Negative Equity caused by early repayment penalty. HELP!

Miss_Yell_2

Hi,

I am desperate for some advice here. Please please someone help! We have a property that has been on the market since August. We also have a £21,000 (yes, £21,000!) repayment penalty on it until September 2009.
Due to work, we have already moved out of the house and relocated. When we first put the property on the market, we spoke to the Bank of scotland who gave us our 80% mortgage and told them we would struggle with property prices dropping to meet the mortgage repayment without going into negative equity because of the penalty. We were advised that there was nothing they could do and that the current situation would have to get a lot worse before it can be reconsidered.

In December (after loosing a buyer) we contacted the Bank of Scotland again, and were told the same thing. Each time we have been passed from department to department; no one wants to know! We have slipped into arrears twice now, but been able to play catch up now by surrendering an endowment policy early to keep feeding the hungry bank of Scotland monster!

At the beginning of January, i put our plight in writing, begging they reconsider the £21,000 penalty so we can reduce the price of the property as it had now been revalued at less than it had been last summer! I explained everything, very politely and very humbly but saying we would have to look at bankruptcy as my endowment policy would only pay another 3 months mortgages.
Today, having heard nothing, I called the Bank of Scotland (apparently my letter was scanned on to the system but it appears its no ones job to reply!)and was passed to 4 different departments. I then nipped home for lunch, only to find a message from the Bank of scotland on the answer machine! I called back and could not get put through to "jenny" who had asked me to call back; after being put through to another 2 depts, I was told Jenny had placed a note on the system to state that under no circumstances at this point would the penalty be removed! To top it all today, they have also sent another letter and charged another £35 for the arrears which I thought we had cleared; though we still have arrears apparently from all the charges they have made from the previous arrears; now the repayment (which is interest only) has gone up another £32 per month!

There appears to be no central department or decision maker (today I have spoken to Bank of Scotland departments Scotland, Ireland and Essex, they all say they cannot make any decisisons; who makes the decisions?) we can speak to; they are intent on us going bankrupt and stopping us from selling owing to the negative equity caused by the penalty! The longer this is dragging on, the worse the negative equity gets.

ADVICE PLEASE! I can't take much more!

Thanks

Michele

P.S. I have just received a call from Jenny at the Bank of Scotland again! She now says I need to speak to the Arrears department; when I asked her which department she was from, she told me she was the arrears department!I am at a loss, totally confused and feeling desperate. I am going round in circles.

ailuro2

Get down to CAB, citizen's advice bureau, who can help you sort this out - they will have numbers of people to call etc. instead of ebing given the runaround.

Can you rent out the home? Or is that not allowed under the bank's rules?:rolleyes:

rothers

What sort of mortgage did you get that included a £21,000 penalty???

Miss_Yell_2

Hi Ailuro2,
We have tried getting the house rented out; we had an agent trying it whilst property was first on the market. We had two people wanting to rent initially and they each fell out based on the fact they lost their buyers. Last week we were advised that we had to drop the rental price and were offered a rent by someone who were prepared to pay just 1/3rd of the mortgage repayment; so we could not survive this. Also, since property prices are plummeting, we would have to keep trying to subsidize the rent and pay the mortgage for goodness knows how long until the property in years to come regained its mortgage value!
The mortgage is interest only, so we are just throwing money at it whilst it depreciates in value!

Thanks so much for your advice though; really appreciated and I think I shall take your advice and go to the CAB.

TonyMMM

rothers wrote: »

What sort of mortgage did you get that included a £21,000 penalty???

Exactly what I was thinking - must have been a fantastic deal ...

Miss_Yell_2

Hi Rothers,
Thanks for the response.
A pretty nasty one it seems! We are fixed rate at 5.49% interest only and a fixed penalty of 5%. Of course when we took the mortgage we never had any idea we were going to fall on such hard times as to be in this situation, never mind the very necessary business relocation!
The nightmare for us is that we run our own business and import from Germany; we have been so stung by the Euro exchange rate, we cannot keep our heads/house/company above water with money leaking out everywhere like a sieve!
We are in such a nasty mess! When I look at how easily we were given the mortgage I can't believe it now!
Thanks

jlfrs

This is a very worrying time and your lender, through their bureaucracy is not helping matters either.

