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5lab

Negative Equity..

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So..

Bought a house right at the peak (completed Feb 2008) as a FTB. I'd done the sensible thing, and gotten a 10% deposit, and my earning multiplier was nothing crazy - about 4.5 (~43k income, 192k mortgage on a 214k properrty). Pretty much did everything right except timing. Ho Hum.

Anyway, dispite the cries of 'how will you afford it when rates rise', I got a tracker - 0.27 below BOE (which wasn't particularly difficult to get on a 90% mortgage - it was just what the broker came up with). So, when rates started dropping with a vengance, I took the opportunity to overpay to try and reduce the NE impact. Come this month, its time to arrange my new deal (it was 2 years from the agreement, not the mortgage actually starting), so I phone Natwest, armed with prices on my street, list of all the work I've done and so on

To my surprise - they were perfectly happy, without argument, to base the LTV on the last valuation - ie the one that was done right at the peak! In addition, due to overpaying I've got my LTV down to 80%, and so am able to fix for 5 years at 5.09%, £200 fee. Seems pretty reasonable to me.

Whats my point? well, a lot of posters on here are claimed that when deals came to an end, everyone would get bumped onto SVR and lots would be repossesed. Then SVR's dropped, and everyone on here claimed that when they rose again, everyone would be in NE and lots would get repossessed. But, in my experiance, buying right at the wrong time and basically getting into NE doesn't seem to make a difference in getting a reasonable deal.

So. Thanks to all you taxpayers ;) I'm sorted for the next 5 years..

By the way - I'm not a bull - I think prices will drop a little more - maybe down to 30% from peak (so another 15% from now?). I accept that buying a house when I did was the worst financial decision of my life (hopefully I won't f*ck up that badly again), but at the end of the day, it's not all bad, and I think the doom mongering around here is a little overplayed a lot of the time

Edited by 5lab

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To my surprise - they were perfectly happy, without argument, to base the LTV on the last valuation - ie the one that was done right at the peak! In addition, due to overpaying I've got my LTV down to 80%, and so am able to fix for 5 years at 5.09%, £200 fee. Seems pretty reasonable to me.

Well done. You got a fixed rate at more than 10 times the BoE base rate. <_<

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Well done. You got a fixed rate at more than 10 times the BoE base rate. <_<

what a truly pointless comment. If he'd got a tracker at 4 or 5% above base i can understand your point. But he's fixed at 5%. It doesn't matter what the base rate does. When he took out the mortgage originally he'd probably have been happy with 5% fixed so nothing's changed. And as people on here keep saying, "when rates go up........" well when they do which they will, he's still on a fixed deal. And we also know that the base rate has almost no influence on the mortgage rate. Mortgage rates are all based on the risk of default together with the cost of obtaining the money in whichever way the bank can. And currently, 5% is quite a good deal based on the current risks that banks have to face and difficulty in obtaining funds.

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Your post seems to have nothing to do with the title...

He bought near peak, his house in Feb this year was probably worth 15% less than that what he paid in Feb last year.

He was in negative equity.

However because rates were cut so low he was able to over pay off a good chunk of his mortgage and take himself out of negative equity.

This coupled with a firming of house prices in the last six months has allowed him to get reasonable mortgage deal.

Interest on his mortgage is 700 a month at 5%, his salary is 2500 a month.

This just goes to show that house prices are very affordable at the moment even if you are single and have a decent paying job, even a couple on 45K combined salary can easily afford the mortgage on an average priced 158K house. If you are really motivated to own a home saving up a 20% deposit will be not be much of a problem either.

Edited by Mammon

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So..

Bought a house right at the peak (completed Feb 2008) as a FTB. I'd done the sensible thing, and gotten a 10% deposit, and my earning multiplier was nothing crazy - about 4.5 (~43k income, 192k mortgage on a 214k properrty). Pretty much did everything right except timing. Ho Hum.

