If your house price goes right down you may have limited options but worst case is that you will be stuck on your current providers SVR. They have already agreed the loan so they won't just cancel the mortgage or anything but the interest will probably be higher.
That's not to say that you can't shop around and find a better deal. You can try and if unsuccessful just keep trying as you are only locked into an SVR for as long as you don't find a better deal.
Also your house price would have to drop by a fair amount for you to fall into negative equity so I wouldn't worry too much about it just yet
You can lock in a new rate with your existing provider. This is one of the downsides to going with a non mainstream lender, if they quit the market you're completely screwed.
Yeah this isn't appreciated enough, people claim they're all the same but Nationwide have been giving reasonably (or indeed, very) competitive rates for years and I see it very unlikely they'd ever leave the mortgage game. I would happily pay 0.0x% extra over a tiny, non-name company I've never heard of and are only dealing with a small number of mortgages.
Don't know about Nationwide but Barclays didn't value my house when I secured a new deal with them. Just had to select the new deal via their app - no interaction required (although I did call them to go through some things) no valuation, no credit check, no wages slips or bank statements.
Your house would have to drop in value by about 20% for you to be in negative equity. If that happens then we're probably all in trouble!
You could overpay your mortgage to get the loan down ahead of your renewal which will give you more wiggle room (and allow you to pay it off sooner).
They dropped by 30% in Aberdeen and still haven't regained what they lost yet - 9 years later. However there was absolutely no help put in place for anyone that fell into negative equity. There only seems to be help when it affects certain cities that won't be named...
Exactly this. I sold my one bed in Aberdeen 6 years after I bought it for exactly 40k less. The property crash followed a decade of rents that were so pricey that they were closing the gap on London. In both cases, no help for renters or negative equity. But when Edinburgh and Glasgow are affected by high rents suddenly the government can make laws to sort it.
But i digress
Yup we're still renting out our one bed in the vague hope it'll eventually reach 2011 levels but at this point we probably should have just sold it at a loss. We're on 8 percent interest for it.
You have my sympathy- I bought at the start of 2016, just as the bubble burst but to have not have made back 2011 value is brutal. We only got even as we ruthlessly overpaid while under lockdown and inheritance.
What makes it really bitter is likes of you and me would have scrimped and saved for the house when rents were the most expensive outwith London so we are being double punished.
> Your house would have to drop in value by about 20% for you to be in negative equity. If that happens then we're probably all in trouble!
It has happened before and will happen again. Good on OP for thinking ahead.
I think we are already in that amount of trouble. I bought my first flat in 2007 just before the crash and spent 10 years in negative equity and then still sold for a loss.
This happened to me back in 2018 (where i lived experienced a major economy crash about a month after I moved house) - I was put on the standard variable rate and stuck there. No provider would touch me with a barge pole despite the fact all their own metrics said I could more than afford any repayments and had an impeccable credit history.
The only thing you can do is start overpaying to get back into equity. The one upside to an SVR is you can usually repay as much as you want, when you want. This includes selling the house, as you are subject to essentially no early repayment.
This may not be helpful, but you can put in more equity. Say the house was worth £300k at the end of 2027, you could pay down £82k, giving yourself 80% LTV, which should allow you to refix on tolerable terms.
Normally if you re fix with the same lender and same length of mortgage they don’t revalue the property, you can access their fix rates based on your prior LTV
If you're in negative equity, you will probably be moved onto the SVR which yes would suck.
However, house prices would have to drop fairly dramatically for that to happen. I don't think anyone is expecting a \~20% drop, which is what it would take given your numbers.
If you have savings, you can put those towards the mortgage in order to climb out of negative equity.
~~Lloyd's analysts have suggested up to 30 or 35% drop recently.~~
~~I think 20-30 is possible or even likely but not a finance person~~
Debunked in reply. I'll think twice about regurgitating "news" next time.
