am I eligible for Universal Credit if my property is in negative equity?

duvet_day666

In Sep 2021, I moved out of a property which I own, and moved in with my elderly Mum and Dad to provide 24 hr care to Mum. I live on Carer's Allowance, and some grocery money from my Dad.

I was turned down for Universal Credit back in February 2023, because my property was considered an asset (it had cladding issues and no bank would lend mortgages on it, but was considered technically an asset).

I've now found a buyer, and am in the midst of a long conveyancing process. The flat is selling for £155K, but due to arrears, I currently owe the mortgage lender just over £156K. When the flat is sold (if it ever completes), and solicitors and EA fees have been taken, I will be in about £15K of debt. 

Does this mean I am in negative equity?
And do you think I'm now eligible for Universal Credit? I have an appointment next week, and they're sending me a property form to fill in. 

Citizens Advice seem to think I might be, but I'm interested what people on here think. 

kaMelo

If the sale goes through with those figures then you'll definitely be in negative equity.

The only question I would ask, Is that selling price lower than the independent valuation and if so by how much?

duvet_day666

The mortgage lender did an independent valuation back in May, but I don't know what they valued it at. What I do know is that they agreed for the sale to go through at the shortfall. 

Are you saying that I should find out how much the mortgage lender's valuation was?

kaMelo

It would be helpful to have as then you can work out what equity you currently have in the flat based upon what you owe and the independent valuation.

Also, if the valuation and selling price are reasonably close it may help you bat away any suggestion you're selling it too cheaply.

duvet_day666

That makes total sense. Thanks a lot. I'm going to speak with the mortgage lender today and ask for that info. 

HillStreetBlues

Has the price of house decreased since Feb 2023?  if not and you are selling at market value, then it seems your claim shouldn't have been rejected solely for that purpose.

kaMelo

HillStreetBlues said:

Has the price of house decreased since Feb 2023?  if not and you are selling at market value, then it seems your claim shouldn't have been rejected solely for that purpose.

I doubt the price has decreased, although with cladded flats who knows, but given the OP is only receiving carers allowance I suspect the arrears have increased thereby reducing equity in the flat.

duvet_day666

HillStreetBlues said:

Has the price of house decreased since Feb 2023?  if not and you are selling at market value, then it seems your claim shouldn't have been rejected solely for that purpose.

No, the market value has increased. 

- In Feb 2023, my neighbours in the rest of the block were telling me that all our flats were worth £0. 
- Around April 2023, legislation changed and banks started lending on cladding properties. So I put it on the market, and EA put it on at £210K.
- In July 2023 - this was now on the market at £160K. 
- In Sep 2023 - a buyer offered £155K. 

In Feb 2023, the flat was being rented out. Even though the rental income didn't cover the mortgage, maybe that's what the UC officers rejected it on as well. 

peteuk

I would say dont look at the selling price.   Youve put it on the market at £50K less than market value.  If looking at capital you have a house your not Iiving in which has a mortgage of £156K and the flat is worth £210K so the capital on paper is  £54K (give or take fees ect) 

Why would you sell at less than market value? - if your behind on the mortgage (rent didn’t cover mortgage) then putting yourself in £15K debt isn’t going to help.  I do understand its been on the market for a year and it’s not sold etc. but you need to think it through and be mindful we can guaranty UC at present.

Until youve sold or at least exchanged contracts, I would say your not in negative equity, as new buyer can come along and pay full price (unlikely I know). For me negative equity is when youve brought the house at £200K and due to market dip it’s only worth £150K. 

duvet_day666

I get what you're saying. 

The way I see it is though, is like this:

When I bought it, I had no idea about the cladding issues, and neither did the surveyor. £200K was a reasonable price to pay for that kind of flat. 

But now, even though property hasn't changed much physically, the actual full price has. It's shrunk. A tragic event meant that very few will go near it, and the full price has shrunk. And it doesn't matter what I paid for it. 

duvet_day666

Also, I wasn't very clear. The EA put it on at £210K but it was really optimistic. That was way above what it was really worth at that point. hardly anybody was selling cladded flats at that time, nobody knew what they were worth.