UKC

So, what would you do in this situation?

My mortgage runs out at the end of August. I still owe 100% of the capital and have no deposit/cash to bring this down. Thus, I can't remortgage as 100% offers just don't exist and the value of my flat hasn't increased enough to use any equity to enable me to borrow less than 100%.

So, I either default to a £740 per month standard variable rate with my current lender; take a fat loan and reduce the loan amount to 95% and still pay £800+ a month for a new deal with a new lender (plus the loan repayments); or sell and take the risk that I may lose a small amount but minimise the impact of negative equity?

Seems like the market is so fooked that even tightening the purse strings and seeing through a £740 rate is massively risky as I'll just be slipping further and further into negative equity. Is now the time to cut-the loses and get out?

What a nightmare.

In reply to zebedoo:

Have you spoken to an IFA and made sure that there are no 100% deals for remortgaging?

In reply to zebedoo:
try

http://www.jimkelly.co.uk/

In reply to zebedoo:

or http://www.lcplc.co.uk/

In reply to johnSD:

Yup. There's eff all deals, you'd be lucky to find one as a new customer, never mind a remortgage. Effin government need to intervene with more than the drop in the ocean £50bn of their last efforts. Another 6 of them and we may get somewhere.

In reply to zebedoo:

bummer, hope you work something out.

I'm surprised your lender hasn't offered you a deal - we're coming to the end of our fixed period at the moment and we were offered a new tracker to stop us looking at moving elsewhere. Maybe they know they've got you by the balls at 100% though, so don't have to play as nicely...

I take it you are on interest only, so can't extend the term of the mortgage to bring down monthly payments? Do you have a repayment vehicle you can reduce payments to, achieving the same effect?

In reply to zebedoo:

Assuming you sell, how much will it cost to rent somewhere?

Do you intend to stay where you are or are you planning to move in the next five years?

Can you afford the new rate, and if not, will the mortgage lender let you pay interest only for some time till the market picks up?

If the last, I personally would do that, and pay off some of the capital as and when you have it free.
If you had your account here, and are sure you will not go overdrawn it may pay you to save and actually gain by not paying it off but saving in an account paying more than the interest rate. Do the sums, carefully.

http://www.alliance-leicester.co.uk/savings/premier-regular-saver.aspx

In reply to zebedoo:

I don't think taking a loan out is going to help at all, the bastards that advertise on the tv are total rip off merchants, and the banks are not a lot better. These are difficult times, going and speak to someone who will give you some sensible advise.

In reply to zebedoo: Stick where you are and ride it out - interest rates are expected to fall over the next twelve months. Save like a demon for a while and see if you can't move to a repayment basis or pay off a chunk in a year or two.

If you are young then your earnings should be increasing as your career develops.

Get a lodger? Get a second job? I'd avoid selling now if at all possible - try to view the housing market long term and your house as a home rather than an investment. Hard I know but you'll probably regret it later if you sell now.

In reply to zebedoo: Why should the government be the ones that have to sort out what was caused by corporate banking greed and the over-inflated housing market?

The banks shouldn't have been giving 100% mortgages in the first place!

In reply to zebedoo:

Whats your property valuation? If not how much its worth now, how much was it worth?

In reply to Alasdair Fulton:

Couldn't agree more. 100%, 95% mortgages should never been allowed. Surely the banks and individuals had some knowledge of the massive risks they were taking. Why should anyone bail out those who knowingly took on risk? It seems the prudent are rarely rewarded in this country - I find that strange.

Sorry, I do sympathize with the OPs situation.

In reply to zebedoo:


We are in a similar situation. We have seen our flat's value drop significantly here in Scotland. Having had a valuation done one year ago our value has dropped by £30,000 on a property that is now worth £135k. Also, we have been advised that, while property was going up to 10-15% above the offer over price, they are now going a mere 1-2% above the valuation. That represents a significant drop of potential equity and far more in the way of a lack of confidence in the housing market than the supposed 1% drop in the market that is meant to be the case here in Scotland. Our IFA recommends not selling if we can afford not to. The rental market is quite strong. Strategies include renting something v. cheap ourselves, living as poor students and renting our property out to a professional couple. Alternatively, we could rent out a room in our flat. Use family loans / savings to make up the >5% (including fees) on a 95% LTV remortgage - there are some good deals on 95percenters out there.

In reply to MaxWilliam:


Why not?!

In reply to MaxWilliam:

Yup. Unfortunately, it was regarded as imperative to get on the housing ladder at all costs a few years back. Many people did this will 95-100% mortgages and "benefitted" from the rising market.

