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OptimusSubPrime

Negative Equity

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Hi all, just wanted to introduce myself. Ive been a reader on here for the last 6 months or so and ive learnt alot more in this northern Ireland forum, than i did to begin with so thanks for all the informative posts guys!

My own situation is that im a FTB, have a decent deposit at min but im not looking to buy anything until the turn of the year, when by that stage myself and my partner hopefully will have enough for a full 25% on a decent house. We could go in now on a shitty 15% deposit mortgage for alot of houses, but im not interested in paying ovr the odds on either mortgage our house by buying now. We do have to get house next year so im hoping in 6-9months time i can bargain hard and hopefully get a nice house at a decent price.

Now im aware that buying early next year will result in house prices still going down even more over the course of the subsequent 1-2years. Im hoping that we get a good enough deal so that any further reductions in the market will not hit us too hard.

My question concerns negative equity. Im aware that a couple of years after purchasing that the house may be worth a bit less. Whats the practical consequences of going to refix a mortgage and being in negative equity.

ps sorry for being a complete novice!

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My question concerns negative equity. Im aware that a couple of years after purchasing that the house may be worth a bit less. Whats the practical consequences of going to refix a mortgage and being in negative equity

If you come off an initial deal and you find yourself in negative equity (or a very high Loan-to-Value ratio - certainly anything over 90% LTV but lower in the case of many lenders in today's environment), then you will typically be switched to the lender's Standard Variable Rate (SVR) mortgage.

SVR mortgages will invariably be priced higher than most other offers but remain low by historic standards i.e. quite a few lenders have SVRs below 4% at the moment.

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A couple of years down the line when you have to remortgage if you do have negative equity - the SVR will be??? mmmmm I'd imagine very high if they are around 4% now, with interest rates historically at their lowest.

I think what doccy says is key, you have to make sure you get a bargain now....... why not rent for a year or so, do you really have to buy? ;)

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A couple of years down the line when you have to remortgage if you do have negative equity - the SVR will be??? mmmmm I'd imagine very high if they are around 4% now, with interest rates historically at their lowest.

I think what doccy says is key, you have to make sure you get a bargain now....... why not rent for a year or so, do you really have to buy? ;)

Im thinking if we can drive a really hard bargain it might be ok. To be honest i am open enough to renting for a year or two. We are getting married next year and herself is really keen non buying somewhere where we can settle and do a place up in our own style etc. Ideally, i would too, but i dont want to buy a house next year just for the sake of it and end up having a worse standard of living in a few years for the sake of 'owning' our own house sooner. we're both in decent jobs but i dont want to take too big a risk anyway.

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Im thinking if we can drive a really hard bargain it might be ok. To be honest i am open enough to renting for a year or two. We are getting married next year and herself is really keen non buying somewhere where we can settle and do a place up in our own style etc. Ideally, i would too, but i dont want to buy a house next year just for the sake of it and end up having a worse standard of living in a few years for the sake of 'owning' our own house sooner. we're both in decent jobs but i dont want to take too big a risk anyway.

Rent for a year, there are hundreds of houses being reduced in price every week, the average house price needs to get below £100k

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Im thinking if we can drive a really hard bargain it might be ok. To be honest i am open enough to renting for a year or two. We are getting married next year and herself is really keen non buying somewhere where we can settle and do a place up in our own style etc. Ideally, i would too, but i dont want to buy a house next year just for the sake of it and end up having a worse standard of living in a few years for the sake of 'owning' our own house sooner. we're both in decent jobs but i dont want to take too big a risk anyway.

What ever decission you make you must be sure you are both happy with it. The fact that you are asking on this forum means that you have doubts that buying next year will be a good idea. IMO you are right, starting married life by taking on a massive debt does not make sense to me. However, you will need to provide your partner with very good information to make her feel ok with any delay.

Which part of the year are you planning on getting married - spring, summer, autumn or winter? You could suggest renting together in the area you want to live for 6 months, to see if you like it. Evidence is that renting will remain much, much cheaper than buying for the near future. If house prices are still falling more than your rent you will still be saving money i.e rent £600 per month - average house prices falling by £3000 a month (according to Nationwide's latest quarterly report).

It may be harder than you think driving that hard bargain with all the 'green shoots' rubbish in the main stream media at the moment. People will be less likely to accept realistic offers. The longer you wait the more open people will be to realistic offers, as the economic crisis has alot further to run. Also if you are buying at the begining of 2010 you will likely be facing the same crap as this year i.e. 'more interest from first-time buyers','green shoots','we are at the bottom (again) and prices will recover soon','buy now and don't miss the boat'.

Good luck,

BB

Edited by Belfast Boy

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I'm signing a new 12 month rental contract on Wednesday afternoon as I decided that I'm not ready to buy now due to further price falls due.

side note....I also got the landlord to knock £50 a month of the rental price too :D

My argument about low interest rates and rental costs falling seemed to work for me this time :D

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What ever decission you make you must be sure you are both happy with it. The fact that you are asking on this forum means that you have doubts that buying next year will be a good idea. IMO you are right, starting married life by taking on a massive debt does not make sense to me. However, you will need to provide your partner with very good information to make her feel ok with any delay.

Which part of the year are you planning on getting married - spring, summer, autumn or winter? You could suggest renting together in the area you want to live for 6 months, to see if you like it. Evidence is that renting will remain much, much cheaper than buying for the near future. If house prices are still falling more than your rent you will still be saving money i.e rent £600 per month - average house prices falling by £3000 a month (according to Nationwide's latest quarterly report).

