Negative equity - plan of action?

arbrighton

19lottie82 wrote: »

+ circa £2k for legal fees to buy your new place.
.

Are you including SDLT in that? If not, jeez, conveyancing is expensive where you are

19lottie82

arbrighton wrote: »

Are you including SDLT in that? If not, jeez, conveyancing is expensive where you are

sorry, I meant £2 k (appx) costs, legal fees, surveys, moving

GDB2222

DVardysShadow wrote: »

You would be barmy to rent the place out for 425 and pay 500 mortgage. By the time you factor in maintenance and voids, you would be paying out a net £250/month.

As for the negative equity and starting to save, if you will have £1000/month free, pay down the mortgage as much as you can. 4.73% is a better rate than any ordinary savings product, so beyond keeping money available to meet emergencies and abit to fund out of pocket expenses for buying a new house, anything you save towards the new property might as well all go into paying down the mortgage.

If the OP rents out the property and buys another one once she has saved up a deposit, the advantages are 1) she avoids realising the negative equity, so she will save up a deposit for the new place that much sooner, and 2) if house prices go up she will have two houses and make two lots of capital appreciation.

The disadvantages are 1) loads of hassle being a LL, 2) it will cost £3k a year to top up the rent to cover the mortgage**, 3) if house prices go down she will have two houses and suffer two lots of capital depreciation.

** Assuming interest rate does not go up, there are no problem tenants, and no lengthy void periods.

fannyanna

I think you need to plan to save – and save hard.

Just dealing with a purchase will be expensive. You need to save your deposit (ranging from £8,000 if you can get a 95% mortgage to £24,000 for a 85% mortgage) and then there’s the costs of buying a property.

Until you’re in a financial position where it looks realistic to purchase another property I don’t think you need to worry too much about what to do with your current property.

blueelephanttrunk

Yes, it will be a lot of saving!

I have already spoken with my current lender who have confirmed that I can rent the property out at the same rate with the negative equity, so I shoudn't have any problems from that point.

If we could pay down our current mortgage so we are safely in the black - say if we got the balance to £40 / 50 k or so and then saved for a deposit for a new house that might work? It would take longer but we don't mind that.

DVardysShadow

blueelephanttrunk wrote: »

Yes, it will be a lot of saving!

I have already spoken with my current lender who have confirmed that I can rent the property out at the same rate with the negative equity, so I shoudn't have any problems from that point.

If we could pay down our current mortgage so we are safely in the black - say if we got the balance to £40 / 50 k or so and then saved for a deposit for a new house that might work? It would take longer but we don't mind that.

If you got the balance to those levels you would have enough equity not to need a contract deposit on any more than the difference between house prices

blueelephanttrunk

DVardysShadow wrote: »

If you got the balance to those levels you would have enough equity not to need a contract deposit on any more than the difference between house prices

That sounds good, so if I could do that then I wouldn't also need to save an additional deposit for a new house?

pinkteapot

Yep. If the mortgage balance is £50k and you sell for £90k then you have £40k in equity. This can be used for your next house. If you bought for £160k then you would take out a mortgage for £120k.

That means paying off £43k though which will take almost 4 years with your £1k spare per month...

marathonic

Have you considered renting out the spare room to a lodger? You can charge up to £350 per month before becoming liable for tax. Add this to your £1,000 per month and pay down the mortgage quicker.

I intend to do this when my current house purchase completes (assumming my mortgage is approved)...

blueelephanttrunk

Ah right, I thought DVardysShadow meant that I could do something with the deposit towards a new house whilst still keeping the current house now for rental.

We've thought in the past about renting our spare room out, but our house is really small! We have a small kitchen and bathroom and you have to walk through the living room to get to the kitchen so not sure it'd be ideal. Also we live in Dewsbury and I'm not sure if anyone would want to rent a room there living with a couple?