In reply to Jimbo W:

I think for the reasons outlined illustrated in your's and the OP, for a start.

Banks may demand 10-20% deposit now because they expect the market to fall by 10-20%?

In reply to zebedoo:

Find a decent independent broker fella

In reply to Swig:

Yes many have taken on risk and been rewarded. I trust many will be very unhappy with the risk and the situation they find themselves in now. But they were the ones to sign-up to that risk.

In reply to MaxWilliam:


So as a 30 year old I'm meant to live like a student or with my parents until when? I don't think there is anything wrong with 95% or 100% LTVs provided the individual is sufficiently able to afford it allowing for a degree of variation within the market. It was these checks on affordability which were not sufficient and caused such problems. Ultimately, at the moment we are surviving the current changes. We might have to make sacrifices like renting out a room, or moving somewhere else cheaper to rent and renting out our own house to a professional couple, but unless things get catastrophically worse, with those changes we still remain on the housing ladder.

In reply to Jimbo W:

>>So as a 30 year old I'm meant to live like a student or with my parents until when?

Why does everyone expect to own their own home - when the reality is that many can't afford to do so. Many make the sacrifices (by miserable and intense saving for years) before being in a position to take on a *sensible* amount of risk.

In reply to zebedoo:

Flipping heck! I thought I was taking a big risk going for a 90% mortgage, didn't realise you could get 100%

In reply to Jimbo W:

Look at this site and see how much deposit you need in other countries. Germany needs up to 50% deposit. Looking at a website last year it said it was common to live with parents till mid 30s and save the deposit, IF you reall want to buy. In most countries rental is the norm, it is only the release of council houses that set off the home ownership frenzy, and now we are in the mire.
http://www.connectoverseas.co.uk/countries.php

In reply to michael lawrence:

I doubt that interest rates will drop, they are more likely to have to rise to protect the value of the pound and prevent inflation.

House prices are going to drop like a stone, i would say to the OP that he should sell now but i doubt anyone would buy. Good luck.

In reply to Richard Carter:

You used to be able to get a lot more - some places offered up to 120%.

I think, to be honest, it is not the banks, etc, that have caused the problem, but the consumers.

I'll explain. Basically, it used to be the case that people changed address a lot less than they do now. People not only are more geographically mobile, but want to get a bigger and better house every few years, rather than, as used to be the case, only buying one or two houses in their lifetime.

In the long term, housing is a very safe bet. If you keep a property for twenty years or more (equating to, say, a first house at age 25 and a second at 45, then trading down to something smaller at 65), you are never going to lose a penny on a house.

If however, you switch houses every five years then there is a possibility of being caught. If you switch every three you almost certainly will be caught.

Given people's insatiable desire for bigger and better, it is understandable that banks saw fit to pander to their consumers. At the end of the day if one bank offers 100% and a low rate then they will get all the custom, so the others have to follow suit.

Unfortunately, hand in hand with this is the blame culture. "We must blame the banks for being stupid enough to lend to people who could not afford it". Why? The people concerned knew, if they were taking a 100% mortgage, that if the price went down then they would be in negative equity. Not a problem if they were keeping the house for twenty years, but if they wanted to sell soon (<5 years) after buying then they were taking a risk.

The same applies to rate. If you get a huge discount rate then one would hope that consumers would be sensible enough to check if they could afford the rate after discount. If not, it is the consumers that are less than prudent, not the banks.

At the end of the day, people sign a mortgage deed. It is a contract between two parties, the same as any sale - in this case the sale is of money.

Although at times in the past it might have appeared "safe" to rely on 30+% growth a year and a 4% base rate, really, its a gamble, as I suspect every person who is in that situation is aware. I don't have a problem with that. Some you win, some you lose. What I object to is people saying "But...But...But...I shouldn't have been allowed to take that gamble, someone should have stopped me".

At the end of the day, your health, monetary or otherwise, is your own responsibility, not the bank's and not the government's.

None of this helps the OP at all, and is NOT aimed at them, far from it, but is certainly aimed at posts from others who aim to blame everyone else but the consumer. The OP has been unluckly and a gamble has not paid off - that happens and they have my sympathy. However like many other situations there may be an escape hatch.

In terms of pratical advice to the OP, I would suggest sitting on it, tightening belts and waiting it out. Things that might help;

a) talking to the bank and asking them if you can reduce your payments to somewhere between where you are now and £740.

b) Asking if you can take a payment holiday (many lenders will offer this) and stockpiling the cash to pay the £740 when the payment holiday ends.

c) lengthening the term with the current lender. If you are on IO this is not going to help at all though.

d) I would advise against getting a loan and reducing to 95% - any loan you get will be very expensive compared to a mortgage.