Anyway, dispite the cries of 'how will you afford it when rates rise', I got a tracker - 0.27 below BOE (which wasn't particularly difficult to get on a 90% mortgage - it was just what the broker came up with). So, when rates started dropping with a vengance, I took the opportunity to overpay to try and reduce the NE impact. Come this month, its time to arrange my new deal (it was 2 years from the agreement, not the mortgage actually starting), so I phone Natwest, armed with prices on my street, list of all the work I've done and so on

To my surprise - they were perfectly happy, without argument, to base the LTV on the last valuation - ie the one that was done right at the peak! In addition, due to overpaying I've got my LTV down to 80%, and so am able to fix for 5 years at 5.09%, £200 fee. Seems pretty reasonable to me.

Whats my point? well, a lot of posters on here are claimed that when deals came to an end, everyone would get repossesed. Then SVR's dropped, and everyone on here claimed that when they rose again, everyone would be in NE and get repossessed. But, in my experiance, buying right at the wrong time and basically getting into NE doesn't seem to make a difference in getting a reasonable deal.

So. Thanks to all you taxpayers ;) I'm sorted for the next 5 years..

By the way - I'm not a bull - I think prices will drop a little more - maybe down to 30% from peak (so another 15% from now?). I accept that buying a house when I did was the worst financial decision of my life (hopefully I won't f*ck up that badly again), but at the end of the day, it's not all bad, and I think the doom mongering around here is a little overplayed a lot of the time

Why not go onto the SVR and enjoy 2% or so interest rate and no arrangement fee ?

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He bought near peak, his house in Feb this year was probably worth 15% less than that what he paid in Feb last year.

He was in negative equity.

However because rates were cut so low he was able to over pay off a good chunk of his mortgage and take himself out of negative equity.

So actually, no NE.

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So. Thanks to all you taxpayers wink.gif I'm sorted for the next 5 years..

Public sector/Quango or private sector job?

FTB on 43k is pretty good dude- you under 30?

The mighty Dr Bubb has raised the issue of tax on homeowners, ie much much more tax to pay for the interest on the money that's being printed that's keeping the bubble alive!

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Why not go onto the SVR and enjoy 2% or so interest rate and no arrangement fee ?

Natwest is 4% SVR - I believe (and I might be wrong) that over the next 5 years, interest rates, even for fixes, for people in my situation will bump up quite a bit - maybe to 7 or 8% (ie, by the time SVRs raise, it'll be too late to fix on a good deal). It only takes 1 year of paying 8% to wipe out the advantage of 4 years of 4% (as opposed to a 5% fix), and I thought the gamble was balanced towards that end of the scale. £200 is only an extra 0.02% if you split it over 5 years - ie pretty negligable.

So actually, no NE.

According to land reg, prices around here have dropped around 25% since Feb 2008 - so yes, I'm probably in NE. Its just the bank doesn't seem to care

http://www.home.co.uk/guides/house_prices_...mp;endyear=2009

Public sector/Quango or private sector job?

Sorry - facetious comment eluding to the bailout of RBS\Natwest - none of the private banks are offering 5.09@5 years for a 80%LTV (and definately not for a 100% LTV). I work in Telecoms for a large financial organisation

FTB on 43k is pretty good dude- you under 30?

yep - I bought at 25, now 27. I acknowledge that my circumstances are a long way from normal - I've got very lucky with my career path. My girlfriend by comparison, is approx the same age and is on ~17k (she's not on the mortgage, just a comparison to my peers).

Edited by 5lab

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Not sure things are quite as rosy as you think they are...

43k gross = 2700pcm net

192k mortgage

@3% = 920pcm = 34% of take home pay

@5% = 1140pcm = 42%

@7% = 1370pcm = 51%

@10% = 1760pcm = 65%

@12% = 2040pcm = 76%

@15% = 2480pcm = 92%

Think interest rates can't possibly go that high? Before 1993, interest rates were routinely over 10%. The low (sub 7%) interest rates we have had in the 90s and 00s were probably an aberration and may have been too low (hence the bubbles and debt we have now). However, if we end up going the 1970s path of high inflation and high interest rates then you will end up with real value of your debt being deflated as happened to that generation, so long as you can hold on for long enough. If we go the other way like Japan and end up with low interest rates and deflation, then the real value of your debt will increase but you will be protected to some extent by low interest rates. If I was you I would be pretty uncomfortable, you are already overstretched and the trouble has barely even started. What happens if you lose your job? If you can possibly get out, I would!

