Negative equity, no deposit, options for getting a more family friendly home

stupot101

We're currently in negative equity - there's about £80k remaining on the mortgage and at best the house is worth £70k. More like £65k. We don't have enough savings to cover the negative equity if we wanted to move.

With a hyper 10 month old, the size of our current terrace house is becoming a real issue. Particularly the living room, which is absolutely tiny.

So our options as I see them are:

1. Extend our existing ground floor extension at the back to a second floor and move the bathroom upstairs, which would create more space downstairs. Other houses in our row have two story extensions. Presumably getting an extension on the mortgage to do this would be possible.

2. Carry the negative equity forward to a new house. But as far as I know very few lenders allow this.

3. Rent our current house, and rent elsewhere ourselves. Will depend if we can get a BTL mortgage cheap enough so that the rental income will cover it. But then we have the risk of finding a reliable tenant etc.

4. Stay put, wait for the market to improve and save. (Not really an option)

Anyone been in the name situation? I'm thinking option 1 is the only viable one really.

keira1234

We have recently been in a similar situation. 2 small children in a 2 bed starter home. We braved it out until they were 3 and 1 but enough was enough. We approached our mortgage lender about renting the property out and they gave us consent to lease which meant we could stay on the same interest rate for now so the rent we get more than covers the mortgage and gives us about £100 a month which we use to overpay to reduce the mortgage balance.

We then rented another property. This hasn't really worked out for us, the location isn't right and we haven't settled although it is better than living in a shoebox. Down side is renting once you have owned a home is difficult to adjust to as it doesn't feel like mine.

It's a tough situation to be in. it probably isn't much help but thought I'd tell you our experience anyway.

Before we rented our house out we spent about 5k on improvements to try and make the layout more suitable and stay there longer. It didn't work, the property rented very well because of it but we ended up leaving anyway. if you are thinking of home improvements I would only do that if You know 100% it would make the house work long term otherwise you'll be financially worse off in the same situation.

ambioni

If you have the funds to extend, then why not add extensions/alterations which will actually add value to the house, then think about selling? Extra bedrooms always add value and sometimes extra bathroom space or kitchen refurb can do as well.

mrginge

how are you going to get an extension on a mortgage when you're in negative equity?

The solution is 4. But you don't want to hear that.

giddypenguin

I wonder if your mortgage company will lend you any more to extend, you already have 123ish % of the property value - I can't imagine they'd be happy to lend any more.

Fireflyaway

Yes I have been in that situation. I live in a 1 bed flat. Have been here 11 years and have a 9 year old child so really pushed for space and feel very guilty that she doesn't have her own room or garden like her friends.
We explored the options you mentioned - apart from an extension obviously but in the end we just stuck it out. We like the area, our child goes to a nice local school. We have our health, jobs and family near by so I figured I should stop moaning and appreciate what we do have.
Things have now improved and the estate agent is coming Friday to put our place on the market !
If I were you I would do option 1 or 4. If you like the area and its only space that's an option then an extension is a cheaper option. Good luck. I sometimes feel people like us are forgotten about. Its all OK helping first time buyers but people who find themselves in negative equity often have few options available.

Thrugelmir

Option 4 is your starting point. Cut out all your unnecessary expenditure. Use the money to pay down the mortgage as quickly as you are able. That way you'll make your different choices available.

Pixie5740

Option 1 is a non-starter. You're not going to be able to secure more borrowing against a property in negative equity.

Option 2 depends on how much of a deposit you have to put down on another property and if you can find a lender who is willing to let you take your negative equity with you.

Option 3 is unlikely. You might get consent to let for a period but you won't get a BTL mortgage.

That leaves Option 4. Pretty much your only option.

Do you don't need a lot of space. My aunt and uncle lived in a 2 bedroom flat with 4 young children and they survived for years until they could afford something bigger. As I read it you have one toddler so you have enough space.

PasturesNew

I'd stay put and plough some money into good internal storage - everything from ottoman beds to ceiling-to-floor cupboards or shelving.

Outside, if there's space, 'invest' in a good, solid, watertight, large, secure shed where you can spread out and put/store things, or create a utility room out there.

I'd look at spending no more than, say, £1k to sort it all out.

xylophone

Option 4.

Have a look at your budget and see where you can save.

Kynthia

Letting your place while renting elsewhere is risky. You'll have to pay tax on the rent you receive, pay for credit checks and moving costs where you rent (possibly multiple times if the landlord decides to sell or you want to move again for some reason), you'll need to pay your rent and mortgage even if the place is empty or the tenants have not paid rent, and if the boiler goes you'll need to repair or replace it quickly no matter if you can afford it or not.

Reorganise your place, invest in storage solutions, change rooms around or redecorate so that you feel better about the place. Have you had your place valued as you might be pleasantly surprised?