Help gratefully received! :)!

Lisa1978

We have 2 properties :

1 house - been let out for 4 years, approx £20k negative equity
1 2 bedroom apartment - living in, approx £20k negative equity

We have £25k savings. The house is self sufficent and in my opinion will always be let out because of the area it is in.

The apartment, will be harder to sell, however we have save a fantastic house that we would like to purchase. Would it be crazy to let it out and have 3 mortgages?

I should mention the mortgage on the apartment is £595/month plus management fees and rates = £700/month, we could not charge over £500/month so we would be 'down' £200/mth, however over 3 years = 7,200 and hopefully market stabilises and mortgage reduced meaning more likely to sell if negative equity reduced. In your opinion are their too many ifs and buts and risks? We are going to put it up for sale next week, husband thinks it'll sit on the market for years tho!

arbrighton

Short answer YES, you are crazy. Overpay mortgages instead to reduce negative equity

DannyboyMidlands

No, keep going. You seem to have a knack for property speculation.

princeofpounds

Assuming that both of these properties are at about the £200k mark, let's assume you somehow manage to find a bank foolish enough to lend you money on a third property of similar value.

You would then have £600k of property exposure and £615k (220+220+200-25) of mortgage debt.

For every one percent move in property prices you will gain/lose £6000 on top of the £15k negative equity you already have. It is very conceivable that property prices could trade down 5% from here, putting you £45k in negative equity. How long would it take you to save 45k in real cash?

Once in negative equity, you are on a one-way ticket to bankruptcy if you cannot manage the cashflows. Perhaps you can't get a new mortgage due to being in negative equity, and the bank puts you on an expensive SVR. Perhaps interest rates go up by just 1%, which would probably increase your repayments by 20% at least. Perhaps a tenant burns down a property, and whilst you have insurance to fix it you don't have the cashflow to service the mortgage in the meantime. Perhaps a tenant just stops paying for a few months.

Lisa1978

Thanks Arbrighton for the reply.

Dannyboy, expected a nice sarcastic remark from yourself, most of your posts are dripping of the stuff !

Lisa1978

No, properties are both approx 85-95k and there must be a lot of foolish banks as they are willing to lend us another mortgage up to the value of 220k (which i myself found hard to beleive!).

As for saving £45k, that would take me 3years.

Thanks for the reply, has given me lots of food for thought and i think hubbie is correct to sit it out where we are!

JimmyTheWig

Ok, so by keeping the apartment if all goes to plan you will be £7k down in three years time.
Why would you want to do that, exactly?

But equally you're not going to be able to sell the apartment and buy a house. Because selling the apartment will take £20k of your £25k savings to clear the negative equity and the other £5k will probably be needed in all the costs of buying and selling. Which will leave you with no deposit. No lender will do that, these days.

I think that you'll have to stay where you are for now. Cut down on spending and overpay the mortgage as much as you can.
Probably worth using some of that £25k savings pot as a mortgage overpayment.

I hope for your sake that you are on long-term fixed rate mortgages or that rates stay low for a long time.

princeofpounds

No, properties are both approx 85-95k

OK. I was working on an assumption that they might be in 10% negative equity. I guess they were either bought right at the peak or you live in a very weak area?

Lisa1978

Yeah POP, we're in N.Ireland

JTW : Yes, we'd have paid out £7k in 3years but going by the mortgage calculators we would have paid £11k off our mortgage in the 3years, meaning our negative equity is reduced by 11k.
Yes, if we sold the apartment, we'd pay the £20k NE, have £5k left for fees etc and we could rent for one year while we save £10-15k. I am fortunate in that we can save approx £1200-£1500/month, therefore it wouldn't take us long to save another deposit and at the end of the day we would have a larger property.

No, as we are NE, our lender has us on standard variable rate and this cannot be changed at present.

Lisa1978

Guess reading this back we should stay were we are and instead overpay £1k/month off the mortgage?

princeofpounds

Guess reading this back we should stay were we are and instead overpay £1k/month off the mortgage?

All depends on your attitude to risk, but I think you would need to be of a gambler's persuasion to leverage yourself up even more. It would be an all or nothing bet.

If you had 30% equity in both properties then I would feel it would be a more genuine question.