Mortgage payment difficulty advice

incogni2

Hi,

We took out a mortgage for £236,099 with Nationwide in June 2008. The mortgage is over 25 years, fixed for 5 years at 6.23%; 95% LTV (i.e. 5% deposit). The current monthly payment is £1554.56 per month.

This means that we have made 7 payments so far, totalling £11,947.55 (due to a higher first payment than the standard) of which £9458.22 has been interest, leaving a balance of £233,609.67. (So little paid toward the capital!)

My wife is in regular employment at approximately £45,000 per year. I work through my own limited company (basically a one-man consultancy vehicle) and our accountant certified my earnings as £15,000 per annum (which, at the time, I viewed as remarkably stingy but now looks worryingly optimistic). Anyway, we were confident that we could meet the repayments even though it was a 50% increase over what we were paying as rent.

Unfortunately, though my wife’s job remains as stable as ever (and is almost certain to continue to do so), I have been unable to find further work since my last contract ended in October. In reality, I grossly underestimated the worsening economic and employment situations. I felt that because I had always found it relatively easy to find work in the past and with a strong client-base, there was little reason why I couldn’t continue to do so. Even if the opportunities were to diminish, they surely wouldn’t dry up entirely!

My wife reckons that we are currently living at about £700 per month beyond our means (financed almost entirely from credit) and obviously some radical cost-cutting surgery is imminent. I was hopeful, having read about a new attitude from lenders toward borrowers in difficulty, that we might be allowed to shift to interest-only payments for a few months which, coupled with substantial personal economies, might allow us to at least break-even while I track down a job.

We spoke to Nationwide and, firstly, we can’t go interest-only (due to a high LTV and other more technical reasons). However, we can ask for a “concession”. Basically, this would be a continued reduction in the monthly payment for an agreed period. So far, so rosy. If we complete and return an account of our expenditure, they will consider the concession. However, if at any point the total, rolling concession adds up to the same amount as our standard monthly payment then it will be recorded on our credit files as arrears. Lastly, once the concession period has ended, the amount conceded must be repaid again to an agreed schedule (6-12 months was suggested).

This appears to mean that we could ask for a £500 per month reduction for 3 months without arrears being recorded (and have to pay back the £1500 thereby ‘lost’ to the lender over the following 6-12 months) or, equally, a £250 per month reduction over 6 months.

I’m assuming the arrears being recorded on our credit files is not a good thing? (And such a strong negative would be like torture, albeit a mild form, given the effort spent correcting the data before we applied for the mortgage in the first place.)

Even if I get a contract, I probably won’t see actual cash for two months, so the first option would only give me about a month’s clearance. The second option might be more realistic but £250 per month doesn’t seem like enough of a reduction to enable our credit cards to stop flexing (our current utilisation is around 50% but only because the damn companies keep putting the limits up whenever they are approached). What happens if I still don’t find work – do I just plunge into arrears hell? Certainly, I’d expect to find work soon but, given that previously I expected to find it instantly, I not currently keen to rely solely on my judgement.

Clearly I’ve rambled on here and not asked many questions but I just wondered if anyone had any views as to the leniency and suitability of the lender’s solution and the possible credit-worthiness related effects?

Thanks.

noh

Although its not the sort of answer you are looking for.
One temporary solution is to get a job or two doing anything whilst still looking for a contract in your preferred line of work.

poppy10_2

Your options are very limited.

You can't switch to another lender as you are almost certainly in negative equity by now.
You can't go interest-only for the same reason, and also because of your short history with them.

The other option to reduce your mortgage outgoings is this concession they have offered you, which is essentially just "authorized arrears", without the monthly arrears charge being added. This might save you money in the short term, but you have to think long and hard about your prospects for employment over the next year. The recession is just starting, if anything it's going to get worse over the next 12 months. There's no point taking the concession and building up arrears if you have no realistic way to make the full mortgage payments when they go back up in a couple of months time.

£700 a month is a huge gap between what you are bringing in and what you are spending. You may have to get another 9-5 job, or just accept you can't afford your current house and lifestyle, and downsize.

I'd recommend posting on the DFW board - you'll get excellent advice particularly on cutting your outgoings and avoiding the use of expensive credit cards to fund day to day living expenses.

uzubairu

noh wrote: »

Although its not the sort of answer you are looking for.
One temporary solution is to get a job or two doing anything whilst still looking for a contract in your preferred line of work.

