Negative equity and mortgage rates

lizzymouse

Hello
please can someone advice and what happens to your mortgage rate when you go into negative equity. We have a mortgage rate at the mo of 5.89% on a 2 year fix deal that will finish Nov 2009.

We are assuming by this point we could be in a negative equity as our house was worth £140,000 when we bought it last november but we only put down a 10% deposit so still owe £126,000.

Any deals at the moment are all for a maximum loan to value of 90% so i was wondering what mortgage comanies do with your mortgage rate when your mortgage is worth more than your house? Would we just go onto the SVR or would we be penalised and given a worse rate even than that because we had gone into negative equity?

its all very worrying.............

silvercar

If a lenders maximum LTV is 90% then a new lender would only be prepared to lend you 90% of the value at the time you want to move mortgages.

Your current lender is unlikely to revalue the property and would offer any deal that is available to existing mortgage holders without further checks. So you may be better off staying with your exisitng lender.

Ms_Brush

Your current fixed mortgage rate will stay the same until the end of your fixed period regardless of whether you have positive or negative equity in the property.

You dont need to worry about your rate until Nov 09, so dont worry until a couple of months before that!

The point is that if you go into negative equity, so will a few hundred thousand other people at best. At that point, the Banks will be responding to all those people and will start doing something! It might take them a while until negative equity starts getting more widespread, but they will soon realise that they are missing a trick or two if they dont change their offerings to help people.

If you can possibly reduce the impact of falling prices by voluntarily overpaying on your current mortgage or saving, then do so. That will reduce what you owe, will be a longer term benefit, and may help you stay out of negative equity. Whatever you do, dont panic and stop making your monthly payments!

It is likely that your current lender will extend or review your fixed rate at the end without a re-valuation anyway. They want to keep the business for the duration.

The 90's were far worse than this current 'blip' IMHO - I was paying 15% interest on an endowment mortgage and the value of the property dropped by almost 50% in a year. Even if I could afford to sell it, there was no-one buying anyway.

The best thing to do is start thinking in terms of your property being a home (ie somewhere to live) and not an asset or a way of making money!!

LillyJ

If you are in negative equity with a 10% deposit, then there will be a large number of people who are worse off as they took 95% or 100% (or 125%) mortgages.

I suppose if you assume you go on the SVR then that is the worst that can happen. Anything else is a bonus! Maybe try to overpay as much as you can in the next year or so?

Good luck!

Kez100

AFAIK, your present lender will revert you to their SVR so keep an eye on that as it can change and isn't necessarily in direct proportion to BOE rates. If you read your fixed rate terms it may say what happens after the deal runs out and if SVR is the natural move.

Overpaying is good, if you can, or saving alongside so you have a rainy day pot, but in times like these, where we could be seeing significant falls quite quickly, it is no guarantee of giving you more remortgaging options but it will reduce the amount you end up paying in the long term. It's good to at least save the extra required by the SVR level of interest as then you know you can afford it if you have to.

Also keep on top of your mortgage and monthly budget, keep other borrowings to a very minimum, so you are in good shape approaching November 2009.

meanmachine_2

Ms_Brush wrote: »

The 90's were far worse than this current 'blip' IMHO - I was paying 15% interest on an endowment mortgage and the value of the property dropped by almost 50% in a year. Even if I could afford to sell it, there was no-one buying anyway.

The current blip is much worse.

The last "blip" wasn't caused by a seismic change in banks' lending practices. It was merely the response to an economic downturn. Banks didn't suddenly stop lending. They didn't suddenly slash their LTVs from 95% to 60%.

In fact, you could still get 100% mortgages during the last "blip".

And in the 90s, inflation was on a downward trend. Not heading for the clouds like today.

maninthestreet

Where in the country did house prices drop 50% in a year during the early 90s???

jimcoxell

meanmachine wrote: »

The current blip is much worse.
Banks didn't suddenly stop lending. They didn't suddenly slash their LTVs from 95% to 60%.
.

What banks are only offering 60% LTVs?

Rabiddog_2

Also 15% was only on sub prime mortgages (the word wasn't invented then) . I paid 15.5% on a top-up mortgage for about a year, that's the worst it ever got, property price down by 20% maximum, in total. Its all liveable if you've got the money coming in, and the banks and house prices sort themselves out eventually.