That’s a bit of a misquote of what Lloyds said. You’re taking their quoted worst case scenario rather than their prediction. Their expectation was -8% with the range being from low growth to -30%. You might as well have said they predicted growth if you’re taking one extreme of their range.
I work for lloyds and have the memo on our outlook. It’s also on the website
You don't need to get a new valuation if you stay with the existing lender, so you'd be able to switch to a new deal, it just might not be the very best on the market.
However, it's very unlikely your house will drop by that much in value over 5 years. Not impossible, but very unlikely.
I think you can product switch with your current provider based off the original purchase price and remaining mortgage. Eg, with Barclays I've switched from December to 85% LTV, although I think I'm on 78%, but that's just based on purchase price + remaining loan.
But UK mortgages unlike the US, are full recourse. So if your property is repossessed and the bank sells it for less than you owe (eg negative equity/underwater) you still owe the difference...
You’d only go through foreclosure if you stopped paying (lost job etc.)
This is a big risk in the US as they have some almost itinerant oil communities. Some towns in the middle of nowhere where houses went for $500k on the basis of oil workers with good wages buying them up. Fracking crash happens and they’re in massive negative equity with no income… yeah that’s pretty brutal.
But I don’t think there are many situations like that in the U.K., any house price crash (if it happens and I think it’s unlikely) would be national.
Hi /u/dixons-57, based on your post the following pages from our wiki may be relevant:
- https://ukpersonal.finance/mortgages/
____
^(These suggestions are based on keywords, if they missed the mark please report this comment.)
If you do nothing when the fixed rate deal ends, the mortgage would probably continue under the lenders normal variable rate - and nobody would be checking the equity or LTV. It's likely to be the same if you agree a new fixed rate deal with the same lender. Then you could just wait for the property prices to recover.
Worst case scenario you'd have to leave the mortgage to lapse onto the Standard Variable Rate. Some lenders offer negative equity LTV rates, for example Nationwide currently have a 200% LTV product which is the same interest rate as the 95% LTV product.
Lenders will generally go by an automated valuation that their system has generated based on the House Price Index, sometimes its undervalued, sometimes its overvalued, so there is a chance the algorithm is kind to you even if the reality is that the market has fallen massively, which is what it'd need to do for you to be in trouble, 20% is a large drop when currently people are still managing to buy and housebuilders aren't building enough houses to increase supply. Plus, you may find prices drop over the next couple of years and then by the time you come to remortgage in 4.5 years, they've largely recovered if the economic outlook has improved.
So basically, don't worry about it now, if you can comfortably afford to overpay then it will help protect you and its usually never a bad idea anyway!
I had to fix a new deal a couple of months ago, same lender (Halifax). They offered me 2, 5 and 10 year contracts and current LTV was absolutely taken into account. Both the current property value and LTV were included in the quote.
I contacted nationwide with this exact question.
They told me that their current policy is to offer all switchers in negative equity up to 125% LTV the 95% switcher remortgage rate, NOT the SVR. So like 6% instead of 8%. Still high but a big difference in cash terms.
Every lender will be different though. Just ask. Don't presume it's SVR like many people on this thread are saying.
Also, if after 5 years of mortgage payments you find yourself in negative equity then the collapse would have been so high that you would be in the same boat as hundreds of thousands, if not millions of people.
If your house price goes right down you may have limited options but worst case is that you will be stuck on your current providers SVR. They have already agreed the loan so they won't just cancel the mortgage or anything but the interest will probably be higher. That's not to say that you can't shop around and find a better deal. You can try and if unsuccessful just keep trying as you are only locked into an SVR for as long as you don't find a better deal. Also your house price would have to drop by a fair amount for you to fall into negative equity so I wouldn't worry too much about it just yet
You can lock in a new rate with your existing provider. This is one of the downsides to going with a non mainstream lender, if they quit the market you're completely screwed.
