negative equity, bought a lemon, now working over seas

blahbob

Hi, I appear to have done it this time.. Last year June (2007) I bought a 2 bed terrace nice area for 133K. I later found that the vendor only payed 106K a year earlier. So they basically saw me coming. The surveyor said it was worth 133K under 'normal market continuous'. Apparently the vendor did quite a lot of work i.e. double glazing, kitchen, garden etc, so maybe its not as bad is it looks. Although I still feel like such a fool. I bought the house to be part of a company relocation scheme, where my employer was bulk relocating people and giving guaranteed sales prices (GSP) and helping make up the difference in mortgage interest for a like for like move (to the tune of 30K per employee over 5 years). However, I had some problems with my employer and then I was given a much better career opportunity from a company in Brussels, so I handed in my notice. In leaving, I lost my safety net of a GSP, but at the time I thought this would be OK. I have added a new bathroom and boiler since and I'm now letting the property out at a loss of about £100 per month after expenses- which I can cope with for the foreseeable future. Unfortunately, when my mortgage 'deal' comes to an end in 12 months ill go on to the standard rate of about 7.5%, raising my monthly loss to 250 per month, which Is still sort of OK. But if property values continue to fall in value my lender may decline further requests to let it out, leaving me high and dry and in negative equity. They also might have problems with me working over seas. To make things worse, I might be liable to income tax in Belgium, that I wont be able to offset against the mortgage interest, raising my monthly loss to as much as £500 or 750 euros Which would really badly hurt. I'm seriously considering selling up now, loosing my 15K deposit if I manage to sell for 120K i.e. I could soon save the 15K back up instead of paying tax and interest. What advice could you offer?

lynzpower

One thing I can offer is that if you are based overseas, by law you must nominate someone in the UK to manage the property. therefore if it is let out by a letting agent, you need to use them as your managing agents OR have someone in the UK who can manage the property for you ( ie pay for repairs, be there as a point of contact for emergencies etc)

You can nominate someone you know ( family member? freind? ) to be the manager, but of courese they will need access to some level of finance to be able to replace boiler/ deal with leaks or any other maintainence problem.

We had a LL who was based overseas once, and she had not nominated a manager in the UK. When the washing machine inevitably packed in, it was a bit of a nightmare to get a replacement as she had not nominated anyone to deal with the repairs or maintainence in the property. the Tenancy Officer at our council advised that as she had not nominated aUK maanger then the AST was to be assumed to be VOID ( ie no longer a contract) You must protect yourself from this, so find a manager to look after the property for you.

They didnt see you coming by the way mate, you made a decision to pay more than someone else had, and that is the risk in property. It is not a liquid investment.

I personally would look into whether the local authority or housing associations could rent the proeprty from you - they sometimes have deals where they can take the propertyoff you for a minimum of 2 years, they will guarantee the rent, no voids and they can manage the proeprty and deal with all repairs. Some even throw in a refurb to get it back to the state it was in before they let it.

How long does your tenant have, are they a freind or anytihng?

blahbob

I'm letting though an agent who takes a 10% cut and tenants contact them with problems. There is 2 months left on the current tenant agreement and I have permission from my lender. So do I renew or sell...? I think the biggest risk here is the 50% income tax that I might be liable to pay after the double taxation treaty ends in 12 months. It seems that next year i'll be dodging bullets from all angles, so maybe its best to get out whilst I have at least some control over things. I may be able to set up a limited company in the UK and transfer property ownership, then id only get taxed on the total income from the business i.e. -£250 i.e. nothing. Can i do this?

EdInvestor

The trouble at the moment is that for a first time buyer property like yours, it's virtually impossible to sell - most FTBs can't get mortgages. Mortgage approvals are down by 60% and property deals by 50%.The market is dead.

So you face the possibility of having to give a really silly "discount" - and even then having the sale fall through after many months of no action- during which time no rental income will be coming in.

If you have decent tenants and a reasonable letting agent I would stick with the status quo for now, and keep fingers crossed that the credit crunch will end and lending will revert to something closer to normality. There is no reason why your lender would stop permitting you to let the property out as long as you keep paying the mortgage.

blahbob

Yeah, just keep fingers crossed... If i can ride out the storm then all should be OK. If things get really desperate I could always move back to the UK

lynzpower

I too think you sahould try and keep hold of your tenants. Yo might want to think about the possibility of putting the rent up, even if its just a tenner or so. I think that you sohuld definately keep hold of good tenants if you can.

tuggy

They didnt "see you coming" you offered a price, they accepted.

Noone made you buy it at that price!

Rabiddog_2

Govmint nOw? allow Self employed people to offset their mortgage and council tax as expenses.. recently clarified from HMRC. not sure if this helps. I wouldn't pay any tax O'seas, easy enough if you get paid in the Uk via Limited company, generally you get mega allowances for working abroad.
They serve Beer in McD's in BeLgium, :beer:otherwise

olly300

Rabiddog you are talking rubbish.

jennifernil

I think you need to look into the tax situation first. You should not be taxed twice on the same income, so that needs to be clarified.

LisbonLaura

EdInvestor wrote: »

and keep fingers crossed that the credit crunch will end and lending will revert to something closer to normality.

He is at it again!

Ed, the lending situation now IS close to normality.

It's the last few years that have been abnormal, - as you well know.

You also know the reason why the market is dead & it is not the fault of the present lending regime!