Basically the bank are going to have thousands of people in the same situation, and the last thing, really, the **absolute last** thing they will want to do is repossess your house.

They would end up with a house with a 100% debt, negative equity, in a housing market where it will not sell and they are guaranteed to lose money. They will pay a lot of money to avoid that situation. Suggest you find out how far they are willing to go.

Best wishes and, sa I say, my sympathy. JH

In reply to zebedoo:

Um, why should they?

You took the risk and would have taken the upside if it had gone that way.

To be less harsh, borrowing at loan rates to get a deposit to get a lower mortgagge rate is unlikely to be an economic solution. I'd probably stick with the variable rate, grit my teeth, work hard and maybe get a second job and hope to survive the next 5 years. Or at least, that's what I did in the late 80s when the same thing happened.

J

In reply to zebedoo:


Am I right in assuming you took out an interest only loan with no savings vehicle to accumulate the capital value of the loan in the confident assumption that the capital could be repaid from the hoped increase in equity?

In reply to zebedoo:

>So, I either default to a £740 per month standard variable rate with my current lender;

Yes - do that. Grit your teeth, save money get a lodger and ride it out. You will be able to pick up a deal again in future.

In reply to Derbyshire Ben:

After thinking about it for a while in my opinion he should try to sell and cut his losses. Even walk away.

He needs an 100% mortgage, at the moment the bank owns the house. He doesn't own one brick of that house. If he is on an interest only mortgage then he is just giving away his money to the bank. Even if he is repaying the capital it will take ten years before he has paid off the interest on the house.

At the moment he is losing money every day with the price of houses dropping. Also, with inflation who can tell how long it will take before prices rise again to the same level,? 5, 10, 15 years? He is just trapping himself in a house for at least the next ten years. Personally, i wouldn't like that loss of freedom.


In california people can just post the keys to the lender and walk away, it destroys their credit rating but at least they aren't a slave to the bank. Not sure about the situation in the UK.

In reply to wilding:

Here, if the bank makes a loss they can pursue you for the money unless you go bankrupt so no just walking away.

Now if he does hand in the keys and manages to sell at what he owes he still has to find somewhere to live and pay rent, which may be nearly as much as the mortgage, and increasing year on year. Still no equity in a house either.

In reply to zebedoo:

I don't think we have been revalued when we have remortgaged - they've just taken the increased value of the house at face value - you could try saying that the value has increased to £x and you therefore only need a 90% loan. Worth a try. Clearly I don't know how long you've been ther - could be a ridiculous suggestion

In reply to MaxWilliam:


Crap.. ..its as basic instinct to want to provide a home for ones wife and emerging family. The real question you should ask is: why should so many people own two or more houses, when so many can't buy a small flat? Why should the so many indigenous Island people, for example, be forced to move out to satisfy the holiday whims of English tourists? Why should the inflationary tactics of the housing system and estate agents be allowed to continue and left uncontrolled by Government? House price inflation hasn't followed the general rate of inflation, it has shown a life of its own and, despite repeated warnings of the "just less than 80s style booming" of the housing market over the last few years, not a thing has been done to affect that market. People can't afford to because of the extent of inflation. Rather than deal with the cause of house price inflation, the Government has encouraged banks to offer increasingly generous mortgages, rather than deal with the root cause of the problem themselves.

In reply to sutty:


German houseprices are on average less than three quarters what they are in the UK (while German avg wages are very slightly less than they are here in the UK). Even so, that deficit between house prices and wage has been causing far more problems in Germany for some time than have occured here (but probably will start to occur here). For example, public sector strike action has been far more intense there than here, and while doctors in the UK almost never strike, they have been striking in Germany over precisely this issue. Bring on the strikes here?!

In reply to sutty:

Interesting, so compared to the US, banks in the UK don't face the consequences of dodgy lending practices. Basically people become debt slaves, what a horrible thought.

I think rent is a LOT cheaper than a mortgage for the same property in the UK (in fact this ratio is at historic highs). He could put the excess money saved by renting in a high interest account. Through the wonders of compound interest he will have quite a deposit for the bottom of the housing market.

I got the impression from the OP that he had no equity in his house, which is why he needs a hundred percent mortgage. With no equity, no reason to hang around...

In reply to wilding: if i bought my council house it would still cost way more than my rent even with full discount, why pay more to live in the same house?

you only need to look at the total that is repayed over the life time of a mortgage to see the banks are the only ones making money if your just after a family home and not into property as an investment/ ladder climbing. a bank is the last place i would ever want as my landlord for the next 25 years. lol

In reply to Jimbo W:

I agree with one of your principles, but not your racist comment.