It may be harder than you think driving that hard bargain with all the 'green shoots' rubbish in the main stream media at the moment. People will be less likely to accept realistic offers. The longer you wait the more open people will be to realistic offers, as the economic crisis has alot further to run. Also if you are buying at the begining of 2010 you will likely be facing the same crap as this year i.e. 'more interest from first-time buyers','green shoots','we are at the bottom (again) and prices will recover soon','buy now and don't miss the boat'.

Good luck,

BB

Thanks for the replies guys. BB we are getting married in the autumn, i see your point about new year 'green shoots' again being a problem to getting a realistic offer accepted. We could go out pre christmas in nov/dec, but then im not sure too many people would be focussed onnselling their house at that time of year either.

My fiancee still has the notion that paying rent is just 'lining someone elses pockets' and i agree i needa get her alot more information so she understands the full consequences of blowing all our savings for a house that is depreciating in value every month is wasting even more money than paying rent.

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My fiancee still has the notion that paying rent is just 'lining someone elses pockets' and i agree i needa get her alot more information so she understands the full consequences of blowing all our savings for a house that is depreciating in value every month is wasting even more money than paying rent.

In a stable/rising housing market paying rent is 'lining someone elses pocket'. However, in a falling housing market paying rent is the smart move to avoid loss of deposit and then negitive equity. I understand her desire to set down roots. Though, in my opinion, delaying just 12 months until autumn 2010 will be well worth the wait.

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Thanks for the replies guys. BB we are getting married in the autumn, i see your point about new year 'green shoots' again being a problem to getting a realistic offer accepted. We could go out pre christmas in nov/dec, but then im not sure too many people would be focussed onnselling their house at that time of year either.

My fiancee still has the notion that paying rent is just 'lining someone elses pockets' and i agree i needa get her alot more information so she understands the full consequences of blowing all our savings for a house that is depreciating in value every month is wasting even more money than paying rent.

FWIW-i "hope" to marry this year subject to finding a job!We are going to rent for the foreseeable because imho even though i have a very substantial

deposit i believe prices are going to fall substantially from todays prices.Owning our own home would be nice and i intend to own it outright/have a very small mortgage when i do buy.I believe fully that that will be the case inside of 18 months so renting doesnt bother me at all- in fact i welcome the flexibility it will bring.I am totally convinced that the economy will nose dive sharply once govt start to attempt to draw down the horrific public debt-this will be horrendous in terms of job loss.Which way is property going to go?Back to 2001-2002 prices .Average home here currently circa £170k-£180k.

This should and will be no more than £140 and prob a lot less by the time this is over.I wouldnt necessarily try to fish for the bottom cos there will be more demand then but i sure wouldn`t buy now unless it was a real bargain.Ballymena estate agents haven`t priced in reality yet imho.Tell your Mrs to be realistic and sell her all the benefits of waiting eg lower mortgage,nicer kitchen etc.Its the biggest financial commitment you are ever going to make so dont feel pressured otherwise you may regret your decision.Good luck with your decision.

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As redprince said and so often goes unmentioned - this will be the biggest financial commitment you will ever make. I would suggest a stress-free run up to your wedding day and worry about buying a house later.

Of course it's up to yourself, but , in the midst of a crippling recession, restricted credit, rising unemployment and with the investors that caused the bubble in NI now up to their necks, what do you think the prospects for housing are between now and next year? Continued falls or a rise of 10% or so beyond your reach (once they've actually stopped falling at 30% p.a. first)?

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Who's pockets do you think you are lining when you take out a mortgage? Most of the money goes to the bank to pay interest even if you take out a repayment mortgage. You are paying fat cat bankers and their minions bonuses, still even now after all the problems and nationalisation.

Here's another few facts about renting that help convince people;

1. House prices are still falling at a fast rate, typically for a decent house (say £250K) the monthly fall in value seems to be 2 to 3 times the monthly rent. That seems to be more throwing away money to me.

2. Rent in NI is very cheap compared to mainland, you can rent a house that would have been £650K in 2007 for <£1000/month (I'm paying £850/mth Incl rates) . On a monthly basis, renting for me is 1/4 buying, never mind the big extra costs like Stamp duty, EA fees, rates, but I could never have afforded to buy this house. As you move up scale for every £100 approx you spend on rent gets you £100K more house, very good value IMO. Of course house prices are reducing, so its gradually getting closer to renting, but its still a mile away for a decent house.

3. Because renting is so much cheaper you can afford to get a much better house with a big garden and double garage perhaps, it makes up for the fact that its not yours and you can't modify it too much.

4. There is little risk with renting, you can get in or out very easily, you can get a place in a week (allow 2). If you get made redundant the LL will usually let you go early on a contract, especially if there is no chance to get rent from you. No such get out with a purchase.

Obviously it depends where you are buying and how much of a good deal you are getting buying, but minimum rent is £450/month for anywhere and I have seen a 3 bed detached/garden/garage in Belmont for £550. A £150K house will cost maybe £750/month in a repayment mortgage, you can rent a £450K house for that.

Anyway do you own calculations and research but do not over stretch for a mortgage (<3x your salary), interest rates WILL go up and even if you get a fixed rate, everything else will become more expensive, + job security.

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