Walking away from a mortgage

lisyloo

I sympathise with your posistion as I have relatives that I try to help.

All you can do is try to support, offer advice and practical assistance.
I don't think we know enough to judge, but bankuptcy IS sometimes a way out and it can lead to a fresh start.

I think that both banks and individuals have to accept responsibilty (as well as governments and regulators) but I don't think it's very helpful to you to indulge in the blame game.

When they got a 120% mortgage, what did they do with the 20%?
Do they have any assets?
How much are we talking about? for the 20%.
How much are we talking about for negative equity?
I think it would be helpful to know some numbers to see what we are dealing with.

Has anyone worked out what local rents are for that type of property?
Would it cover the mortgage?
So, could he live with you whilst renting the property?

It might not work, but it needs some numbers.

silvercar

sibvenom wrote: »

That attitude is why the financial world is in crisis! If the mortgage companies had been a little more responsible, there would not be so many people suffering from negative eqity and I would not of had to ask for the advice, as the house price would of risen, they could of both walked away better off and the mortgage company would of been paid. So I am sorry that your advice was of no help at all!

Your totally right, why should your son take any responsiblity for his financial affairs?
Why should your son take any responsibility for deciding to take a mortgage out larger than the property's value?
What part of "you are responsible for repayments" and "your home is at risk if you can't keep up with repayments" did your son not understand?
Did you and your son both think that house prices can only go up?

dunstonh

That attitude is why the financial world is in crisis! If the mortgage companies had been a little more responsible, there would not be so many people suffering from negative eqity and I would not of had to ask for the advice, as the house price would of risen, they could of both walked away better off and the mortgage company would of been paid.

The lenders should have been more responsible but they dont force your nephew to borrow the money. He asked for it, the incomes stacked up and they lent it. Your nephew should have been more responsible as well. There are risks with a mortgage and they come with very obvious risk warnings published.

For the record there isnt that many suffering negative equity at this time.

I also didnt give advice. I stated the position and the fact you dont like that isnt something anyone can change. The facts are that what he wants to do is either not possible or not going to resolve anything or create problems later. Burying his head in the sand is not an option. His girlfriend needs to take responsbility too. Her life is going to be affected by this as much as his. If he goes bankrupt they can still come after her.

sibvenom

I accept the fact that my nephew and his ex-girlfriend have probably acted irresponsibly, as was getting pregnant, but these things happen. Up until six months ago, he was earning an extra £300 a week through overtime, now we are on the verge of recession all of that has been cut and to purchase what they thought they could afford at the time, I would suggest, was only trying to do the best thing for themselves. I myself have paid off my mortgage and did not get myself into any trouble repaying it, even when the rates rocketed during the 80's. The difference being back then mortgage companies did not give such crazy amounts and I do believe that they should accept some of the responsibility.

lisyloo

I do believe that they should accept some of the responsibility.

I agree they should accept SOME.
Both the mortgage company AND your son knew that the overtime was not guaranteed.

But why not forget about that?
It doesn't really matter now WHY he's in this mess.
What matters now is helping him out.

Can you put some numbers to it?

sibvenom

With the extra 20% they kitted out the house, paid off credit cards and kitted out the baby, there was some left over but it has gone over the last couple of years. They have no assets apart from two cheap cars and the contents of the house. The amount was about £25k and if they were to sell the house, I would think the negative equity would be about £15k, I know that sounds a lot, but to sell the house in the current market, I would think that fairly accurate.

lisyloo wrote: »

I sympathise with your position as I have relatives that I try to help.

All you can do is try to support, offer advice and practical assistance.
I don't think we know enough to judge, but bankruptcy IS sometimes a way out and it can lead to a fresh start.

I think that both banks and individuals have to accept responsibilty (as well as governments and regulators) but I don't think it's very helpful to you to indulge in the blame game.

When they got a 120% mortgage, what did they do with the 20%?
Do they have any assets?
How much are we talking about? for the 20%.
How much are we talking about for negative equity?
I think it would be helpful to know some numbers to see what we are dealing with.

Has anyone worked out what local rents are for that type of property?
Would it cover the mortgage?
So, could he live with you whilst renting the property?

It might not work, but it needs some numbers.

dmg24

sibvenom wrote: »

With the extra 20% they kitted out the house, paid off credit cards and kitted out the baby, there was some left over but it has gone over the last couple of years. They have no assets apart from two cheap cars and the contents of the house. The amount was about £25k and if they were to sell the house, I would think the negative equity would be about £15k, I know that sounds a lot, but to sell the house in the current market, I would think that fairly accurate.

I'm sorry to say it, but spending like the above is why they are in trouble. There are first time buyers on here, with children, that have spent next to nothing kitting out a new house. I spent less than £2K myself with everything brand new.

Is the £15K including the additional 20% secured lending? If so, Idon't think that it is a massive amount, certainly not enough to go bankrupt over - could they not look at each taking out a £7.5K personal loan to pay the excess off?

lisyloo

Ok, to be perfectly honest, it looks pretty bad to me.
It sounds like the debt is around £40K (plus presumably estate agent, legal fees and HIPS fees, removals etc.)
That's the way iIread it. If it's £15K then that's not so bad.

So let's first consider selling.
It's very difficult to sell at the present time at all, but even if they did, there is a considerable debt to find, which would need to be borrowed from somewhere.
This is going to take many years to pay back.
So doesn't look good even if you can sell.
Don't know about your area but the market its almost completely dead in some areas.

Other options already mentioned are to keep the house and either rent out the house as a whole or get in lodgers. You would need to do some research here, but my gut feeling is that he'd still need to subsidise it.
If you rent there are still maintenance, insurance costs as well as letting agents fees for contracts, references etc.
If he does make any profit he'll have to pay income tax on it and may well not be able to get a BTL mortgage anyway.
However it's certainly worth running the maths to see if it's a goer.
He should of course tell his mortage company and insurance company if he's renting and it will usually cost more.

The other option is bankruptcy.
As already mentioned this cannot be taken lightly because there are consequences.
However it can give someone in this posistion a chance of a fresh start - how long is £40K going to take to repay? bearing in mind that a woman with a 2 year old child will probably not be able to contribute much. Also he will need to support the child (and possibly the mother if she is caring for THEIR child).

I think he needs to get some proper advice from someone like the CAB.
I would suggest definite NOT paying lots of money to any company that offers to help. Proper advice can be obtained for free and someone in his situation can ill afford the expense.

He should also concentrate on maintaining some sort of relationship with his child.

dunstonh

The difference being back then mortgage companies did not give such crazy amounts

That is a misconception. The ratio of mortgage payment cost to income peaked last year at almost exactly the same ratio as it was in 1991 (source HSBC). Whilst the reasons for this downturn is different, it is just another cycle that has been seen many times before.

Your nephew and his ex-girlfriend are in serious trouble here. They need to be grown up about this and discuss what they are going to do. You seem to be concerned about this but what about his parents? Can they help?

sibvenom

I have told him not to sign or do anything until he has spoken to CAB.

The major problem here is that he is under the misconception that the more he helps his ex, the more he is helping his child, the realistic difference is about £40k so he is seriously in trouble. She on the other hand is on another planet, she thinks it is all his problem and I have just heard that she is under the impression, that if she tells the housing that he is a wife beater, they will sort her out straight away.

Unfortunately his mother is dead and his father, my brother, lives abroad and will be of no help whatsoever, he is a lovely lad and this was his first proper relationship, it looks like he is going to be screwed for many years to come. I suspect that he will probably take the easy option of of going bankrupt, which I really think will be such a waste for such a talented lad in his early 20's

Once again thank you one and all.