Do only English people buy houses in the islands Jimbo?

I've just booked a holiday home for a week on mainland Orkney having compared alternatives from four native Orcadians each of whom had three or more properties to rent to tourists.

From a couple of close friends who were born and still live in Kirkwall, I know housing prices have risen sharply in the past couple of years; but I'm not sure you can blame the English.

The house next to me (in Lancashire) is a holiday home. It's owned by a couple in Glasgow.

In reply to zebedoo:

Sorry to hear this. Unfortunately you will not be the only person in this situation and I'm afraid to say things are unlikely to get better any time soon and you are into damage limitation already (unless your flat happens to be in Didsbury in which case you have a better than average chance of selling it for what you paid, anywhere else in Manc and this is unlikely). First thing to do is to talk to the bank, like I said others will be in the same situation and they will probably become more and more reluctant to foreclose so you may be able to arrange something with them.

If you decide to cut your losses then simply walking away is not an option, by the time the bank have auctioned things off you will owe them a lot of money and unlike America they can and will come after them for the difference. Instead reduce the price and try to sell as quickly as possible, don't chase the market down but market at a significant discount from the outset.

The final option is to declare bankruptcy, best to see CAB about this in the first instance. At the very least this will lead to a very unpleasant couple of years and I think there are some professions (solicitor?) where going bankrupt is not really an option.

Sorry if all this seems a bit harsh, I really do feel for your predicament because it could so easily have been me had I been a couple of years later buying my house and could still be if I lose my job. Thing is you need to think about the worst case scenario so you can decide what to do, the sooner the better. Even if house prices stop falling now it'll be a couple of years before they start to rise again so if you genunely can't afford the new mortgage then you need to address that now.

In reply to DNS:


Racist... ...you're having a laugh... ...apart from the fact that it was an example, and, as an example based in facts that are under consideration in a Scottish government consultation exercise, it was always going to be specific rather than general, my comment in no way betrays a hatred or discrimination of English people. Indeed, I am Engish. Of course other people buy holiday homes. I know a German couple who've bought a holiday home in North Uist. So what. The fact is that a disproportionate number of second homes in the Scottish west coast and Islands are bought by English people as holiday homes, a disproportionate number also move and retire there, but thats a different matter... ...of course the Scots have themselves to blame in some respects, particularly in decrofting to sell houses on the open market.

In reply to zebedoo:

Sorry to hear of your predicament and that of so many others.

To be harsh you were aware of the risk when you took out the 100% loan. It's that horrible small print which most people ignore when times are good. The lender should have explained this to you - if they didn't you would have a come back on them.

That being said however, surely the lender must now be in a weak moral, if not legal, position having been party to the original loan? Lending is their business, and I would argue that as professionals in this field, they too were acting irresponsibly by encouraging mortgagors, who are in the main inexperienced in financial matters, to take out 100% loans.

Will they not negotiate an extension of the time on your original 100% loan even if this means an increase in the repayments? I am not certain if that is what you meant by default to £740 pm standard variable rate? Or if you are saying that they will now only lend you 95% of the current value with you being responsible for the shortfall up front?

As I've said in other threads, the current collapse in property values is an economic disaster with a wide ranging impacts which sooner or later are going to effect all of us. The ill advised expressions of euphoria which some posters have made at property prices tumbling, are short sighted and don't take account of the plight people like you find themselves in and the thousands of people in the property, building and other allied industries who are now losing their jobs.

Oil prices are partly to blame but sheer greed on the part of Banks is at the root of many of these problems and I think they have a moral duty to try and salvage the mess this has created.

Good luck.

In reply to wilding:

Most market commentators and economists expect there to be a rise or two this year in order to bring inflation back down to target with falls following throughout 2009 to as low as 3%.

In reply to zebedoo: You could ask yourself a question no one has mentioned. It is simple.

Do you like living where you are? Can you justify spending around about £740 a month on it?

If the answer is yes, stay and if the answer is no, try to sell. I think it is a crying shame that housing is now seen as an investment when really it is about finding somewhere you want to live. I am sure money didn't even cross Le Corbusier's mind when he said "A house is a machine for living in". It now seems to be "A financial instrument for speculators to make quick gains to the disadvantage of society at large"

In reply to zebedoo: I may be being thick here, but how come you still owe 100%, if you have been in the place long enough for your mortgage to run out? I don't understand why you haven't been paying back some of the capital.