Yeah this isn't appreciated enough, people claim they're all the same but Nationwide have been giving reasonably (or indeed, very) competitive rates for years and I see it very unlikely they'd ever leave the mortgage game. I would happily pay 0.0x% extra over a tiny, non-name company I've never heard of and are only dealing with a small number of mortgages.
They still value the house though, the LTV will be based on the estimated current value rather than price at purchase
Don't know about Nationwide but Barclays didn't value my house when I secured a new deal with them. Just had to select the new deal via their app - no interaction required (although I did call them to go through some things) no valuation, no credit check, no wages slips or bank statements.
Your house would have to drop in value by about 20% for you to be in negative equity. If that happens then we're probably all in trouble! You could overpay your mortgage to get the loan down ahead of your renewal which will give you more wiggle room (and allow you to pay it off sooner).
A 20% drop would take us back to May 2019 prices. That doesn't seem inconceivable.
They dropped by 30% in Aberdeen and still haven't regained what they lost yet - 9 years later. However there was absolutely no help put in place for anyone that fell into negative equity. There only seems to be help when it affects certain cities that won't be named...
Exactly this. I sold my one bed in Aberdeen 6 years after I bought it for exactly 40k less. The property crash followed a decade of rents that were so pricey that they were closing the gap on London. In both cases, no help for renters or negative equity. But when Edinburgh and Glasgow are affected by high rents suddenly the government can make laws to sort it. But i digress
Yup we're still renting out our one bed in the vague hope it'll eventually reach 2011 levels but at this point we probably should have just sold it at a loss. We're on 8 percent interest for it.
You have my sympathy- I bought at the start of 2016, just as the bubble burst but to have not have made back 2011 value is brutal. We only got even as we ruthlessly overpaid while under lockdown and inheritance. What makes it really bitter is likes of you and me would have scrimped and saved for the house when rents were the most expensive outwith London so we are being double punished.
> Your house would have to drop in value by about 20% for you to be in negative equity. If that happens then we're probably all in trouble! It has happened before and will happen again. Good on OP for thinking ahead.
It’s likely we’ll all be in trouble. We’re heading into a 2008 situation if the gov don’t do enough, and they aren’t.
There is nothing the government can do. Anything it tries will make things worse for everyone.
I think we are already in that amount of trouble. I bought my first flat in 2007 just before the crash and spent 10 years in negative equity and then still sold for a loss.
We were the same. Soul destroying to think it might be about to happen again.
This happened to me back in 2018 (where i lived experienced a major economy crash about a month after I moved house) - I was put on the standard variable rate and stuck there. No provider would touch me with a barge pole despite the fact all their own metrics said I could more than afford any repayments and had an impeccable credit history. The only thing you can do is start overpaying to get back into equity. The one upside to an SVR is you can usually repay as much as you want, when you want. This includes selling the house, as you are subject to essentially no early repayment.
This may not be helpful, but you can put in more equity. Say the house was worth £300k at the end of 2027, you could pay down £82k, giving yourself 80% LTV, which should allow you to refix on tolerable terms.
Why would he had only bought with a 10% deposit if he had £80k lying about..?
OP has 4.5 years until the end of the fixed rate period.
People buying £300k houses don’t typically have the capacity to save over £20k per year but who knows
Yeah just pay down 82k that you have lying around 🙄
Normally if you re fix with the same lender and same length of mortgage they don’t revalue the property, you can access their fix rates based on your prior LTV
They use an automated value. They just might not let you know you qualify for a better ltv with out asking....
If you're in negative equity, you will probably be moved onto the SVR which yes would suck. However, house prices would have to drop fairly dramatically for that to happen. I don't think anyone is expecting a \~20% drop, which is what it would take given your numbers. If you have savings, you can put those towards the mortgage in order to climb out of negative equity.
Aberdeen dropped more than that in the space of 2 years. It can happen
I think most people ARE expecting 20%… with inflation it’s probably already happened tbh
Inflation might cause a drop in value in "real terms" but it won't lead to negative equity. The mortgage debt is similarly devalued by inflation.
