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mulling over negative equity

I’m worried about my house.

Well not exactly my house, which is fine. But the value of my house and the mortgage on it.

I knew full well when I bought my house that it was probably near the top of the market, but I slightly pushed that to the back of my mind for the following reasons:

• prices in the area hadn’t moved for 2 years
• negative equity is not a problem if you’re not planning on moving and can afford to pay the mortgage
• it’s as important to buy when it’s right for your personal circumstances as the market

I disliked the flat that I was renting. I had enough money saved up / received in windfalls to mean that I had a 10% deposit plus fees plus a little extra for decorating. Rents were about the same as mortgage payments, so if I wanted to upgrade there would be no cashflow benefit in renting. It made sense to me to buy.

In return for my investment I have

• a home that I really like
• a mortgage of £87k to pay off (£500 a month for 30 years)
• an asset whose market value is £80k and falling (slowly)

Yes, I can see what you’re saying. Financially has not necessarily been the best purchase so far.

With my rational self, I can see that a house is not a short term investment. In the long run it is likely that the house will increase in value - probably at the same rate (on average) as wages. Besides which, it doesn’t matter if it doesn’t because I don’t need the house to even stay the same in value to eventually pay off the mortgage. Although the house would have been cheaper if I’d waited, it’s much harder to get a mortgage than it was 18 months ago - I wouldn’t have a large enough deposit to get a good rate for example. At the time, the decision I made was reasonable. It might still turn out to be a mistake, but not one that I could reasonably have forseen in advance.

My irrational self however is more concerned that any future lack of income could eventually lead to complete bankruptcy (rather than just homelessness) because the house is in negative equity. As I have self-employment earnings and some savings, I’m exceedingly unlikely to qualify for any help with my mortgage payments should I lose my job. I’m also the type of person who likes to have plenty of options and so even though I want to stay in the house for the next few years I feel slightly trapped. On the cash flow question, my mortgage payment now is the same proportion of my take home pay as my rent used to be (wage inflation is an amazing thing).

I am wondering, somewhat tentatively, whether it’s a good idea to revisit the pay off the house vs save and invest argument. When I last did this, shortly after purchasing the house I endeed up slightly in favour of saving and investing. Now, some of the variables have changed - particularly my own comfort with my mortgage debt, which is just as valid an input as the relative investment returns.

In the next couple of days I’ll go through the figures and see how they stack up.

you know you’re a personal finance geek when…

…you get excited because in December you managed to spend £225 less than you earned - when *spending* already includes investing for retirement, other investments and savings and donations to charity.

The money is going into savings at the moment, I have a few ideas up my sleeve - mostly involving travel and the house.

Bring on 2009.

a home fit for winter

I’m one of those home owners who knows nothing about house maintenance. This means that on one evening when the room seemed to be getting colder and colder for no good reason I didn’t think anything of it for a while. Then when I checked the central heating boiler, it was flashing - that never looks like good news. I eventually managed to work out (with the help of the instructions) that there wasn’t enough water in the system and also how to fix it (turn relevant tap). That probably saved me £70 in call out charges from a gas engineer - there’s only so long I would be willing to go without heating.

I think I need to get more on top of this maintenance lark. For Christmas I received some DIY store vouchers and this time, I bought some sensible stuff - radiator keys so that I can bleed the radiator in my room, a draught excluder for the front door which opens straight onto the living room - as well as some new knobs for the kitchen cupboards (well, they were half-price and sort of needed).

Making an effort to improve the insulation of the house should save me in heating bills. I live in an end of terrace workers’ cottage, which means that there’s no wall insulation and it’s prohibitively expensive to fit some. It’s actually the little things that will have the most effect. I’m also doing things like closing the curtains promptly at night to keep the heat in, and shutting all the doors in the room that I’m in. I save money by using blankets, hot water bottles and keeping the heating on a timer.

Although I’m not really a winter or house person, I do know enough to keep the heating on very low (there’s a special setting on the boiler) to ensure that the pipes don’t freeze. As I’m sure you know, if they do freeze when they thaw out they will probably flood the house.

This constitutes my complete knowledge of how to make sure my house functions well in winter. If you have any suggestions, please let me know in the comments.