None of this makes any sense.
Your 2006 home is no different to your 2012 home, is that correct?
You had 7 years of mortgage payments paid on the 2006 home, the years when the interest is the worst. You paid to sell your house, auctioneer and solicitor. You paid stamp duty and solicitor to buy. All your savings were used to pay off the Negative Equity in the 2006 house.
And you did all this and moved with two kids to a house that requires vast work.
Why would you buy a house that is the same as your previous house, if it required you to use all your savings to pay off the first house's NE and leave you with a house that requires a lot of money to fix and is no different to your first house.
What do you mean 'you were offered' a new mortgage in 2012? Surely you applied for it?