As for practicalities, do you have a spare room you can rent out?

In reply to Jon Dittman:

But if you take that to it's logical conclusion hasn't every house owner who has made a profit been guilty of just that however inadvertantly?

In reply to Jon Dittman:


Perhaps more worryingly, some have used the rising nominal value of their property as a basis to remortgage and finance their lifestyle - new car, holidays etc.

In reply to Armadillo, but really to the thread:

just wanted to say good luck to the OP, and that is his thread wondering what to do about his situation, really the place to condemn people for having made some erroneous financial decisions? People f*ck up all the time in all sorts of ways, and helping them work out how to sort it out is surely more helpful than reminding them of their folly, no?

just a thought.

In reply to Jimbo W:
The reason there are so many holiday homes and the likes owned by outsiders is that many of the locals have, quite understandably, decided to take the chance to make a quick buck and sell their houses to the people who can afford to pay the most for them. This is likely to continue to be a problem until such a time as we don't have wealth concentrated in different parts of the country from desirable holiday or retirement locations - which isn't going to happen without a complete restructuring of society, as far as I can see.

In reply to zebedoo:
Nasty situation. Sorry, but have you considered what will happen if interest rates, and so that £740 a month, go up?
I'm by no means an expert on financial matters, but in your situation I think I'd be trying to cut my losses before they got worse (selling is likely to get harder over the next couple of years, and you're likely to get less back). Hope you find a solution.

In reply to CJD:

To clarify, my comment was in response to Jon Dittman's about speculators cashing in on rising property prices, and was another viewpoint on the fact that houses and flats have become "investments" that yield returns rather than homes and places to live. Something that I think is a great shame.

If I gave the impression of castigating the OP for their current predicament, then I'm sorry - that was not my intention. Plenty of other people have offered their advice. I hope he/she finds a way forward that isn't too painful.

In reply to Armadillo:

ah right - sorry about that!

In reply to CJD:

No probs.

In reply to marsbar:

If it's just a couple of years fixed term, he won't have made much of a dent in it. Hopefully it's not interest-only, in which case there will be no dent whatsoever.

Unfortunately, I would have thought that sticking with the existing lender and tightening belts would be the OP's only option, especially as there is a possibility of negative equity here. I would hope that the money markets would free up sufficiently in a year or so's time to make a better deal available, but he still might need to find some more money from somewhere to make that happen. If it were me, I'd be looking into weekend and evening work to supplement my income, or at least to get some money stacked away.

Cutting and running (ie selling up) could be a financial nightmare, as the fees and the vicious nature of the market will probably put him into a negative equity position, even if he's not quite there already.

I wish him luck. It's a story that is going to be commonplace over the next couple of years.

In reply to zebedoo:

I may be wrong but don't mortgages run a set period - normally 25 years. They can't take your mortagage off you, but whatever offer you took the mortgate out under, will simply come to an end. Once the deal you are on finishes, you'll just automatically change to a standard variable rate. You don't have to re-mortgage and find another deal.

If I were you, I'd talk to the lender to clarify your position.

In reply to 'Hilda':

You're right. He shouldn't have to remortgage at this point, just swallow the increase. The only other bit of advice for him is, as you say, to talk to his lender if there's any chance he might not be able to meet his monthly payments. Any missed payments are the excuse a lender needs to demand the immediate full redemption of the mortgage, which can be a desperate situation if it happens. And lenders will, at the moment, be far quicker to move to "collections" when customers are struggling to pay, and are so desperate for cash, may be looking for any excuse to get some of these 100% loans off their book.

In reply to Iain Forrest:

Now's not really the time to sell TBH. It all depends how servicable the mortgage is. Probably ther best option is to do both, get the property on the market, but economise all you can to keep the mortgage ticking over.

In reply to zebedoo:
Ok... the thing to do is GOOGLE

I have and have found out that abbey national are offering 100% mortgages. Also HSBC are doing a rate matcher for people wanting to extend their fixed rate on their mortgage for longer.

here are a few links that I dug up in 1 min of searching

http://www.hsbc.co.uk/1/2/1/2
http://www.abbey.com/csgs/Satellite?c=GSInformacion&cid=1157700517388&a...
http://www.endsleigh.co.uk/100percent-mortgages.html

In reply to Trangia:


Well not really. My observation was based on the fact that of all the responses given, each and every one was focused on what was the best thing to do with regard to money. If however, you buy a house to live in, the as long as you can afford the mortgage, whether it goes up or down in value is pretty insignificant.