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Not sure things are quite as rosy as you think they are...

43k gross = 2700pcm net

192k mortgage

@3% = 920pcm = 34% of take home pay

@5% = 1140pcm = 42%

@7% = 1370pcm = 51%

@10% = 1760pcm = 65%

@12% = 2040pcm = 76%

@15% = 2480pcm = 92%

Think interest rates can't possibly go that high? Before 1993, interest rates were routinely over 10%. The low (sub 7%) interest rates we have had in the 90s and 00s were probably an aberration and may have been too low (hence the bubbles and debt we have now). However, if we end up going the 1970s path of high inflation and high interest rates then you will end up with real value of your debt being deflated as happened to that generation, so long as you can hold on for long enough. If we go the other way like Japan and end up with low interest rates and deflation, then the real value of your debt will increase but you will be protected to some extent by low interest rates. If I was you I would be pretty uncomfortable, you are already overstretched and the trouble has barely even started. What happens if you lose your job? If you can possibly get out, I would!

interesting point. Yes, rates can go that high. which is why I fixed @ 5.09%. The balance is currently 171k, I've put the fix on a 15 year deal, so, by the end of the fix, the balance will be 127k. I'm currently paying off 1500 pcm (yes, about 60% of my take home, and I'm comfortable with that, I've not got any other expenses, and I rent a room out to a good mate to bring back £300 - so down to about 50% of my take home). if I keep this up, at the end of my fix the balance will be 118k - or 2.7x my income. With that figure, I could manage rates of up to 15%, without increasing my monthly payment, just by pushing back out to 25 years - mind you if rates are at 15% and wages haven't inflated at all, I expect there'd be a whole load more pain that just my mortgage

so, yeah, what happens if I lose my job? well I can extend the mortgage out to 25 years (taking payment down to £1015) or go interest only (taking it down to £730 pcm). If i rent out the 3rd room, I'll probably get £250 - total rent up to £550, leaving me £180 per month to find - £41 per week. With a ~15k payoff (if I was made redundant), frankly, if I can't find that, then renting a room wouldn't have any advantage over this.

It may work out worse in the mid-to-long term than renting, but I did my time in rented flats, and I don't fancy it again, I like having my space, and to me that's probably worth a few quid more than renting. buying a home is always a financial commitment, and its always a gamble

Edited by 5lab

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Best of luck to you.

As you say negative equity is manageable for some people, but you seem quite a lot more financially asute than the average person. How many people responded to the situation in a similiar fashion to you will determine what happens methinks

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Not sure things are quite as rosy as you think they are...

43k gross = 2700pcm net

192k mortgage

@3% = 920pcm = 34% of take home pay

@5% = 1140pcm = 42%

@7% = 1370pcm = 51%

@10% = 1760pcm = 65%

@12% = 2040pcm = 76%

@15% = 2480pcm = 92%

Think interest rates can't possibly go that high? Before 1993, interest rates were routinely over 10%. The low (sub 7%) interest rates we have had in the 90s and 00s were probably an aberration and may have been too low (hence the bubbles and debt we have now). However, if we end up going the 1970s path of high inflation and high interest rates then you will end up with real value of your debt being deflated as happened to that generation, so long as you can hold on for long enough. If we go the other way like Japan and end up with low interest rates and deflation, then the real value of your debt will increase but you will be protected to some extent by low interest rates. If I was you I would be pretty uncomfortable, you are already overstretched and the trouble has barely even started. What happens if you lose your job? If you can possibly get out, I would!

