Slight negative equity - jump ship or sit tight?

tryinhardtosavethepennies

In a bit of a quandry here:

Mortgage ~£131K (with NR); house on the market at OO £130K; had one offer at £130,700 but buyer pulled out. Virtually no interest since then.

Can't remortgage - even our mortgage adviser said there was no point using our deposit for the next house to clear our negative equity as 95% LTV remortgages are hardly worth the expense - might as well stay on NR's SVR (7.49%).

I'm not too worried about the jump in payments (although obviously don't like it!) as we can comfortably afford them (and as such we're making big overpayments to the mortgage to bat down the LTV).

However, we would like to move to a bigger house (want to start a family soon) as we are already feeling the pinch space-wise here. So we're looking into the option of a new build since the developers are so keen to shift them and are offering huge discounts. Also we thought that if they could pay our deposit on that house, then we could use some or all of our saved deposit to clear the slight negative equity in our current house.

The question is, if we stay put and wait for prices to fall further, will we be in too much negative equity to get out of? Or if we move, and prices fall, will we be kicking ourselves in a couple of years time? I was thinking of taking a 10 year fix to give the market some time to recover somewhat, and give us some time to make overpayments.

What would you do?

PasturesNew

At first I read the question and moved on as I didn't have an answer.

But, it seems to me that there are some fixed items here:
-You will have a house
- Negative equity is most likely to be affecting both of them equally as they're in the same area

However, you are currently in a 2nd hand house, contemplating moving to a new house. New houses always lose a LOT more than older ones because a good 20-25% of what you pay is pure developer profit. The cost of it being new. And once you buy it it is no longer new. So you lose that immediately, then negative equity could still kick in after that "loss".

Therefore, it is my opinion that you are better off staying where you are for the following reasons:
- your current house, over the next 2-4 years is least likely to lose as much as a new house
- by staying with your existing provider you are building up a good credit history with them
- you might struggle to get a mortgage on a new build, even with the developer paying a gifted deposit as lenders are really disliking them and some lenders want 25% deposit on new builds (not from the builder)
- better the devil you know ... at present you know where you are and the neighbourhood; with a new development, you don't know how the area will turn out and develop. What if, for example, you were the only person to buy one and the rest went at knock down prices to a HA and they moved all sorts in?

- moving will incur fees at a time when you don't really want to be spending extra money

I'd say: work as hard as you can over the next 1-2 years to clear your existing mortgage down. Even if it feels at times that you are fighting a losing battle as negative equity is making the house value drop more than you are ovepaying/saving.

See how things have developed in 2 years' time and see how much you've knocked off your mortgage. Plus, having had a continuous and good repayment history with a lender through these difficult times you'll find it easier perhaps to change houses in 2 years.

tryinhardtosavethepennies

Thanks for your reply - that's pretty much the gut feeling I was getting anyway. My only concern is that, and I've worked this out as a best-guestimate using an amortization table, if prices drop the predicted 40-50% (!) then we'll not be able to pay our way out of negative equity for about 6 years (and this house is very unsuitable for bringing up a child, let alone childREN - 2 bed, 2nd bed very small, very steep windy stairs (1830-built cottage), downstairs bathroom, tiny garden, on a busy road so baby might be disturbed during sleep).

I guess I'm just weighing up the "am I better to get out while I can?" against your very good point of "better the devil you know".

Some extra info: the area we live in is not too great. The new build we're looking at is a small development (17 homes) of which there are only 7 left (no HA that I know of, but admittedly hadn't thought to ask that so will do if we go back for another look). It's also a nice quiet leafy area tucked away from any main roads and (surprisingly for a new build) not overlooked at all.

They're asking £213K for the house we want: I want to offer £170K + 10% deposit paid, with my max being £180K + 5% deposit paid. They also pay estate agent fees, and give you £2000 towards legal costs (so our savings could be used purely to knock down the asking price of our current house).

I had wondered about the "gifted deposit" thing too - spoke to a sales person at another new build development at the weekend who gave us the number of a mortgage broker who deals specifically with new build mortgages (i.e. they accept builder deposits) but definitely need to look more carefully into that.

All the advice I have had from family is "get out while you can"! (ironically, since they're usually the play-it-safe types) So it's nice to get an outsider's perspective, and really value any advice people offer on this forum, since there is clearly a wealth of experience to be tapped into on this online community.

Thanks!

PasturesNew

tryinhardtosavethepennies wrote: »

if prices drop the predicted 40-50% (!) then we'll not be able to pay our way out of negative equity for about 6 years

By not paying out the big fees now and the increased cost, you'll be paying off your NE as it's happening and probably manage to keep up with it at times, making you more free very shortly. Buy the new/bigger house and you'll have bigger bills, meaning less money to spend on your family

tryinhardtosavethepennies wrote: »

(and this house is very unsuitable for bringing up a child, let alone childREN - 2 bed, 2nd bed very small, very steep windy stairs (1830-built cottage), downstairs bathroom, tiny garden, on a busy road so baby might be disturbed during sleep).