In reply to MaxWilliam:


Because many can't afford NOT to do so! Renting usually costs about the same as a mortgage does. I know that when I got my first morgage I was actually paying out LESS including all my council tax, insurance etc than I had been renting, and for a nicer place too!!!

Private rents are often set to pay off the mortgage AND make a bit of profit for the landlord, and in some areas, council housing or housing association houses are impossible to get unless you are homeless with 6 kids.

In reply to tlm:


a friend was saying that our social housing stock has been depleted to farcical levels in recent years, so I think that's a case of giving it to those who *really* need it.

In reply to John_Hat:

Not quite - banks have a responsibility to lend prudently and to minimise consumer frenzy. People aren't experts in finance - many fail to grasp the basics - but banks are, and irresponsible lending has been a major factor, with too many banks and people still concentrating on irrelevant salary multiples rather than affordability.

We were given our mortgage on the condition that we could afford it - where they took into account all our main monthly outgoings, the mortgage stress tested at SVR+2% (so really about 5% above the deal rate at the time), and with us having at least £250 (I think, can't remember) a month each left over at the end. Seems harsh, but fair and sensible especially given the changes in the market.

In reply to CJD:

Exactly. and everyone else has the choice of paying high private rents or buying if there is any way that they can get a mortgage... Which isn't much of a choice, in the long term really, is it?

In reply to tlm:


not all rents are really high... and now, to get a mortgage, you have to save up a big deposit, so you're in a bit of a challenging position either way, or so it seems to me.

In reply to CJD:


I know that. It really does depend where you live, doesn't it? and trying to do all that while also having to pay off a student loan - it just gets impossible...

I thought it was bad enough in the 80s, when I was renting a room in a house in Oxford, and watched house prices double in a single year. I thought that I was doomed to bedsit land forever!!!!!

In reply to johnSD:
Not least for the protection of their own shareholders, as banks surely lose money through repossessions.

In reply to marsbar:

Depends how the mortgage is set up, if its an endowerment policy then there will have been no repayments. It might be interest only as the OP has no intention of staying there for 25 years or more so will be relying on asset growth for repayment. However even with a classic repayment mortgage in the first 2 years you will pay off next to no capital. Maybe 1 or 2% of the amount borrowed. The proportion of repayment grows exponentially toward the end of the loans life. So no after 2 years the amount outstanding will be more or less the amount borrowed and if the value of the property has remained static (likely to be true right now) the new loan would be at 100% LTV and in the current market will soon be in negative equity.

In reply to tlm:

That's just not true!

I pay £550 per month for small 2 bed terrace, that's the going rate where I live.

With a 20% deposit behind me, a new mortgate (30 year, repayment, initial fixed rate defaulting to SVR in 3 years) for the same property at current values would be costing me nearly £800.

That's £250 a month more to buy than rent!

In reply to CJD:

In places like London and Liverpool there was never enough social housing even during the council house boom just after WWII. You had to be in real need to get on the list. The madness of selling that stock off cheap and not replacing it just made things worse. Social housing works where you have viable communites, old style estates where most of the people were just poor but had jobs and knew each other could cope with a couple of problem families as the community can give the support that the parents can't or don't give, however pile all those families into one area because you have no houses for anybody who is just looking for a cheap stable home with a good landlord and then you have a community of people that don't have the resources to deal with their own problems let alone help with anybody elses.

In reply to tommcdonna:
6 years ago, it was cheaper for us to buy than to rent (conveniently ignoring the 10% deposit we put on the house, of course!) In the meantime, house prices where we live have roughly doubled, but rents have not, so it'd now be cheaper to rent.
I'm surprised if there are many places left in the UK where paying a 100% mortgage (and any maintenance) is genuinely cheaper than renting, but to be fair, I haven't looked.

In reply to Iain Forrest:

When you take out a mortgage it is usually more expensive to buy than rent for the first few years.
However, you normally pay the same amount giving a few ups and downs due to bank rate for the life of the mortgage, rental always goes up year on year.

I pay less for my mortgage than the rent for the council house next door now by a fair amount, the rented house next door, privately owned costs around twice my mortgage, and I have equity of over £100k in mine now.
Even allowing for the recent drop in prices mine has increased in value by over £20k in the last two years, I was surprised when told. Next door is for sale at about £155k, dropped from £180k but he just wants rid as has moved to a place with a garden, and better parking, the thing that puts off some viewers.

In reply to johnSD:

Why do banks have a responsibility to lend prudently? From their own point of view they have - they don't want to make losses - but why on earth should they run as a nanny financial institution? Where did "Let the Buyer Beware" go to? - or is it because people cannot be bothered to learn enough about the largest financial decision they are ever going to make to make an informed decision before making it?

