Between Rock and hard place

Suza_2

Please can anyone offer advice - my good friend took out a mortgage with Northern Rock two years ago, as well as a loan to buy her place. She is now finding it impossible to keep up payments and to avoid defaulting she decided to move in with her partner and rent out her place - this would enable her to keep up payments on both the mortgage and loan. Just as tenants were moving in, she read her mortgage agreement which said she must inform NR is she's renting - she did, and they've denied her permission, saying she hasn't paid off enough off the mortgage. She now finds herself in a position where the house is in negative equity, she can't get any rental income, she can't remortgage, she can't afford the monthly payments without the rental money and feels completely stuck. She's sought advice from the CAB and the National Debt Helpline and they've both told her she'll just have to loose the house, possibly going bankrupt. Is there another way? Can she appeal the NR decision? It seems unfair. Is there any appeal to the FSA? Help, please!

Toughluck

Unfortunately that is the perils of this type of mortgage if you start to struggle with the payments. FSA won't do anything on this sort of case. I truly cannot see any hope apart from the house sale and having Rock chase for the shortfall. I would suggest they continue paying as she does not want repo as this will affect her for many years to come.

Suza_2

Thanks for the reply, even though it's abit depressing!! She's basically going to start going into arrears at the end of this month as her savings have run out and she just hasn't got enough coming in - I guess she should pay what she can and speak to them about longer term arrangements for the short-fall. Or cut her losses and take an IVA now, as she's being advised? A similar house just sold for 55k, she bought hers for 90-odd so maybe the IVA is looking the only way! I thought it seemed a drastic measure, but maybe it's not?

dunstonh

Is there any appeal to the FSA?

No. They do not handle consumer issues. They regulate the industry but they do not handle complaints. The FOS do that but they wouldnt uphold a complaint as a lender is entitled to refuse the property being let.

Has she moved to paying interest only instead of capital and repayment? Whilst that is deferring the debt to a later date, it could give her a chance to get things sorted out.

Whilst I would not suggest doing anything of the sort, she could go ahead with the letting the property out and not telling NR. A significant number of residential mortgaged let properties have not had consent from the lender.

Suza_2

Thanks for your comments, I will ask her about moving to interest only (not sure what basis she's on now). She wishes she hadn't asked for permission, because if she does rent it now she's specifically gone against them and can't claim ignorance. Personally, in this circumstance I think I'd feel I had no choice (but I'd be scared of getting caught out!)

dunstonh

but I'd be scared of getting caught out!

What's the worst they can do? ask for the mortgage to be paid back. Exactly the same as they would do it they had to repossess because she cannot make the payments. As you said a rock and a hard place.

silvercar

Get the correct building insurance, CORGI gas certificates etc and let the place.

If they do find out and ask her why she breached a term of the mortgage, she will tell them it was because she had no option short of repossession. They are as stuck between a rock and a hard place as much as she is, they don't want to repossess.

By refusing permission, they do not have to acknowledge the tenancy, so should the worst happen (repossession) they can evict the tenants. If they had given permission they would have to acknowledge the tenancy in repo' and so would find the property more difficult to sell.

Leon_W

Where needs must.

Personally, if it were me I'd rent it out. As dunston says "What's the worst they can do?" Not a lot. Technically they can call in the loan and persue you through the courts, but realistically nobody is going to do that if the mortgage is up to date and paid on time as their losses would be greater by going down that route.

Regards

Monks_habit

Is renting rooms out to lodgers the same as renting the whole place out?

Or am I talking nonsence?

Suza_2

Thanks for comments everyone. I thought about the lodger thing as well - I'm not sure of the answer though

silvercar

Lodgers are much less of an issue. As you would still be living in the property it is still a residential mortgage, plus lodgers have far less legal rights and can be evicted fairly easily.