High Interest rates were hardly normal before 1993.... in fact before 1973 interest rates had never once been above 10%. It was only in that 20 year period that they rose above the levels seen at any other time.

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...This just goes to show that house prices are very affordable at the moment even if you are single and have a decent paying job, even a couple on 45K combined salary can easily afford the mortgage on an average priced 158K house. If you are really motivated to own a home saving up a 20% deposit will be not be much of a problem either.

that's an incredibly fatuous thing to say.

house prices are very affordable at the moment if all of the above are satisfied and also if, crucially, you're prepared to accept a far lower quality of house than someone doing the same job as you would have been able to afford a decade or so.

it's beyond obvious that people with good jobs can afford £160k houses, the thing is that it's inevitable that many people with good jobs will, noting what was affordable to people in their position in the past, look at £160k houses and turn their nose up at them.

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You sound like that guy on the classic VW ad, he put all his money on red, when it came in green.... etc He joined HPC in January 08 and completed in February...

Still you did have one good piece of luck, the time you rearranged your mortgage was probably the best time possible, little lull we're having, banks flush with QE funny money. And of course you're an unusually high earner, nearly double the national average, and your mortgage isn't even that big.

Whats my point? well, a lot of posters on here are claimed that when deals came to an end, everyone would get repossesed. Then SVR's dropped, and everyone on here claimed that when they rose again, everyone would be in NE and get repossessed.

So my point is that the only thing wrong in the above is the word "everyone". I don't think anyone expected everyone to be repossessed do you?

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what a truly pointless comment. If he'd got a tracker at 4 or 5% above base i can understand your point. But he's fixed at 5%. It doesn't matter what the base rate does. When he took out the mortgage originally he'd probably have been happy with 5% fixed so nothing's changed. And as people on here keep saying, "when rates go up........" well when they do which they will, he's still on a fixed deal. And we also know that the base rate has almost no influence on the mortgage rate. Mortgage rates are all based on the risk of default together with the cost of obtaining the money in whichever way the bank can. And currently, 5% is quite a good deal based on the current risks that banks have to face and difficulty in obtaining funds.

Well, when you put it that way, yes it is. ;)

However, my admittedly rather flippant comment was to illustrate the huge margin between what the BoE base rate currently is and what the best fixes are out there. Yes I know that the banks aren't buying at 0.5% and lending at 5.09% but it would be fair to say that when the baserate is low, money is cheaper than when the baserate is higher is it not? If not then I stand corrected. My point being is the banks are clawing back as much money as they can and are hardly in competition with one another.

If you check my past posts, you'll even see I'm a big fan of fixed rates, but only for the whole duration of the loan. 5 years is only 20% of the duration of a standard 25 year mortgage. The next 20 years, you're at the banks mercy.

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The mighty Dr Bubb has raised the issue of tax on homeowners, ie much much more tax to pay for the interest on the money that's being printed that's keeping the bubble alive!

Political impossibility this side of ecomomic collapse (consider the other "pain-free" and "pain-lite" options they have) ... and after collapse, all bets are off in any case.

The state doesn't have to pay interest on money that's printed, the "interest" is paid by those holding cash ;)

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And we also know that the base rate has almost no influence on the mortgage rate.

Then why did the SHTF when the base rates when into double figures in the 89/90/91? Genuine question.

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To my surprise - they were perfectly happy, without argument, to base the LTV on the last valuation - ie the one that was done right at the peak! In addition, due to overpaying I've got my LTV down to 80%, and so am able to fix for 5 years at 5.09%, £200 fee. Seems pretty reasonable to me.

So you have 80% LTV, a high earner, good record of paying and it all happened at the right time and yet the best you could get was 4.59% over base rate which is actually 10x base rate. That's the best on the market. Imagine what those other people in different positions will be offered.

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Best of luck to you.

As you say negative equity is manageable for some people, but you seem quite a lot more financially asute than the average person. How many people responded to the situation in a similiar fashion to you will determine what happens methinks

Thanks - I think that's a valid point

So my point is that the only thing wrong in the above is the word "everyone". I don't think anyone expected everyone to be repossessed do you?