I know a lot of people who put a ****LOT**** more research into buying a car for £2000 than buying a house/getting a mortgage at one hundred times that much....

Irrelevant salary multipliers are a point of historical interest. The thing is, affordability is not ideal either. Affordability works well for someone with no kids, no debts, etc and the salary multipliers work well for people with kids, debts, etc. At the end of the day they are simply ways of the bank trying to work out how much you can afford.

Unfortunately they both suffer from the same problem - they exist at a point in time, and there's nothing to stop you giving up your job, having kids or taking out credit cards **after** you have the mortgage....


We are about to buy a house (fingers crossed!) and I have stress tested the mortgage for +10% over current rate. We could survive at that, though it wouldn't be pretty or fun. We are also borrowing almost 100k less than the banks would be prepared to lend us as a maximum (which is probably why we could survive at a massive interest rate...). We set limits on how in hock we wanted to be and kept to them.

In reply to zebedoo:

Tough call as homes have emotional attachment as well as financial ones. Personally I would try and sell for the following reasons:
1. House prices are predicted to fall much further than they have already.
2. UK interest rates will probably rise.
3. The UK economy looks like it's heading down, which means more jobs will go.

In this sort of situation I would value cash liquidity over assets.

However, there are some caveats and these are:
1. It depends on how much you would have to pay to rent a similar property.
2. How much negative equity you've already absorbed (i.e. is it too expensive to trade out of the situation now).
3. How secure you feel your employment is.

etc etc.

These aren't recommendations btw, just my own thoughts on what I would do in this situation.

Good luck.

In reply to SARS:
People often seem to compare similar properties when comparing renting with buying. I think this is a mistake, as you don't have much stake in or commitment to a rented property.
If times are tight, why not rent a cheap property even if it isn't ideal, sort out the finances quicker, then move on when possible? (Of course, this does depend on there being cheaper rental property available, but I don't think comparing like with like is a good starting point.)

In reply to John_Hat:

wow you could afford to do this? I'd not actually be able TO buy a place if i knocked 100K of the mortgage.

In reply to John_Hat:

Because they are a cornerstone of the economy, and their decisions and behaviour have effects that are far more wide reaching than their own capital/shareholders/customers. The way they run their business has the ability to influence every other part of the economy, and they certainly have at least a moral responsibility based on that to make sure that their behaviour doesn't disrupt or damage the rest of the economy. A moral responsibility that they have egregiously failed in over the last few years...

In reply to tommcdonna:
Yes but over time a mortgage will go down while rents will go up

In reply to Iain Forrest:

You make a good point and ultimately if you rent, as you say, it's probably better to downsize and sort out the finances. The point I was really trying to make was that the OP needs to assess the value of his property and this means looking at rental yields amongst other things.

In reply to johnSD:

In the shorter term, banks and other financial firms have a responsibility under the current regulatory regime to behave as if their customers are all drooling drug-addled chimpanzees. This has come about because very often, their customers have in the past behaved like drooling drug-addled chimpanzees. It's just something you have to deal with if you want to run a regulated financial firm in this country.

In reply to cometworm:

Exactly - if you don't treat your customers (or the general public at large) like idiots they will very quickly prove you wrong...

In reply to zebedoo:

Afternoon all. Thanks for a lot of supporting comments. Just to answer a few questions and present my current thinking...

My current deal is interest only, so over the 2 years I've lived in the flat I haven't touched the capital one iota. Even if it had been a repayment mortgage I doubt that you'd touch the capital until at least 10 years in anyway.

I've pretty much decided that I'm going to have to cut my loses and sell. I'm gutted to say the least but I've got to balance my decision against the risk of negative equity that it inevitable (at least in the short term) should I stay put. I had no intention of being in the flat for more than another year, so riding out the storm is not overly appealing as in my eyes this is at least a 3 year stretch.

Unfortunately, none of this debate is about rates anymore - it's about equity, or lack of. I potentially stand to lose a few K if I sell now, but this is nothing compared to the mess that I could end up in if I stay put. I'm going to go for the private sale initially so should save a few quid there.

In terms of the 100% mortgage debate: yes, I knew of the risks and I accepted them - they didn't pay off, c'est la vie. I am bitter, yes, but I think that's fair enough considering I'm on the verge of losing my house.

Z.

In reply to zebedoo:

thats a tough call you made,

good luck with it all

you never know whats arround the corner, dont let the experience get you down .

remember that property is an obsesion in this country , there are many many more inportant things

In reply to zebedoo:

Very well put. If you'd done something similar a couple of years earlier it would have worked out. At least you took the risk and accept what's happened, which is a very positive attitude. Think of it as a blip, things will work out in future.
All the best, however it turns out.

