Negative Equity - escaping a house i dont like!?

rentanopinion

Hey y'all. First post on the forum so ... be gentle I guess.

I need some advice on my next move as i might have a way to absorb some of the my possible losses from a house purchase to some extent if i put my mind to it. The most important point here is that I hope to start a family over the next few years, and i dont want to do so in the house I'm currently in, and that's the main point here because I can't sell my house.

I bought my house in August 2006 - so pre- top of the market by about 12mths arguably. Either way, I'm now in negative equity big style. My mortgage is now approx £125k and I'm on Ulster Bank SVR. The house is worth approx £75k - so about £50k negative equity value.

SO Question 1 - with this amount of NE - will my current lender give me a deal of any kind to fix my mortgage payments over the next few years? Are they obliged to do so? If i get a deal, will it be mega expensive based on the NE level?

I've been tempted to overpay my mortgage at various times, but because of the situation i haven't really had the heart to. I know its stupid as in the long run i could have saved a heap of money on this property. BUT. I got married last October and so i had a major expense to cover. I had an unsecured loan for that with about £3k outstanding which should be paid in the next 6-8 weeks.

So my idea is to look at buying another house at some point shortly as the market is sufficiently low and rent my existing property. Instead of overpaying I have been saving and have approx £15k which i can use as a deposit on my next property.

I can rent my first house but on the current SVR I would need to subsidise the mortgage to the tune of about £200 pcm, and therefore more when rates rise as they invariably will.

I have a decent and steady job which is very unlikely to change any time soon based on the industry i work in. I'm lucky as i can afford my mortgage currently and this may be a solution for me.

So, main question: is this a viable or smart option? Am i a high risk? What kind of mortgage will i have to go for - does it have to be buy to let? Based on my current salary i can borrow approx £180k. I don't wanna buy a house of that value but that's an initial indication. But i feel like if i could do this i could get out of this place, get someone else to subsidise the rent on it, and find somewhere to live where i might be happier having a family.

Id appreciate any help any one can give me, especially anyone who has already done this, as I'm a newb to all this.

Froggitt

IMHO you wont get any kind of fixed rate deal on a 150% mortgage. Also IMHO, you won't get a second mortgage for your additional house while youve got the first mortgage.

There may be some mileage in a buy-to-let mortgage.

If you decide to hand the keys back, youre also unlikely to get another mortgage for many years, and they will pursue you for any shortfall.

Thrugelmir

Make every effort to reduce and pay down your mortgage. Over time the debt will be repaid. There's no easy exit route.

I'd like like to live in many houses. But I accept the fact that I'll never be able to afford them.

Annisele

You won't get a buy to let mortgage on your existing house. Lenders won't generally let you have a loan to value above 75% on a BTL - and you'd be talking about 150%.

In addition, lenders like the rental payments to cover 125% of the mortgage payments, and you're nowhere near there.

You'll have a similar problem with consent to let (consent to let is when you keep your existing residential mortgage, but your lender agrees to vary the terms so you can let it out). If you're in negative equity, lenders don't usually give consent.

I doubt you actually can borrow £180k for a new house. If you didn't have the existing loan, then maybe - but you may not be able to borrow any additional money given the large negative equity on the first house.

Sorry - all I can think of is more saving I'm afraid.

rentanopinion

thanks for the responses all.

As i don't know much about this, perhaps you can answer a few questions. If i purchase a second house, even if it was an ideal situ where negative equity was not part of the equation, would it have to be a BTL or commercial mortgage? Or can i just get a second home owner mortgage?

So its more likely that i might be able to buy my way out of this if i have 25-30% deposit on a target property then.

I know this will sound stupid, but how comes lenders who value properties during the purchase process can penalise buyers when property values fall? another example of where banks and lending institutions are insulated and indeed can make considerable £ on customers at will. Legislation required to ensure that they share the burden or honour good customers when the brown stuff hits the fan i think. Its a license to print money IMHO.

I can foresee a major second housing value dip when interest rates begin to rise, people cant make repayments as they are stuck on SVRs due to NE, and the cycle begins again as more people wont be able to afford to borrow.

opinions4u

The lender is not obliged to offer you any rates other than those contractually agreed, usually their svr.

A lender is also unlikely to agree to a long term letting out of a property in negative equity.

You're stuck between managing the debt down (overpayments to a large extent) and hoping property prices rise or handing the keys back. The latter will blight your life and finances for years.

I think you're in this for the long run. Sorry.

I know this will sound stupid, but how comes lenders who value properties during the purchase process can penalise buyers when property values fall? another example of where banks and lending institutions are insulated and indeed can make considerable £ on customers at will. Legislation required to ensure that they share the burden or honour good customers when the brown stuff hits the fan i think. Its a license to print money IMHO.

Lenders can charge borrowers based on risk. Negative equity is high risk. They don't have to offer special rates in such circumstances.

Lenders lose money by the shed load in a market like this. They take a risk by lending. You take a risk by buying the house.

Banks aren't insulated from the problem at all. So no need for new legislation that will only inhibit mortgage lending further.

I can foresee a major second housing value dip when interest rates begin to rise, people cant make repayments as they are stuck on SVRs due to NE, and the cycle begins again as more people wont be able to afford to borrow.

So why on earth do you want to have two properties on the go? That would be madness.

rentanopinion

I'm not in a position where i MUST move, but i don't really wanna bring up kids where i am unfortunately. I know that i'm in this for the long run and don't need to sell any time soon unless my circumstances change unexpectedly.

I guess i'm not the only person who feels the frustration of being in this position where banks can effectively wash their hands of the situation even though they ratify house values during the mortgage application process. grrr!

So, if i decide to leave my mortgage on SVR and just deal with the additional costs, cant i just go and rent elsewhere for my family and rent out my own property to a tenant? What's the sticky likelihood with that? Apart from the obvious like house insurance being invalid etc etc, would the bank come down hard on someone who sublets their house without notification, and what are the chances of them becoming aware of me doing this?

originalmiscellany

i think the issue is that you are playing with fire here.
If... there was a problem and it was clear that your were breaking your mortgage agreement and letting then the banks could say you have broken your promise, and similarly you need specific insurance that is suitable for BTL. It is obviously a gamble, but I am cautious overall and would just pay down the debt little by little. Even £50 a month is a good start.

rentanopinion

So why on earth do you want to have two properties on the go? That would be madness.

I'm not talking about running out and buying something today, im looking at options that i have going forward. I know that it would be madness to go commit to more debt right now. Im just trying to get a plan in place so that when the time is right, i may recoup some of my losses when the market is low enough.

I appreciate your opinion btw and thanks for the response.

I dont see how negative equity is higher risk. Surely, its the borrowers ability to meet repayments that determines the risk level here? NE does not result in a borrowers inability to meet repayments, no?

michelle2008

I have a friend who did exactly that. The bank found out through post going astray. They made him move to a slightly more expensive rate.

Probably best to fess up to the bank - would save a lot of stress!!

michelle2008

Negative equity is higher risk because part of the debt is unsecured.