Remortgage when in Negative Equity

sympatex

Hi all, first post but long time lurker and big fan of the forums. I have a question about being able to remortgage if you fall into negative equity. Quick background, my gf and I are planning on buying our first home, having saved together for a year we now are in a position to buy a house with a 10% deposit which should suit our needs for the next 5-8 years. My question is, if house prices do fall which looks likely (some houses we couldn't consider before have come into our price range) and we bought and found ourselves at the end of our mortgage (3yr fix) in negative equity.
If we stayed with the same lender could we remortgage on a new rate and avoid the SVR (which is usually/always higher than their fixed/tracker rate offers) I only ask because that's what we're most worried about, getting to the end of our deal and being put onto the SVR which could be massive in 3 years and un affordable (who knows, could be less but i'm a glass half full person). I read one remark on the forum about how if you stayed with the same lender they wouldn't re value your house (so no negative equity) but this could just be wrong. Anyone know if this is true or had experiences or no what options we would have? Any help uch appreciated hope this hasn't come across to confusing.

beecher

You would end up on the SVR if your property was worth less than whatever LTV your banks requires (probably 95%). Although the lender may not physically come out and value your house when it comes to a new deal, they will put a value on it and it may well be less than you've paid.

Why not wait and see and build up your deposit further? Alternatively look at longer fixes - 5 or 10 years and overpay as much as possible in the meantime to protect yourself further.

lisyloo

we now are in a position to buy a house

DON'T DO IT.

found ourselves at the end of our mortgage (3yr fix)

Definitely don't do that.

If we stayed with the same lender could we remortgage on a new rate and avoid the SVR

Yes you could but technically that's called a product switch.
A re-mortgage is to a new lender.

that's what we're most worried about

Well it shouldnt be.
You should also be concerned about large house price falls.
You should also be concerned about being forecd to sell when in negative equity (whether through job relocation, death, divore, sickness, accident or growing family).

Anyone know if this is true

Yes it's true, but you cannot guarnatee not needing to sell for the reasons I've specified above.
It may seem invonceivable to you that prices could fall that far but believe me that can and probably will. I bought a house in 1991 for £70K (that wasn't at the peak) and a few years later the one next door sold for £45K which is about 1/3rd less.

Why not wait a few years?
You can start your life togather and even start a family in rented accomodation.
Is it really worth buying now with the prospect of large falls?
Why take the chance?

If you do buy I would suggest a 10 year fix.
It could be carnage in 2 or 3 years.

m1ntie

Hi I think you would find that you could get another fix with your original lender. However existing customers rarely get as good a deal as new customers. You would almost certainly have to pay another large arrangement fee - which could wipe out any savings from not going on SVR.

As prices are dropping why not rent for 12 months.

lisyloo

BTW - If there are large price falls then lenders could conceivably introduce a new process for their switches e.g.. getting valuations.
This is pure speculation on my part but these are private business processes that can be changed at any time, so there is no guarnatee you can do what you want.
They do not have to accept you for a product switch.
You can be declined without reason.

Basically banks and building socieites are private businesses and provided they remain with the law and regulations they can do what they want, so there are no guarantees.
They could force you to pay SVR.

I would recommend not buying a house now, but if you do I would recommend getting a portable 10 year fix (maybe a fixed offset from First Direct then you can offset any overpayments).

sympatex

Ah ok 'product switch' is what we were looking for. thank you for clearing that up, perhaps that is something i ought to raise with mortgage advisor as product switch could well incorporate a 're evaluation' of house value by current lender? Lisyloo i appreciate all your points are a possibility and obviously it isn't something we would ever want. I think renting is perhaps a more sensible step, we aren't being pushed out to move (both live with parents) but we have to grow up we're getting too old to 'hang out' in each others rooms! I don't want to talk about what might or might not happen with house prices, thee's an entire forum for it and gets people quite agitated! *avoid*! Thanks again all.

homer_j_3

why only tie yourself in to 3 years if you are worried about short term negative equity and you feel the house is suitable for upto 8 years? You may want to consider a 5 or 7 yr fix if you are certain about the time you wish to stay where you are.

Being portable means nothing if the lender refuses the next application so do not rely on this feature.

lisyloo

as product switch could well incorporate a 're evaluation' of house value by current lender?

At the moment there is usually no re-valuation (after all you already owe the money so the lender has already taken on the risk).
So the answer is "probably".
You will not get a definnite yes from anybody as there is no guarantee of what will ahppen in future e.g. your lender could withdraw switches altogether (it's unlikely but it's an exmaple). They are a private business and can do what they want so you cannot RELY on being able to switch in the same way as you cannot rely on being able to PORT.

I don't want to talk about what might or might not happen with house prices

Fine if you don't want to disucss it, but it's not specualtion.
It IS actually happening NOW.
I totally understand your desire to have some space and privacy, this is entirely natural, but you do not need to buy to acheive this.
You can acheive space and privacy in rented accomodation.
Granted there are issues but you can have a happy marriage and even bring up children in rented.
Whether your name is on the title deeds is not the biggest factor in a childs happinees or security.
I personally have a bias towards ownership so I totally understand that but there are also some advantages to renting. For example there is no responsibility for maintenance or repairs (both finance and actually doing them).

lisyloo

Another reasons for getting a longer term deal is remortgaging fees.
These can be substantial and hence for many people longer term deals are better than remortgaging every few years.

beecher

lisyloo wrote: »

At the moment there is usually no re-valuation (after all you already owe the money so the lender has already taken on the risk).

Banks do make a judgement on the value of the property when you go for a new product - we've all got used to seeing LTVs going down rather than up so it hasn't been an issue up to now, but I expect to see mortgage providers pay more attention to these valuations than before.

lisyloo

Banks do make a judgement on the value of the property when you go for a new product

I've never had a valutaion when switching (or heard of one) but I certainly agree that they could pay more attention to it in future and I speculated on how they could do that in post #5.