In reply to gingerdave13:

Depends on how big a place you buy! We are playing very safe here. Yes, it would be nice to max everything out and buy the dream house but frankly I want to be able to sleep for the next few years..

Also, from an affordability point of view, we are both working, have no debts and no kids, so the banks were happy to lend a lot more than we were prepared to borrow...

JH.

In reply to John_Hat:

dude, are you nuts? Don'y buy a house now, wait 12 months - what is your hurry? If we go into recession then you house will be cheaper in 6-12 months. Why pay more now? In teh US we are seing some signs of bottoming - after house prices have dropped 30% in two years. The UK has only started the drop...

In reply to zebedoo:

tough situation.

i took a 130% mortgage in 2005, but decided to fix it till 2012 because it looked like we were due a recession.

its now thankfully only 90% of value - but was a huge risk

hopefully it will remain under 100% in 2012

In reply to marsbar:

If he has a 2 year deal, this is probably the case. Prices peak late 06 - early 07 depending where in the country you are.

It maybe interest only, not something I would do, or maybe the place is now valued at 5 or 10% less than he paid for it.

In reply to tlm:

I am a big fan of buying being owner occupier, but rents are very low at the moment.

A new development near me is selling apartments for £240k, yet you can rent them for £650 per month, less than half what a 25 year mortgage would be.

In reply to wilding:

Because, as I have said several times on this forum on several threads, we are buying a home not an investment. Somewhere Lady Blue can plan and plant her garden over many years, I can put up shelves (and possibly a climbing wall if she lets me!), and somewhere we can settle down for the rest of our lives. A nest for the two of us. Somewhere that gives us a place in the world, and somewhere to love.

i.e. This is an emotional, rather than a financial decision. We will likely be keeping the house for thirty or forty years. Basically we are buying our dream house to live in for the rest of our lives.

Specifically, and in reply to your post:

a) I am not "dude"

b) We are not "nuts"

c) I have no intention of taking your advice.

d) We have already got 20%+ off the asking price of the house and can afford the mortgage. On either salary, and very easily on both.

e) Neither you, nor anyone else, know that house prices are going to drop 30%, or 20%, or 40%. Nor do you know if the UK is going to mirror the US.

f) In any case, house price drops are going to be house-specific. For various reasons, this particular house is unlikely to drop much more.

g) We wouldn't care a tiny bit if it did.

Like I say. We are buying a HOME. A house we fell in love with and have been looking forward to living in since we saw it.

Kind regards

JH

In reply to zebedoo:

Instead of a loan, use low interest/interest free credit cards to raise your 5% deposit, do this now so you have the money in hand. You can then bounce the debt around almost indefinatley between cards.

Ask a good IFA to find you the best deal available, then telephone your lender and ask them to match it. Sticking with your lender can save a lot of paper work, if they are prepared to work to keep your business.

In reply to 3leggeddog:

Ah, just read your latest post. If you do sell up and leave, just think of the money spent as rent.

Next time you buy have a deposit ready, saved or borrowed and try to make some repayment to give you a little equity. Interest only mortgages with the ability to make overpayments are great for this. Spare £20 in the pot at the end of the month, pay it off the mortgage, it all helps.

Seriously look into the credit card thing, while you still have "home owner" credit status. Invest the capital you raise in a high interest account and pay of the balance in your own time. A bit like saving backwards, I think the media call it "stoozing". You will thn have a deposit to hand when you choose to re enter the market.

In reply to 3leggeddog:

>>>>Instead of a loan, use low interest/interest free credit cards to raise your 5% deposit

Absolute gold!

In reply to 3leggeddog: When I was in Norway in the early 70's, I was told that most (all) people in Norway buy their house on an interest free loan supplied by the government, I wonder if that state of paradise still exists?

In reply to Al Evans:

It does not. Norway had it's own 90s house price crash, which saw the main retail banks essentially insolvent and nationalised, and then privatised a few years later when things calmed down. The government made an absolute killing on it.

In reply to 3leggeddog:

This is getting increasingly hard to do, in much the same way as cheap mortgages are disappearing, so are the 0% balance transfer deals. Yes, there are still plenty around at the moment, but there are considerably less now than a year or two ago.

Fair enough, you could probably get £20k interest free for 12 months at the moment, you might be lucky and be able to "stooze" or "tart" it after the initial 12months is up, but what if you can't? It's not guaranteed and if you can't, you'd be even more f!*ked.