Children are quite small. Babies are recommended to sleep in the parents' room for the first 6 months anyway. You can get bunk beds when they're a bit older. For decades kids have put up with small bedrooms and sharing. And they're too small to know any different or feel it's small. And your overheads are less for longer.

tryinhardtosavethepennies wrote: »

I had wondered about the "gifted deposit" thing too - spoke to a sales person at another new build development at the weekend who gave us the number of a mortgage broker who deals specifically with new build mortgages (i.e. they accept builder deposits) but definitely need to look more carefully into that.

Sales people's job is to sell. They will tell you what you want to hear.
Using a developer's mortgage broker has never been good advice. Fees are likely to be even higher + mortgage rate is likely to be higher. Speak to them to get the facts, but walk away from them with the knowledge; don't sign up through them.

hearts

"if prices drop the predicted 40-50% (!) then we'll not be able to pay our way out of negative equity for about 6 years"

If prices drop by this amount then the likeyhood is that you will have perished in the plague that caused it. In other words those figures aren't "predictions" they are scare mongering.

tryinhardtosavethepennies

Thank you! I'm glad I'm not the only one who thinks so!

Someone on here has a great signature thing that says something like "hope for the best, prepare for the worst" - I'm a play-it-safe type who'll only occasionally take a gamble! Sometimes it's hard to know what's best?!

Also, to pasturesnew, thanks for the advice. I do take it on board. Even when I come back with counter-arguments, that's just me rationalising and sorting out my thoughts aloud. It helps me feel like I've covered all bases!

Thanks again guys!

:beer:

hearts wrote: »

"if prices drop the predicted 40-50% (!) then we'll not be able to pay our way out of negative equity for about 6 years"

If prices drop by this amount then the likeyhood is that you will have perished in the plague that caused it. In other words those figures aren't "predictions" they are scare mongering.

Lakey

I know you are worried about the road disturbing the little ones, but I can assure you that the traffic is more likely to be disturbed by the shrieking!!

When I was in the maternity ward with my little one, the cleaner used to bash the cot and hoover around it saying "it'll do him good to get used to a bit of noise".
Useless info I know but what the heck.

tryinhardtosavethepennies

Lakey wrote: »

I know you are worried about the road disturbing the little ones, but I can assure you that the traffic is more likely to be disturbed by the shrieking!!

When I was in the maternity ward with my little one, the cleaner used to bash the cot and hoover around it saying "it'll do him good to get used to a bit of noise".
Useless info I know but what the heck.

No, that's very useful info! I just assumed they'd be like adults who are sensitive to noise when sleeping (well, I'm not...nuclear fall-out wouldn't rouse me!)

PasturesNew

tryinhardtosavethepennies wrote: »

No, that's very useful info! I just assumed they'd be like adults who are sensitive to noise when sleeping (well, I'm not...nuclear fall-out wouldn't rouse me!)

Most people are OK with noises, it's just unusual noises (or lack of them) that can cause sleeplessness in a new environment.

Many people from the centre of large cities can't sleep in the countryside because there's NO noise.

The body's defence system is on stand by while you're asleep and it awakens you to alert you to the unusual. So if a house is noisy from the start, that's the norm. So no harm done. Even if you were changing the environmnet of a baby/child, they'd soon get used to new noises after a time (few days to a few weeks).

Doozergirl

tryinhardtosavethepennies wrote: »

Thanks for your reply - that's pretty much the gut feeling I was getting anyway. My only concern is that, and I've worked this out as a best-guestimate using an amortization table, if prices drop the predicted 40-50% (!) then we'll not be able to pay our way out of negative equity for about 6 years (and this house is very unsuitable for bringing up a child, let alone childREN - 2 bed, 2nd bed very small, very steep windy stairs (1830-built cottage), downstairs bathroom, tiny garden, on a busy road so baby might be disturbed during sleep).

I have no idea what an amortization table is but it sounds clever. The predicted 40-50% losses doesn't sound so clever. I've only read that sort of thing on here by individual posters.

Secondly. You're still you and you probably don't need all that space. If your house is getting smaller it's because you are accumulating too much stuff. Lose it. ebay it, charity shops, whatever. It's easy for a child to live in a small bedroom because they are small and most of the toys their cupboards get stuffed with are broken. Also, you'll find if any baby can sleep through it's elders constant racket, it'll be able to sleep through anything They are quite resiliant!

My lounge looked massive today when everything was out on the lawn whilst our plasterer was in. Happiness is a clutter free house!

Turnbull2000

hearts wrote: »

"if prices drop the predicted 40-50% (!) then we'll not be able to pay our way out of negative equity for about 6 years"

If prices drop by this amount then the likeyhood is that you will have perished in the plague that caused it. In other words those figures aren't "predictions" they are scare mongering.

Aren't you the BTL investor who last year suggested the possibility of 50% rises over the next 4 years, that all is well in the banking industry, rates will plunge, and offer 25% over in Scotland?