Negative equity and overinflated new-build price?

kts0x0

Hi

Could anyone please help with a house-buying related dilemma my partner and I have at the moment?

We bought a flat at the end of the property boom in 2008 for £100k. We have had a recent 4-6 week valuation at £74,500 and an open market valuation at £80,995. There are other flats in our complex which are struggling to sell (the most recent was sold at the 80k mark). As it stands at the moment we have paid about £8k off the mortgage leaving us at the £92k mark and approximately £12k negative equity.

We are both keen to move up the property ladder and were wondering whether we should cut our losses and move to a new build development where our flat would be accepted in part-exchange. We have been offered a part -exchange deal by a new-build developer where we have been offered £103k for our flat against a £215k new-build home (which is not yet built). The development site has sold out quickly and the only house that is left is one in the “affordable housing” area which are government subsidised and rented to lower-income individuals and families. The developer has been upfront in admitting that the house they have offered us is next to the housing earmarked for this purpose. This, in itself, is not a problem to my partner or me and we understand that the developer is just keen to sell off the last remaining property hence the great ‘deal’ on the part-exchange valuation and the fact that it is in the affordable housing section is another reason for the deal.

Our problem is, when we have conducted a search on the average selling price for an equivalent newish-build 3-bed home in the same area, we are coming up with the £170k mark and nowhere near the £215k price tag for the home we’ve been offered. The development is classed as a ‘premium’ development and, admittedly, the finish on the house is amazing (integrated appliances, carpets, porcelain tiling etc) BUT we are worried that the house price is overinflated for the area and that is why the developer has been able to offer so much for our flat.

If this is the case, we will have essentially tied the negative equity that we already have in further negative equity and thus worsened our mortgage debt. We are currently trying to find out whether we can commission an independent valuation of a property that is not built yet to confirm our suspicions but were wondering if anyone else might have some helpful advice or information that might guide our decision.

At this point, we are wondering whether it might just be best to stay put and hope that, with the new Government Help to Buy scheme being rolled out to include all properties and not just new-builds, it might make the property market move a bit quicker and we will eventually be able to sell our flat (when house prices increase) so that we breakeven and can move on.

Any advice would be greatly appreciated.

Thanks

19lottie82

With new builds, you need to remember that the value depreciates, as soon as you get the keys, as they will never be "new" again.

If you want to sell in the near future, you will make a loss.

What happens if you don't take to the "affordable housing" area, and want to move? You could end up trapped.

If you're not 100% sure, I wouldn't do it. It's a big commitment.

You say you are "keen" to move, but I'm guessing you don't really have to? If I were you I'd stay put for as long as you can and throw everything you can at over paying the mortgage.

System

So by your research the house is £45k overpriced but you get £23k more for your flat so it is overpriced at £22k.

You have £12k negative equity already so that would be an increase of £10k in negative equity. Assuming you never move again then that should be the maximum amount you are exposed to over the period of your mortgage.

Personally I wouldn't do it but it is up to you if you think moving now is worth it.

pinkshoes

A £215k price tag when you think it is worth £170k is an over-valuation of 26%.

BUT... they have also over-valued your flat by nearly 29%, giving you positive equity which is what you would need to move.

You could haggle the price down, but would then get the valuation of yours lowered too, leaving you without a deposit to buy.

Beggars can't be choosers...

Is it a house you plan to stay in for 10+ years?

kingstreet

Do you have enough deposit to actually purchase a newbuild?

kts0x0

Yes, 19lottie82, you suspect right, we are keen to move but do not need to. We really are just considering our options relating to our negative equity. Thank you Walcott - yes we would be exposing ourselves to £22k over the period of the mortgage and as such are worried. We aren't looking at it as a 'forever' house either - just a 'for now' house to get us another step up the property ladder. But in effect, if the house price is overinflated we'd actually be making our debt problem worse and would be better staying put. Kingstreet - the deposit for the new-build would be made up of a mixture of savings plus what they have overallowed on part-exchange for our flat.

kingstreet

Does that make 15%, or are you limited to one of the two lenders offering 90% on a newbuild house?

kts0x0

Apologies Kingstreet, 10% deposit – 90% mortgage

Mixture of equity from part ex and savings. £12500 savings + £9k equity from the flat.

kts0x0

Apologies Kingstreet, 10% deposit – 90% mortgage

Mixture of equity from part ex and savings. £12500 savings + £9k equity from the flat.

BornAtTheRightTime

A mortgage valuation survey on the new property could cost you a few £100s. If it is clear to you that it is vastly over-priced then a mortgage surveyor will also pick up on this, and is unlikely to approve your new mortgage (but you could still end up paying for the valuation).

Foxy-Stoat_3

So by trying to address your negative equity situation your trying to get yourself into another negative equity property?

The developer can offer the house at whatever he likes and by overvaluing your current property he is playing the numbers game to sell it....not dissimilar to buying a new car for over retail money by offering a better than good part exchange offer for the current car.

Sounds like you need to overpay your current mortgage and use your savings until you get your LTV in a positive and hope the market increases a little to help you.