New Build Disaster - help needed!

haymans74

Any advice gratefully received.


My husband and I bought our first property last June, a new build flat in a development in Feltham. We paid £245,000 for a 2 bedroom, 2 bathroom flat. We put down 5% deposit, Barratts matched our 5% plus paid our legal fees and stamp duty.


STUPIDLY we didn't do any due diligence. We were so desperate to jump on the housing ladder we grabbed the opportunity with both hands. I am now painfully aware that this was a ridiculous way to buy a property and have learned my lesson the hard way.


However, I did get some warning bells when the mortgage valuation came back at £230,000. I spoke to our financial advisor (one of Barratts agreed advisors) about my concern at paying £15,000 over the valuation and he said "it happens all the time with new builds, don't worry about it". So, we didn't worry and went ahead.


One year one and we've been trying to sell our flat. We had planned to live here originally for a few years, but personal circumstances mean that we need to move closer to my family in Essex and so must sell.


We have a mortgage of £223,000 on a fixed rate of 4.69% until Feb 08.


I went to the bank (Halifax) to ask if it's possible to change our mortgage to a buy to let, as ideally we'd like to keep the property for as long as necessary to make a profit. The bank said no. Rental income would only be £1,000 a month and the mortgage repayments would be higher than that.


So then we put on the market to sell. We had five estate agents value the property. All valued it at between £220,000 - £230,000.

We are tearing our hair out. We cannot afford to sell it less than £245,000 as we need the initial investment back so that we can put a deposit down on a new house, pay legal fees and stamp duty etc. Alternatively we'd like to rent it out and cover this mortgage, then buy a new house on a residential mortgage on 100%.


I am at a loss as to what to do. Is there ANY WAY we could get a buy to let mortgage on this property? Have you any tips on how to sell the property at the price we bought it? Otherwise, we are stuck here waiting until the market catches up to what we paid for it which could be years.

mystic_trev

I hate to tell you, but in the last five years newbuild Flat prices have remaines 'static' and there's satarting to be a glut of them on the market. The fact is your flat was valued at £230,000 NEW so now the values probably droped about another 10% However, due to your location near London it might not be that bad. Has anyone else sold recently? Check out the prices in your Postcode.

I can't help but feel sorry for people in your situation. Dragged on to the Housing market by your peers, with the mantra 'Prices can only go up' It's of no comfort, but fairly soon they'll be tens of thousands like you, either unable to move due to negative equity, or unable to pay the mortgage due to higher Interest rates.

haymans74

Hi Trev,

There have been a couple of sales at £224,000.

We won't be in a position where we can't afford the mortgage as we didn't stretch ourselves to the maximum we could borrow - just in case interest rates went up. Which is a bit of a relief.

I am more interested in letting the property than selling it - as in the long term we WOULD make a profit (or break even, even that would do). I just don't know how to get round the bank!

silvercar

Mortgage valuations often ignore the builder's deposit. You actually paid £232,500 if the builders paid your deposit. Brand new properties often sell at a premium.

Moving forward, you have a number of options. Do you have to buy somewhere else now or could you rent?

If you could let out your current place, the rental would not cover the mortgage so you would be subsidising the tenants. The problem with this idea is that you will have to make sure you can afford your new mortgage and the costs of your new home plus the extra expenses of letting out your current place. With a 100% mortgage on your new place and the extra costs on this place I worry that you will struggle. Will you be able to cover voids when you have no tenants? There are also things like insurance and gas certificates, agents fees etc to pay for. With no savings you may struggle.

By selling you realise your losses, but at least the liability is off your hands. If you sold for 223k, the mortgage would be cleared. You could then start again with a new mortgage on your new place, thee are lenders that will lend over 100% of the price.

If you really can't face selling it then I would consider renting somewhere yourself while you still have costs with this place.

If you are adamant that you want to buy for yourself and rent this out then one way would be to move your Halifax mortgage to the new place and get a different BTL mortgage on the flat. Though you are going to have problems with the rental vs. payments ratio, other lenders are more flexible that the Halifax.

Ivrytwr3

You don't need to switch to a buy to let. Why don't you try for a 'consent to let'. Which means you may pay a fee (usually around £100) for a fixed term let (usually around 3 - 5 years).

Or if the bank don't allow that either, you can do what a lot of people do, just let the property and don't tell the bank. But that is up to you and whether you would take that risk.

haymans74

We tried the consent to lease route - they wouldn't allow that either.

Looks like our only options are to live in it until the market catches up, or try to switch to another BTL lender when our fixed rate period runs out.

In the meantime we'll keep it on the market to sell and hope someone who is as bad at due dilligence as us buys it!

haymans74

Oh I should mention that where we want to move to property is much cheaper, so we could buy a three bedroom house for £200,000 - effectively reducing our mortgage to £178,000 (assuming we manage to sell at £245,000).

lynzpower

Im afraid that trev has a very good point.

#Unfortunately we have seen a few people come on here recently with the same predicament.

I have taken a quick nose on rightmove and for just 218 you can get this. http://www.rightmove.co.uk/viewdetails-15229486.rsp?pa_n=6&tr_t=buy not just that either, there are quite a lot of 2 bed houses with gardens for this sort of money. This is what unfortunately your flat is going to be competing with

Unfortunately new builds dont neccesarily hold value, it depends on whether the area itself has a dire shortage of housing and that the area is sufficiently popular to bouy up those negatives you have pointed out yourself. I dont know feltham well, so I really couldnt say, but the fact that you can still get a 2 bved house for 218 suggest to me that prices are at the least compressed.

In seeking out the BTL option ( or in fact, let to buy) then again you are banking on the prices rising at some point. i think, you have seen, this is a very risky strategy, that quite simply might end up being worse off

I cant really offer any advice, aside from to say, I would take whatever you can get for it, go and rent in essex and take the loss...

silvercar

How high is the redemption penalty? You may think it worth paying it to get out now.

Come February 2008, I can't see that you will be able to get mortgage rates as low as 4.69. Particularly on a BTL.

Most BTL lenders expect at least a 15% deposit, I think there are only 2 who would give a 100% mortgage. They also expect that the rental income will at least cover the mortgage payments and a lot require 125% coverage (so a £800 mortgage payment would need to have an expected rent of £1000). This is to cover voids and other expenses.

Marketing your house for offers over 245k when it has been valued at £220-230k is a bit of a waste of time.

Guy_Montag

I would strongly consider taking the hit & moving on. Though why don't you get it on the market asap at £245k & see if there is a "greater fool" out there. You can always drop the price if you get no nibbles.

Good luck

albacore1854

Why would yours sell for 245, when others have sold for 224?