Negative equity?

Amanda_Cm

Hi everyone,
Can you please explain what negative equity means in our case?
We are first time buyers and buying house that our vendor owns outright. He is buying no chain property with negative equity. We are about to exchange but this issue came out.
They are waiting on redemption certificate next week. Can you please explain to me what it is I and how long we may have to wait?
Many thanks.

davidmcn

It means the amount owing on the mortgage is more than the value of the property. The owner will need either to make up the difference themselves, or persuade the lender to agree to transfer the balance to e.g. an unsecured loan. Other than that I don't think you can draw any conclusions about what it means, I would presume it isn't a great surprise for the owner so they ought to be able to sort it out.

Amanda_Cm

Thank you davidmcn. Hope you are right.

TamsinC

We were in this position in the crash of the 1990s (exacerbated by other circumstances not worthy of a mention here) we bought at £45K and sold at £36K - we made up the difference in the mortgage owed with savings.

Amanda_Cm

One more question related to that. The Ea said they are waiting on Redemption Statement next week. It takes 10 days and they did that in the end of February.
Does that mean they already have the funds to cover the negative equity? Or they can apply for ademption statement just to see how much it is?
Or could be both.

bowlhead99

A redemption statement is a statement that says if you redeem (pay off) this loan on this date it will cost exactly £x.

Doesn't say if you can afford it.

Alternatively it could refer to the statement you get *after* you have redeemed the loan showing the capital and interest owed and applying your payment to leave £0 balance. A boy like how s completion statement on your property purchase shows where the money came from and where it went.

However if he hasn't bought the property yet and his sellers need his money to help clear the mortgage, but they asked for the statement last month, it's unlikely to mean that everything's paid off. It may just be confirming that the amount which won't be settled out of the sale proceeds has been separately paid down - but you wouldn't generally do that before exchanging to sell the property.

So it is probably a statement of what the balance will be including principal and interest up to X date so they can prove they can pay it and make arrangement to do so.

Amanda_Cm

Thank you bowlhead99. Got the picture now.
Is impossible to say how long will take then. Could be few weeks to few months.

eddddy

Amanda_Cm wrote: »

Thank you bowlhead99. Got the picture now.
Is impossible to say how long will take then. Could be few weeks to few months.

It could be zero time - or it could be never.

To illustrate with an example (with made up numbers)...

- Somebody is selling a house for £190k
- However they have a mortgage (or mortgages) on the house for about £200k
- So they will have to pay the bank about £10k when they complete

If they have, say, £20k in ready cash, they could probably exchange immediately - because they are comfortable that they can pay the bank the shortfall

But if they only have about £10k in ready cash, they might ask for an up to date redemption statement to see exactly how much they owe - to check if they have enough cash.

If they don't have enough cash, the sale could be delayed weeks or months or may never happen.

(But as stated above, the bank might not insist that the full shortfall is paid now - they might let the sellers 'owe' it. i.e. give the sellers a loan.)

Amanda_Cm

Many thanks, eddddy.

Crashy_Time

TamsinC wrote: »

We were in this position in the crash of the 1990s (exacerbated by other circumstances not worthy of a mention here) we bought at £45K and sold at £36K - we made up the difference in the mortgage owed with savings.

Unfortunately the figures all have zero on them now, and most people don`t have any savings