other 2 flats sell. However, that will set a precedent for future sales.

Yeah, I think in the short/medium term these prices will be the new reality. However, my interest is in our exit strategy options.

GDB2222

westlothian wrote: »

Yeah, I think in the short/medium term these prices will be the new reality. However, my interest is in our exit strategy options.

Exit strategy: pay off the negative equity or wait for house prices to rise at least 25%.

BitterAndTwisted

Everybody needs somewhere to live, so live in it until either the mortgage is paid down enough to sell or prices rise. Prices aren't going to rise that quickly, if at all, for the foreseeable future.

If you definitely can't live in it, it might be possible to obtain Consent To Let from the lender for a year or two. Then a tenant could be found if the rent achievable is enough to cover the mortgage payments and the income tax due. This is most definitely not a step to be taken lightly.

Meanwhile, I'd be doing some extensive research on the local rental market.

westlothian

There appears to be quite a bit of pressure on rentals round here too. Have noticed a few BTL properties on Rightmove saying things like..
"Currently tenanted at £425pcm has previously achieved rent as high as £525".
More importantly I doubt my partner would be up for the hassle. Seems like my partner is stuck in the short term.

BitterAndTwisted

Fourteen grand's worth of negative equity plus selling commission to the agent, legal charges and removal costs? I'd say that would mean being stuck in the medium-term unless there's a lottery win.