Negative equity - should we sell?

squeezywheezy

Hi
I know noone has a crystal ball but I would be grateful for your opinions.

I am in Northern Ireland and bought a 2 bed terrace in 2006 for £125k on an interest only mortgage (at one point before the crash it was worth £250k! crazy!).

After the crash it went down to approx £60k. Although not ideal I rode it out thinking prices would eventually rise. At that time I earnt enough to keep up the interest only payments only. I then went back to study for 2 years and kept paying the mortgage whihc was a struggle as at that time I was on the SVR which was up to 5.99%.

As I was in negative equity i was stuck paying that rate and couldnt move to another lender or deal. I am with Barclays by the way (after being sold from Standard Life,to Woolich and then to Barclays). Over the years I have asked for holiday payments twice - both times was told no. I have asked to reduce the rate or move to a better deal and have been told no. It seems if you never miss a payment (no matter how difficult it has been to do so) you get absolutely no leeway. Sorry for the rant!

Anyway fast forward to now, the house price is valued at about £95k. I am now on a much better salary and can afford to make repayments. I have approx £14 k saved. I have recenty had to put in double glazing (as there was none before) and have repainted and carpeted the place to either let or sell it. That has all cost about £8k.

My question is with Brexit on the horizon should I try and cut my losses and take the hit of £30k?
I am now married and my husband and i want to start a family and move to a bigger home. If we make that overpayment of £14k our mortgage payments would come down but we are still on the variable and that rate could go up.
We could try to pay the £14 k and take a 16k loan and move onto a better mortgage deal, but we will likely be tied in for at least 2 years before we could sell without an early repayment charge. Our mortgage will be cheaper but we will also have to make the loan up or pay the min balance of a 0% card (if we can get one).
My concern with that is that house prices drop again to £60k or worse and ill be in a worse position.

In light of brexit are we better to just cut our losses and rent even though we could be doing so for some time?

Grateful for your views and apologies for such a long post! I know only I can decide but welcome any opinions (please be kind!)

chucknorris

Sorry to hear about your predicament, what is the rental market like where your are (are rents high enough to cover your costs)? I was wondering if it is possible that you could get permission from your lender to let the property, and if so, you could hang onto it until inflation allows you to get out without a capital loss.

GDB2222

A lot of BTL landlords are selling up, because of political uncertainty. It doesn't seem a great plan to start letting out your house now.

It provides a home, even though you would prefer something bigger. Are you sure you cannot manage to stay there and start a family? If you do that, I'd use the savings to pay down the mortgage. It will save you £800 a year in interest, which is far more than the interest you are earning on your savings.

Otherwise, if you sell up now, you're going to be paying out rent on the larger place plus servicing the £16k loan, which is likely to be on quite a high interest rate. You need to do the math.

Bear in mind that the changes to the rental market may make it hard to find something to rent at all.

chucknorris

Don't forget that if you do end up letting your property, and later still sell it at a loss, you can later claim those capital losses against any future capital gains tax liability (for example against capital profits from other investment property or equities).

Herzlos

If you can get away with staying there for longer (how big is it, how big a family?) then I'd stay there and try to pay it down. Instead of taking a £16k loan to clear it and walk away, why not put the payments from that loan towards the equity. Presumably you're talking about £200+/month in repayments.



You really need to be looking into trying to pay it down, so that once you're out of negative equity you can start getting better mortgage deals and potentially put the equity towards a deposit on something bigger.


With Brexit and being NI, the prices could dip again (who knows), but the value should only really matter if you're looking to move or remortgage.

Sailtheworld

If my priorities were to start a family and buy a bigger house but this place was preventing it I'd sell it and take the hit. It's only money.

I would consider staying put for a while longer though. I'm sure you wouldn't think twice about renting to a couple with a baby so it's probably suitable for you too. The aim of staying put would be to monster the mortgage rather than hope for house prices to to rise.

Herzlos

Sorry I've read that again - you've currently no kids and in a 2-bed house so you've got expansion room for at least 1 kid without throwing money away to move to something bigger (we've got 2 kids in a 2 bedroom house and it's tight but manageable).


Also, you've been on an interest only mortgage for 13 years? What was your plan to pay back the capital? I understand this was likely before banks insisted on having something in place to clear the debt when the mortgage expired though.

Thrugelmir

squeezywheezy wrote: »

In light of brexit are we better to just cut our losses and rent even though we could be doing so for some time?

Continue to pay down the mortgage. No sign that interest rates are going to rise soon.

squeezywheezy

Thank you all for your replies. I do appreciate your opinions.

Chuck Norris - yes if we paid the lump sum we could rent and cover the costs.

GDB2222 - I understand what you are saying. However I am thinking that at least if I cut my losses now I would be mortgage free and could build savings up again, as we could rent somewhere the same size and same price as the mortgage has been - as we have been paying a high interest rate for so long.
an interest free credit card which im pretty sure I could get will be £160 a month (though I accept our mortgage will go down once we overpay - its just I worry we will be trapped if value drops further to 60k for example as it did before) Im not too worried about not earning interest on savings as rates so minimal at the mo.
Im also thinking that if house prices do drop we could take advantage if we saved hard for a year. we are currently very luckily able to save £1200 a month.

Herzlos - yes I am worried about NI as it has taken sooo long for property prices to go back up here. Also if this proposal about a 5 year backstop, subject to the NI govt or even a referendum , goes through, I think that will create more uncertainty for lenders. our govt doesn't have the best reputation for being up and running when required

I took the house when I was 24 so naively hoped that i would be there for 5-6 years whilst I started out on my career. I hoped to be paying interest only for the first 2 years and then repay for a couple of years and then sell. Obvs didn't work out that way but that's life!

The salaries when I qualified were just not good - minimum wage for quite a few years. Its only in the last year I have a decent salary.

to everyone else thank you also - I do really appreciate it.

lessonlearned

Here's my take......

I would pay £10k off the mortgage, keeping £4K back as an emergency fund. Then I would continue to make monthly overpayments. If you currently have £1200 to spare each month you should be able to add a bit more to your savings and overpay the mortgage. The interest rate on the mortgage is higher than savings rates so I would suggest paying concentrating on reducing your mortgage debt should take priority.

Unless you are very unhappy in your house I see no reason to move just because you want to start a family. You have a 2 bed house, not a one bed flat. And if you have a small garden too then there will be somewhere for a toddler to play.

At some point you will probably want to think about schools etc so you might want/need to move then but you have 4 or 5 years to plan for that.

You are now in a good position with that £1200 a month surplus and a decent amount in savings. I would build on that. Good luck.

squeezywheezy

thanks very much lessonslearned. good advice.