The CAB is absolutely where you should go - if you are in financial hardship and find yourselves in arrears they have trained people who can give you impartial advice and advise you of what your legal rights are. If for whatever reason you are facing a spiralling debt issue that you are finding hard to cope with they may act as middlemen and negotiate with your lender on your behalf. The outcome may not be what you necessarily want of course but it takes the emotion out of it.

It is unlikely your lender will waive your redemption penalty - after all, you took on the product knowing the penalties and it was your decision to move out and either buy or rent another property.

Off the top of my head, your lender may offer you a payment holiday from mortgage payments but these are only temporary and are expensive as interest is charged to the interest you are already paying. Besides, it won't solve your problem as you need to sell your property. They may allow you to extend your mortgage, say from 15 to 25 years to reduce monthly payments or if you are on a repayment, allow you to go to interest only which would also reduce your monthly payments.

As the previous poster suggested, you could look at letting it out. I personally wouldn't bother speaking with your lender and just do it - it's risky but it sounds like you're desperate. It actually may work in your favour - you'll get regular income which could either cover the mortgage or see a good bit of it off, plus you'll still have an asset which over time will appreciate in value - you could then sit it out and sell it when your tied-in rate finishes or keep it on to gain in value, say in 3 or 4 years time.

I was in a similar position to you and that's what I did.

If you want to investigate, meet 3 local letting companies and ask them what it'll take to get it let quickly and the options,(unfurnished versus part/fully furnished and corporate lets versus straight residential lets). You'll need landlord's insurance, which ain't too much, plus a gas safety certificate if the property's on gas(about £125 I think), and you'll have to declare any profit you make for tax purposes. If you live miles away you might want to pay the letting agent for a managed service so they get any calls in the event of an emergency.

Just a thoguht but it might work out and probably the best option to buy you some real time...

Miss_Yell_2

Thanks jlfrs,

I really appreciate your input. Sadly, the rental value is so much less than the mortgeg interest only repayment.

I have now tried to get a payment holiday, and have been advised that I have to go into arrears before they can put anything in place! They won't cancel my direct debit though, and the bank has said that though they have stopped it for me, if the Bank of Scotland try to take the next payment (which they have said they will) we shall get a charge from the bank and a charge from the Bank of Scotland. It just appears to be a no win situation!
Once we are in arrears (with charges!) we apparently can have two months of paying half the mortgage but obviously then have the interest to pay.

Oh, I just wish we could win the lottery!

Doesn't everyone on this site!?

Perhaps I should try buying a ticket!

rothers

Thanks for the reply, I feel for you, I really do! Hope you work things out!

Miss_Yell_2

Thanks Rothers,

Isn't hindsight a wonderful thing!

When we took out the mortgage in June 2007 all we cared about was a good interest rate! We didn't take in the small print!

If only we had known how the interest rates would fall! We were so scared they were going up. At the time the 5.49% was a great deal!

Thanks again.

kazd

If you are in financial difficulties you won't be able to get a payment holiday as a holiday is not arrears bearing ie its not reported to the credit agencies. In addition you would normally be expected to have six months full on time payments before a holiday would be granted.

What you need is to get a concession where you pay a reduced payment but this is arrears bearing and would get reported to the credit agencies. If you get a concession they should put you on an arrangement which should stop any further arrs charges being added to your mortgage. (Normally these arrs charges are added to your capital balance - therefore if you incurr them you will pay interest on them for the term of your loan. An arrs charge is normally added if you do not meet your monthly installment in a calendar month, its vital that you make the payment in the month its due. If you have a direct debit set up to pay your mortgage and it bounces you could also be liable for a failed dd charge on your mortgage, again this gets added to your capital balance.

What your mortgage company should do with you is go through a full statement of means (income and expenditure) and then based on that come up with an acceptable figure based on your disposable income. If you do not have any disposable income then they could possibly agree to a nil concession for a month or so in the hope that you can rent or sell. Most mortgage companies won't let you go much more than 3 months down before it goes to pre-lit.

Your credit file will not be affected until you are a least one month in arrs. Quite often the advisors hands are tied until you actually go into arrs but they would normally want you to be able to meet your mi and then split the arrs over several months to catch up.