Fair point - I was exaggerating. I'll edit my first post to be more moderate

So you have 80% LTV, a high earner, good record of paying and it all happened at the right time and yet the best you could get was 4.59% over base rate which is actually 10x base rate. That's the best on the market. Imagine what those other people in different positions will be offered.

the point of this thread was that I don't have 80% ltv - i'm in NE by a small amount - its just that the banks don't seem to care too much. Yep, I'm going onto 10x the base rate - but I'd put good money on the fact that over the next 5 years, on average, it'll be much closer to 2x the base rate, and quite likely below it for a period as well. At the moment I'm on less than half (46% - my rate is 0.23% or £33 pcm) of the base rate so its only fair I pay above for a while :)

Edited by 5lab

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Fair point - I was exaggerating. I'll edit my first post to be more moderate

the point of this thread was that I don't have 80% ltv - i'm in NE by a small amount - its just that the banks don't seem to care too much.

Hmm, you seem to be exaggerating again. I'm guessing you mean to say "my slight NE didn't cause me any problems when i came to rearrange my mortgage" Fairly interesting in itself. But you're saying instead "Banks don't seem to care about negative equity" Which would be a fascinating revelation.

You need to bear in mind that you only have a study sample of one case and one bank. That's not much to go on. I would say that banks would care much about your NE if they had any reason to fear you might not be able to pay. As it is you're a good customer and they are taking you up the wrong'un for 10x base rate. What you didn't hear was their explosive laughter just after you left the bank.

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Not sure things are quite as rosy as you think they are...

43k gross = 2700pcm net

192k mortgage

@3% = 920pcm = 34% of take home pay

@5% = 1140pcm = 42%

@7% = 1370pcm = 51%

@10% = 1760pcm = 65%

@12% = 2040pcm = 76%

@15% = 2480pcm = 92%

Which is why people prefer to fix. But you forget a couple of things. Yes IRs have been high at points in time but they didn't stay high forever did they. Make sure you can cover such a period. Here's a suggestion, anyone on a variable tracker should "make like Joseph" in the plentiful years and get their mortgage down or set up a rainy day fund. So when rates are high it is not a problem when the famine follows.

As time goes by most of us will get pay rises and/or promotions. Personally I don't like to sit still, I'm always looking for the next opportunity. Speaking for myself, when I fixed back in 2005 I had enjoyed a few decent career moves by the time the fix ended :)!

And finally - you make the classic mistake of thinking percentages some how represent the same amount of money no matter what the earnings are. At the risk of sounding like a primary school teacher, 50% of a small number is smaller than 50% of a big number.

If I was taking home 10k a month and 50% of my outgoings went on my mortgage - I wouldn't be too worried! I am still taking home a lot more than the majority of the population! There is definitely an overwhelming belief on HPC that spending a large % of your income on a mortgage is bad. Thankfully I got over that and realised that actually when I was only paying out 20% I ended up saving a thousand or so each month and that money was just doing nothing. So I could either keep putting that money in the bank to maintain this magic ratio and -woohoo- die with 100k in savings or whatever, or I could buy the house I want. Well we each make our own choices.

It is possible to have a high disposable income and pay a high percentage of your income towards a mortgage simply by earning a lot of money (say 40k!)!

Actually what I would do is overpay my mortgage and ensure my exposure is minimised each year, just as payment go up exponentially when IRs rise, they go down when you overpay. Again, make like Joseph, by making relatively small overpayments I saw my payments drop 100 quids this year. Do this throughout your fix so when the IRs rise you are protected.

Sure, one route may or may not turn out to be the best choice but I don't think it is clear cut. Many people on here said I was crazy when I bought in 2005, a crash was round the corner apparently. Well 4 years later I don't regret it for a second, in fact so far it seems to have been the best choice (for me) but of course who knows what the future will hold :)!

Good luck to OP and everyone else, I hope you all get what you eventually want too :).

Edited by Orbital

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