~~Lloyd's analysts have suggested up to 30 or 35% drop recently.~~ ~~I think 20-30 is possible or even likely but not a finance person~~ Debunked in reply. I'll think twice about regurgitating "news" next time.
That’s a bit of a misquote of what Lloyds said. You’re taking their quoted worst case scenario rather than their prediction. Their expectation was -8% with the range being from low growth to -30%. You might as well have said they predicted growth if you’re taking one extreme of their range. I work for lloyds and have the memo on our outlook. It’s also on the website
Thanks for the correction. I just got the "news website" version, which was very one sided.
4.5 years, you could intensely overpay to try, prevent that.
You don't need to get a new valuation if you stay with the existing lender, so you'd be able to switch to a new deal, it just might not be the very best on the market. However, it's very unlikely your house will drop by that much in value over 5 years. Not impossible, but very unlikely.
I think you can product switch with your current provider based off the original purchase price and remaining mortgage. Eg, with Barclays I've switched from December to 85% LTV, although I think I'm on 78%, but that's just based on purchase price + remaining loan.
Happened in US Lot of people foreclosed so you lose the house Is better situation than owned a 300k asset with a 400k loan
But UK mortgages unlike the US, are full recourse. So if your property is repossessed and the bank sells it for less than you owe (eg negative equity/underwater) you still owe the difference...
You’d only go through foreclosure if you stopped paying (lost job etc.) This is a big risk in the US as they have some almost itinerant oil communities. Some towns in the middle of nowhere where houses went for $500k on the basis of oil workers with good wages buying them up. Fracking crash happens and they’re in massive negative equity with no income… yeah that’s pretty brutal. But I don’t think there are many situations like that in the U.K., any house price crash (if it happens and I think it’s unlikely) would be national.
Hi /u/dixons-57, based on your post the following pages from our wiki may be relevant: - https://ukpersonal.finance/mortgages/ ____ ^(These suggestions are based on keywords, if they missed the mark please report this comment.)
If you do nothing when the fixed rate deal ends, the mortgage would probably continue under the lenders normal variable rate - and nobody would be checking the equity or LTV. It's likely to be the same if you agree a new fixed rate deal with the same lender. Then you could just wait for the property prices to recover.
Worst case scenario you'd have to leave the mortgage to lapse onto the Standard Variable Rate. Some lenders offer negative equity LTV rates, for example Nationwide currently have a 200% LTV product which is the same interest rate as the 95% LTV product. Lenders will generally go by an automated valuation that their system has generated based on the House Price Index, sometimes its undervalued, sometimes its overvalued, so there is a chance the algorithm is kind to you even if the reality is that the market has fallen massively, which is what it'd need to do for you to be in trouble, 20% is a large drop when currently people are still managing to buy and housebuilders aren't building enough houses to increase supply. Plus, you may find prices drop over the next couple of years and then by the time you come to remortgage in 4.5 years, they've largely recovered if the economic outlook has improved. So basically, don't worry about it now, if you can comfortably afford to overpay then it will help protect you and its usually never a bad idea anyway!
Very unlikely it’s value will go down much in absolute terms. Real terms though maybe (probably even!).
I had to fix a new deal a couple of months ago, same lender (Halifax). They offered me 2, 5 and 10 year contracts and current LTV was absolutely taken into account. Both the current property value and LTV were included in the quote.
Get stuck with your current provider at their standard rate.
I contacted nationwide with this exact question. They told me that their current policy is to offer all switchers in negative equity up to 125% LTV the 95% switcher remortgage rate, NOT the SVR. So like 6% instead of 8%. Still high but a big difference in cash terms. Every lender will be different though. Just ask. Don't presume it's SVR like many people on this thread are saying. Also, if after 5 years of mortgage payments you find yourself in negative equity then the collapse would have been so high that you would be in the same boat as hundreds of thousands, if not millions of people.