Sorry - very naive question...

lauraaurora

In the past, people have re-mortgaged their properties against a rise in the market to use the equity in the house to purchase something. If the market crashes, what's to stop people from re-mortgaging their properties and benefiting from a negative-equity situation? I'm sure it's not that simple, but I've been dying to ask...

~Beanie~

How would someone benefit from a negative equity situation?

lauraaurora

Ok. Bear with me... Say your house was mortgaged for £100K in 1991. Then in 2007 you had it valued for £200K. This meant you could re-mortgage your house for £200K - the mortgage company would give you up to £100K against the value of your house (but your mortgage was then £200k).
Say you didn't do that, but if in 2009 your house then became worth £80K, could you re-mortgage your house and pay less? Sorry, I'm trying hard to explain myself... It's just if it worked one way, can't it work the other?
If it helps, it's only a hypothetical question, I'm in Shared Ownership, but it's something I've been wondering about.

LillyJ

Sorry that makes no sense at all. If your house is worth 80k, and your mortgage is 100k you still have to pay the 100k

lauraaurora

That's kind of my point LillyJ. It works one way, just not the other. Am I correct in saying that?

neas

if house was worth 80k... then rose to 200k.... and henced Mortgaged at 200k (BORROWED 200k from the bank) then.... when it drops back to 80k... the owner would still OWE 200k... to the bank... even if they gave the keys to the bank.... they'd still owe the difference.. i.e 120k.

Negative equity is bad bad bad... because in addition if your in negative equity you can't remortgage of the SVR.

Bring on the pain ... Time to redistribute the wealth back to the kids..

LillyJ

That's kind of my point LillyJ. It works one way, just not the other. Am I correct in saying that?

Well sort of but I wouldn't really describe it like that!

LillyJ

neas I just thanked you before reading the bit about "bring on the pain". I thought you had got over wishing homelessness on people?

HC_2

However much you borrow is how much you owe.

It doesn't make any difference what your property is worth.

neas

in a market when someone wins.. someone loses.... Because of my age I was predetermined to lose.

Now its switched so because I dont have a house... I will save money...perhaps "bring on the pain" is a little extreme... I was more hoping this would release BTL back into the market... and allow I and others to buy their family home without being in debt to your eyeballs.

LillyJ

neas I am a similar age as you but I don't wish pain on others.