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apom

Negative Equity.

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Okay.

i posted about a property. new development in exeter.

The prices had been over £170,000 expected.. probabaly £180,000

Now I was offered a 5% deposit paid for me and stamp duty paid for.

also another £10,000 within minutes.

Lets look at the cash back offer. that was worth £10,000

that means that the property is worth £10,000 less then your mortgage..

and the extra £10,000..

A nice deal.. I could afford it and the flats looked nice.

But what happens if they drop further.???

That means you can slide into negative equity.

You can only get a mortgage to the value of a property.

You might be able to afford negative equity and the debt.. But to move on and get another mortgage you would need to cover any negative equity yourself.

a further £10,000 drop would mean that you would have to find £10,000 yourself before you move.

You can't put it onto your new mortgage.. you can only mortgage up to the value of the new property.

So when I was assured by the lady that the prices would drop no further.. should i belive her?

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to be honest negative equity isn't a problem unless you are planning to change houses or you can't stop spending!

same as shares....lots of people suffer akin to negative equity on shares,but it only manifests itself upon transaction.

investors/speculators need to be more aware of cashflow/profits/losses than your standard punter....pity most aren't!...and need to be brutal about cutting losses if the materialise...again most won't.......YET.

...as to the can't stop spending bit.....that's happening for sure!

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to be honest negative equity isn't a problem unless you are planning to change houses or you can't stop spending!

same as shares....lots of people suffer akin to negative equity on shares,but it only manifests itself upon transaction.

investors/speculators need to be more aware of cashflow/profits/losses than your standard punter....pity most aren't!...and need to be brutal about cutting losses if the materialise...again most won't.......YET.

...as to the can't stop spending bit.....that's happening for sure!

if you buy a nice one bed flat and enter £20,000 of negative equity.. meet a girl.. plan a family..

and prices don't catch up for 5 years..

thats where negative equity bites..

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if you buy a nice one bed flat and enter £20,000 of negative equity.. meet a girl.. plan a family..

and prices don't catch up for 5 years..

thats where negative equity bites..

Life sucks sometimes!!!!!

you are right in that respect....circumstances like those can feck up the finances!

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to be honest negative equity isn't a problem unless you are planning to change houses or you can't stop spending!

Its a fecking huge problem when you consider the opportunity cost of waiting until prices fell. £20k worth of N.E. is worth another £18k in interest over 25 years. Total £38k saving for £20k NE.

You could save spectacular amounts of money by timing your purchase.

I've never bought into this 'negative-equity-doesn't-matter-unless-you-need-to-sell' argument. It matters hugely!

Edited by MrB

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Life sucks sometimes!!!!!

you are right in that respect....circumstances like those can feck up the finances!

But there are more common issues at hand.

A lot of people rely on short term fixed interest deals - you know, the 4.2% for two years type thing - to be able to afford their property. They select a mortgage with no tie in, and plan to switch mortgages (rate tart stylee) when the fixed term expires.

The problem is, that when they come to remortgage it, they can't - because the house is worth less than the mortgage. So they get stuck on the SVR which is some 2 and a bit percentage points higher (if they are lucky and it hasn't gone up in the mean time).

To put that in perspective, that is an extra £300 a month for someone with a £150k mortgage that they could barely afford in the first place - without any rise in interest rates...

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But there are more common issues at hand.

A lot of people rely on short term fixed interest deals - you know, the 4.2% for two years type thing - to be able to afford their property.  They select a mortgage with no tie in, and plan to switch mortgages (rate tart stylee) when the fixed term expires.

The problem is, that when they come to remortgage it, they can't - because the house is worth less than the mortgage.  So they get stuck on the SVR which is some 2 and a bit percentage points higher (if they are lucky and it hasn't gone up in the mean time).

To put that in perspective, that is an extra £300 a month for someone with a £150k mortgage that they could barely afford in the first place - without any rise in interest rates...

Damn good point there.

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But there are more common issues at hand.

A lot of people rely on short term fixed interest deals - you know, the 4.2% for two years type thing - to be able to afford their property.  They select a mortgage with no tie in, and plan to switch mortgages (rate tart stylee) when the fixed term expires.

The problem is, that when they come to remortgage it, they can't - because the house is worth less than the mortgage.  So they get stuck on the SVR which is some 2 and a bit percentage points higher (if they are lucky and it hasn't gone up in the mean time).

To put that in perspective, that is an extra £300 a month for someone with a £150k mortgage that they could barely afford in the first place - without any rise in interest rates...

My sums may be flawed...

but follow this

'Around 200,000 fixed-rate deals came to an end this summer. Borrowers who had enjoyed the security of some excellent deals when the base rate was just 3.5% in the summer of 2003 faced the prospect of paying much more for their mortgage if they did not remortgage.'

Now the average remortage is £93,000

that is

£3,255 of interest a year. at the old 3.5 fixed rate.

Now at 4.9 the interest a year has gone up to

£4,557

Or 200,000 people just saw their mortgage interest payment rise by £1,302 a year

or £108.50 a month.

on average..

ouch.

£260,400,000

extra yearly interest payments now being paid just on last months remortaging.

Debt has not increased at all.

This is interest rates effecting the people who remortgaged last month.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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