Tak­ing the pain out of trad­ing up in a time of eroded eq­uity

Yorkshire Post - Property - - FRONT PAGE - Franx Muelthaler

It is an ex­pen­sive hous­ing mar­ket for al­most ev­ery­one, FTBS and sec­ond-time buy­ers alike. Cou­ple this with the tough­est eco­nomic con­di­tions in a gen­er­a­tion and it would have most of us run­ning for the hills if we had a choice.

The prob­lem for ex­ist­ing home­own­ers trad­ing up isn’t nec­es­sar­ily the process of ob­tain­ing a mort­gage; rather the big­ger is­sue is eroded eq­uity from their cur­rent prop­erty.

Re­search from HSBC stated that as many as 360,000 buy­ers who bought their first homes at the peak of the hous­ing boom in 2007 could be stuck in them for years to come.

This is due to the fact that prop­erty hasn’t ap­pre­ci­ated in value in the last few years and in some cases worth less than the orig­i­nal pur­chase fig­ure. This could lead to neg­a­tive eq­uity.

A lot de­pends on the amount of eq­uity in your ex­ist­ing prop­erty and the rel­a­tive price of the home you are look­ing to buy.

If nei­ther your ex­ist­ing prop­erty, nor the place you are look­ing to buy, has a de­mand­ing high loanto-value (LTV) and your fi­nan­cial sit­u­a­tion is good, then your op­tions are much wider.

It might be pos­si­ble to “port” your ex­ist­ing mort­gage to the new prop­erty but this will be sub­ject to meet­ing your lender’s un­der­writ­ing cri­te­ria.

This doesn’t mean your lender will lend to you again, but they will give you the same mort­gage prod­uct as you al­ready have. Bear in mind there is a higher pre­mium charged for high LTV deals, with a 90 per cent LTV mort­gage typ­i­cally charg­ing about 1.5 per cent– 2.5 per cent more than an equiv­a­lent prod­uct at 75 per cent LTV.

Al­ter­na­tively, you could look into rent­ing out your ex­ist­ing home for a while and rent­ing some­where big­ger un­til you are no longer in neg­a­tive eq­uity and can sell up and buy else­where.

Speak to an in­de­pen­dent mort­gage bro­ker. It’s al­ways worth it and you will more than likely be given more of an in­sight into your op­tions.

There are fears amongst tracker rate cus­tomers that they will end up pay­ing more than they ex­pected, or can af­ford, leav­ing peo­ple strug­gling to make ends meet.

Even if you are con­tent on your lender’s stan­dard vari­able rate and are for­tu­nate to have 25 per cent or more eq­uity within your prop­erty, things can still change. Only re­cently, HBOS group an­nounced that it plans to in­crease its SVR with ef­fect from May 2012. Given this fact you re­ally should con­sider your op­tions sooner rather than later.

The Bank of Eng­land has again held Base Rate at 0.5 per cent for the 36 month in a row. So, whilst those on tracker rates can re­lax again this month those with a vari­able rate prod­uct or a dis­counted rate prod­uct could see their pay­ments in­crease.

The so­lu­tion could be to re-mort­gage. Even if you have less than 25 per cent eq­uity within your prop­erty, you may still be able to ben­e­fit from a re-mort­gage. Find­ing the right re­mort­gage deal will re­quire a fair amount of re­search, to com­pare cur­rent against avail­able op­tions, but it’s worth con­sid­er­ing if you are con­cerned about rates ris­ing.

The Coun­cil of Mort­gage Lenders es­ti­mated there were 830,000 house­holds trapped in neg­a­tive eq­uity last year. Many more are also ef­fec­tively trapped in low eq­uity, un­able to re-mort­gage due to a paucity of five and 10 per cent mort­gage de­posits.

How­ever star­tling these sta­tis­tics are my ad­vice would be to take your con­cerns and queries to a pro­fes­sional like an in­de­pen­dent mort­gage ad­viser who can dis­cuss your op­tions and present a so­lu­tion right for your sit­u­a­tion.

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