Offers and negative equity fears

fluffy123

Hi all,

We're currently selling our property and looking for somewhere else to live.

We live in a quiet a 'hot' area for houses, ours has sold in no time and had 5 offers within 24 hours and the house we've seen is in the same area.

It's been for sale since last October/November, has moved on to it's second EA and had it's price dropped from 330k to 320k to 315k as it stands.

It has been with it's second EA, who is also our EA for 3 weeks and has had viewings but no offers (apparently) apart from us. It's not a finished property and is possibly a little overpriced due to the time it has been on the market, it also has a number of cracks on walls, ceilings etc and has been extended in the last 3/4 years.
We've offered 293k then 301k but both have been rejected and we've then asked for a counter offer which has not been entertained.

The EA said we're probably just best going with a final and best offer and seeing where that lies and we're booked in for a second viewing on Friday.

Does anyone have any advice or suggestions? Our budget really was to go no further than 310k but we may stratch to 315k to try and get it done.

Options I guess are to let it run and say we'll see how it lies, offer the 315k, offer a little less than the 315k, go to asking price (knowing that it may be a little expensive) etc.

There is also the concern of negative equity as I'm not sure how that works. We would be pumping in 60k of equity from our existing property so obviously would need a 250-260k mortgage.

Thanks in advance

ReadingTim

Negative equity means you owe more on the mortgage than the house is currently worth if you were to sell it. So if you had a £200k mortgage but could only sell the house for £150k, you'd be in negative equity to the tune of £50k. (ie £200k-£150k).

However, it's only when you sell, or need to remortgage that it's a problem - otherwise it's purely theoretical - in exactly the same way as if the house was worth £200k and you only had a mortgage of £150k, it doesn't mean you have £50k actually in your pocket to spend....

As long as the mortgage repayments are manageable on both the introductory rate and standard variable rate and you're not looking to move, negative equity is absolutely nothing to worry about whatsoever.

fluffy123

Thanks, I suppose the other concern comes at any valuation/survey stage and if that drags the price down - I don't think we'll have much scope to stick to the original offering price if that is the case. But I guess we would have to wait and see.

pinkteapot

I'd be more worried about the cracks, given that the property's been extended. Any idea if they're surface plaster cracks or something deeper? If you'd get it I'd be tempted to order a survey before spending money on mortgage application/solicitor, to be on the safe side.

We viewed an extended house once where the upstairs floor sloped inside the extension and there were serious cracks down the outside wall at the point where the extension joined the house. :eek:

Exodi

fluffy123 wrote: »

There is also the concern of negative equity as I'm not sure how that works. We would be pumping in 60k of equity from our existing property so obviously would need a 250-260k mortgage.

fluffy123 wrote: »

Thanks, I suppose the other concern comes at any valuation/survey stage and if that drags the price down - I don't think we'll have much scope to stick to the original offering price if that is the case. But I guess we would have to wait and see.

Whilst ReadingTim clarified that negative equity isn't the correct term for what you're worried about - being down valued could be a valid concern.

The two main issues (and hopefully an explanation) of a down valuation are;

A shortfall - EG, if the agreed price was £100,000 and you had £25,000 to go towards the deposit you would need a mortgage for £75,000 (duh). If the house was then down-valued to, say, £90,000, the bank may then only be willing to offer you £67,500 on the same product (75% LTV), so you'd need to suddenly find £7,500 in this example.

Higher LTV - EG, following on from the above, if you were unable to magic £7,500 out of your behind and wanted to carry on with the mortgage of £75,000, your LTV would go from 75% to ~83% (as it's being compared to the lender valuation) and you'll find the mortgage products and interest rates offered become worse.

EDIT: down valuations can instantly stop a purchase. Your survey of the property usually contains a valuation though so this should give you some indication.

Crashy_Time

ReadingTim wrote: »

Negative equity means you owe more on the mortgage than the house is currently worth if you were to sell it. So if you had a £200k mortgage but could only sell the house for £150k, you'd be in negative equity to the tune of £50k. (ie £200k-£150k).

However, it's only when you sell, or need to remortgage that it's a problem - otherwise it's purely theoretical - in exactly the same way as if the house was worth £200k and you only had a mortgage of £150k, it doesn't mean you have £50k actually in your pocket to spend....

As long as the mortgage repayments are manageable on both the introductory rate and standard variable rate and you're not looking to move, negative equity is absolutely nothing to worry about whatsoever.

Glad someone pointed that out, some posters talk as if the bricks and mortar are an actual currency (cement-coin?) and they secretly multiply in the night somehow when banks that do mortgage lending publish stats that say house prices are going up.

Crashy_Time

Cracks on walls and ceilings? Unfinished building and extension? Multiple price drops and seeming to think a new EA can shift it? Almost certain to be down-valued IMO, and you might (almost certain IMO) lose money when the global/EZ picture deteriorates further meaning you may not be in NE but will have over-paid for a maybe second rate property. Tons of sellers have been given the licence to sit and try it on for years due to low interest rates, don`t play their game.

ReadingTim

Crashy_Time wrote: »

Glad someone pointed that out, some posters talk as if the bricks and mortar are an actual currency (cement-coin?) and they secretly multiply in the night somehow when banks that do mortgage lending publish stats that say house prices are going up.

No, but property is an asset, as is currency. The only difference is their relative liquidity. The point which you miss, is that the gain or loss is only of relevance when it crystallises, ie the point of sale.

Prior to that, it exists only on paper.

Crashy_Time

ReadingTim wrote: »

No, but property is an asset, as is currency. The only difference is their relative liquidity. The point which you miss, is that the gain or loss is only of relevance when it crystallises, ie the point of sale.

Prior to that, it exists only on paper.

Currency and property are terrible comparisons to use, they are not remotely comparable. "Liquidity", never mind gain or loss, is a massive downside to property if you need to move for a compelling reason or downsize/upsize in the future. The key to minimising the impact of this downside is to NOT over-pay for the risk.