Property TV | Property Question Time – Ep 112 – Negative Equity
Jo Grimwood: I’m going to start with a question for you, Paul. “Now, my wife owns a property in Yorkshire which is in negative equity. It’s been on the market for well over a year now with little interest even though it is on for significantly less for what she paid for it 11 years ago on an interest only mortgage. Now we’re planning to buy our first family house in the Southeast in the not too distant future, but we require her salary to be part of the mortgage calculation to be able to afford what we’re looking for. Can she convert her existing mortgage to a buy to let, and if so are there any financial penalties. Also worth noting, she did initially live in the house when she first purchased it, but hasn’t lived there for nearly 10 years.”
Paul Mahoney: Given it’s in negative equity, you’re almost a little bit trapped with regards to remortgaging. One potential solution is you could ask the current lender if they will allow her, this is called consent to let, and let her let it out.
Jo Grimwood: Right.
Paul Mahoney: How subsequent lenders would view that would probably be their call because it would still be a residential mortgage and potentially wouldn’t release her from the obligations of that residential mortgage given that the service of the lettee is based upon her income. I suppose it would depend how much negative equity that property is in, but considering disposing of the property is probably something worth looking under. They mentioned it’s on the market for less than what they paid, so perhaps that’s not an option either. It’s a difficult one given that she already has the residential mortgage that ties up her income and it’s hard to sell it and it’s hard to remortgage it given the negative equity.
I suppose again, we’re working with limited information so certainly worth speaking with a professional to get a full picture of what all of the options are, but negative equity is always a hard one to deal with especially when it comes to trying to get a subsequent residential mortgage, obviously your income being required for that.
Jo Grimwood: Yeah. Garret and Simon, anything to snowball onto that?
Garrett O’Hanlo: I’m a bit worried about it still being in negative equity 11 years down the line. I’m guessing she must have raised additional funds at some point and just done it at a bad time in the market.
Simon Zutshi: Remember back in 2006, 2007 you could get 125% mortgages.
Garrett O’Hanlo: Yeah.
Simon Zutshi: Buy a house for 200,000, they give you 250,000 and so even with the market then crashing and recovering, there are properties still around the UK that still do have negative equity.
Paul Mahoney: 11 years actually bought in 2006, 2007, the market was [crosstalk 00:03:21] original area. It’s a tough one but certainly not an enviable situation.
Jo Grimwood: Yeah.
Paul Mahoney: Find out what all of your options are and make the one that hurts less I suppose.