Stuck with Negative Equity

ChampagneFever

I bought a 1 bed flat in March 2008 for £112k. Few months later I met my girlfriend. We wanted to buy a house due to flat not big enough. The mortgage was a 5yr fixed rate, which ended in Mar 2013 which until then had a £5k early repayment charge. So we waited until then so we could try and sell it. Unfortunately now the outstanding mortgage is £108k but property value is estimated around £100k. But saying that the market in the area is slow due to new builds, so not optimistic i could get close to £100k if i sold.
I've spoken to the mortgage lendor, they say if i get a valuation done and an explanation why i want to sell, they will send out what options are available. However, they did say if id need their approval to sell below mortgage outstanding amount and then would arrange a payment plan for the difference. The alternative is I pay them £299 fee to apply for Consent to Let and rent property out. With a £199 fee each year up to 4 years. If i was to rent i dont think id get enough rent to cover the mortgage payment, so id still be paying out the difference each month. Plus id have the financial worry that if i let the property and buy a house, what happens if tenant moves out and property empty. Doubt i could afford both mortgages. If we buy a new house, we ideally dont want the fear and worry hanging over us.

Could anyone please let me know what they would do in my situation or does anyone know of an option that is available to consider?

hcb42

I would sell and pay back the difference.

Or stay there a year and pull it back from being in negative equity - overpay the mortgage, your mortgage has only reduced £4K in five years at the moment..

Have you got a deposit on top for the house, plus fees?

Thrugelmir

ChampagneFever wrote: »

Unfortunately now the outstanding mortgage is £108k but property value is estimated around £100k.

If the property cost £112k originally. Then you appear to have paid nothing off the mortgage. Is it interest only?

ChampagneFever

If we are to sell, then the flat is empty until we sell it, so it'll be costing us more. We have a 5% deposit for a potential new house, so dont want to lose that or create any problem when applying for new mortgage.

It is a worrying thought, but im not too optimistic that the property value will increase back in line with mortgage in the next few years and i dont think the mortgage will come down that much either to get out of negative equity. Ideally we'd make overpayments but if we get a new house/mortgage then i dont know if finances would allow it.

R_P_W

To be blunt, you are not in a position to do this.

Not with only 5% deposit and either having an existing property in the background or having an secured loan to pay your lender the shortfall.

ChampagneFever

Its repayment but it was a 100% mortgage with a 5.99% interest rate. In hindsight i shouldnt have bought, but at the time I thought it was a way to get on the property ladder. And i would benefit from it when i wanted to buy a house.

jamie11

If you look at all the expenses the flat is costing you and work out a rental price that will cover those and leave enough for emergencies as well you may well find you could keep it and buy your new house as well.

The market will turn round again and we will enter another boom in house prices, everything goes in cycles and we're starting to head out of this downturn.

I have a flat in a similar condition, I paid thru' the fixed term losing money every month, now the fixed term is ended I see a small gain each month even though the place is in negative equity. When prices recover in a few years I will sell it, until then I'm patient.

ChampagneFever

The property we are looking to buy is a shared equity scheme, we only need a 5% deposit and mortgage advisor had said that even with this flat, the mortgage for the property is within our affordability range so mortgage should be approved.

Thrugelmir

On a 25 year term the mortgage balance should be nearer a £100k by now.

Use the 5% you've saved to reduce you mortgage and save interest.

ChampagneFever

Thanks Jamie11 - problem i feel we have is that to cover mortgage and other expenses we'd need to receive around £600 in rent a month. But unfortunately in the area you can rent a 2 bed flat for £475. So at a push i think we could get £450.

So each month would cost us about £150 to keep it plus the fear of having to pay 2 mortgages if the property is empty.

ChampagneFever

If i use deposit to pay off mortgage shortfall, id still have negative equity and no deposit to buy a house. Therefore id be worse off because my life would be on hold for the next few years as we cant move and this flat is too small for us to live in now.

I think the mortgage was on 35yrs. Wish i had someone giving me better advice at the time and advised me that i was signing up to a ridiculous mortgage.