Negative Equity what can I do if I want to move house?
Posted on 10 February 2011 by Lori Simpson
I'm looking for some guidance on potential options or next steps that I could look into.
Myself and my husband were first time buyers on a Scottish Widows Graduate Mortgage (100%LTV) in Nov. 2007. This was a fixed rate for 5 years on 6.39% and will expire next year.
We would like to move to a house so we would have more space and could think about having a family soon however due to several repossessions / property auctions in our area we believe our property has fallen signaficantly in value since 2007 leaving us in negative equity. For info, it is an Edinburgh city centre new build, 2 bed flat.
The mortgage was for £197,500 and the outstanding balance is around £194,000. However neighbouring properties / respossessions are on the market for circa £120-£130K. Hence we anticipate a £60-£70K shortfall.
I have contacted Scottish Widows several times but the only option they give us is if we are to sell the property we must pay them a lump sum of the shortfall at the time of sale, plus £5500 for terminating the fixed rate deal early.
I do have some savings of around £12,000 but am reluctant to pay this into my current mortgage as it feels like a drop in the ocean towards clearing the shortfall and if at all possible I'd like to try to keep this aside as a 10% deposit in the hope somehow we will be able to get a new home at some point...
Renting with Consent to Let may have been an option but given the mortgage payment is £1131 monthly and area rental sits at £650 monthly I dont believe Scottish Widows will allow this. Also, they only let you Consent to Let for 12 months at a time I believe.
Neither of our parents have savings so that avenue is closed also.
Sitting tight would have been an option however with such drastic negative equity, realistically I can't see us being able to obtain anywhere near what we paid in the next 5 years, and further drops in value are predicted this year.
I have written to Scottish Widows this week to ask if they will allow a sale and package up the shortfall allowing us to pay it back similar to a loan over the next 10-15 years however I was previously advised by their call centre that this wasnt an option as they 'dont do loans'...I'm also unsure as to the impact this would have on our credit scores / reports and our ability to obtain a new mortgage.
For info, we have paid the mortgage in full and on time every month since we moved in so we are not in danger of repossession or anything - we'd just like to settle somewhere that we know we could live in for a long time and be able to have a family.
Any advise would be hugely appreciated as we feel like we have exhausted every avenue and come to a dead end. Scottish Widows just dont seem interested in our problem...which seems a little unfair given that they were all too happy to lend upto 105% LTV when the going was good.
The UK Insolvency Helpline has an excellent website and factsheet and I recommend that you look at this if you haven't done so already.
The UK Insolvency Helpline Debt Advice Service does not provide nor administer debt solutions itself. Instead the service will put you in touch with a licensed professional to arrange the debt solution. Please note that whilst initial advice is free, fees may be payable depending on the solution provided.
Answers provided in response to Ask the experts are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.
We recommend you seek professional advice with regard to any of these topics where appropriate.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY DEBT SECURED ON IT.
John Charcol is a trading name of John Charcol Limited and its Appointed Representatives. John Charcol Limited is authorised and regulated by the Financial Conduct Authority. The Financial Services Register number is 665649. Registered in England No. 9157892. Registered office address for John Charcol Limited is 5th Floor, Cutlers Exchange, 123 Houndsditch, London, EC3A 7BU. The FCA does not regulate some investment mortgage contracts. Calls may be recorded for training and monitoring.