Have you worked at all since your contract ended in October?
Is the £700 gap due to the fact that you are not working at all?

Have you looked at the grocery retailers (Asda, Morrisons, Tesco etc), to see if you could get some work quickly, as they are always recruiting.
Even part-time, you could generate £300/£400 per month.

If I was in your postion, I would do anything to bring in regular, extra income.

Definitely look at the Debt Free Wannabe forum for advice and support.

Good luck.

beecher

You need to post a Statement of Affairs on the Debt Free Wannabee site and find out where you can make cut backs to your spending. Your mortgage must be taking up about half of your monthly salary so you need to look at where the other half is going. Get rid of Sky/gym membership, cut back on (stop) eating out/holidays etc. £700 is a big gap though so something else will have to go, or you will have to get a part time job to tide you over. Best of luck.

SouthCoast

Advice from CAB on mortgage arrears:

http://www.adviceguide.org.uk/index/whats_new_jan09_help_for_struggling_homeowners_england.htm

paulsin

As previously stated. It may not be what you want, but 15k should be accessible with a selection of other jobs, even though they don;t appeal to you. This is not a comment on you or your personal circumstances, but far too many people are just not willing to work to keep their house. When I was younger my Parents worked day and nights alternatly as they didn't have a lot of money. It wasn;t anything out of the ordinary as many people did it then.

You could earn 15k stacking shelves at night. Its not ideal, but its moeny and it just depends house much you want to keep your house.

What ever you decide to do, keep in regular contact with your lender, should the worst case happen and you be taken to court, this will be looked on favourably. Good luck with what you decide

Miggie

Could you take in a lodger?
Good luck - I do hope you find a way through.

beecher

incogni2 wrote: »

Hi,

I’m assuming the arrears being recorded on our credit files is not a good thing? (And such a strong negative would be like torture, albeit a mild form, given the effort spent correcting the data before we applied for the mortgage in the first place.)

.

This part springs out to me as it suggests that there have been problems with credit in the past, before you took on the mortgage. Apologies if I'm wrong here but it does suggest that you need to look at this in a wider context rather than only focussing on the mortgage. The DFW forum is great for that and will maybe make you look realistically at your finances.

Radiantsoul

Mortgage companies are unlikely to be too forgiving regardless of the climate as offering any kind of payment holiday will seriously jeopardise their equity.

Your wife's post tax income should be around £2700 per month which should leave you with £1200 to cover bills, food, insurance, and other costs. That strikes me as quite a lot and you should consider why you are running up £700 per month. It might be you haven't adjusted your lifestlye towards your lower income and the costs of a mortgage.

Probably any help the mortgage company give you is going to be costly as interest is accruing at quite a rate. Your options are;
1. Sell, accept a possible loss of £10k-£20k on the property which will be offset by a £500 reduction in housing costs. Plus house prices are likely to decline further.
2. Reduce your expenditure.
3. Increase your income. Your current business seems only marginally viable at the best of times, a profit of £15k is relatively marginal with full employment. With no work available you have no scope to increase prices and no costs to cut. In my opinion you need to figure out a way to generate higher profits if you are going to carry on once customers do return. As other have said you could earn a similiar amount in retail and your income would be more certain.

incogni2

Thanks for all the advice.

noh

Of course, you are right. As long as no qualifications are required (I’m an IT Professional) and the work wouldn’t impinge upon my ability to seek more desirable employment. I’m currently fielding about 10-15 calls from recruitment agents per day (all of them useless) which is almost like a job in itself.

poppy10

Unfortunately, I hadn’t realised previously that interest-only wasn’t an option (although I was made aware of this when I spoke to Nationwide).

You say “There's no point taking the concession and building up arrears if you have no realistic way to make the full mortgage payments when they go back up in a couple of months time.”

I suppose it seems like the opposite to me: faced with arrears now, or beginning in six months’ time, I may as well take a punt on my chances of getting a job in that period while the arrears are authorised. I had hoped that the bank would offer a more flexible solution, however.

£700 per month may seem like a “huge gap”. In reality, it is the inevitable result of losing an entire wage combined with a lifestyle predicated on that income. Unfortunately, a certain amount of that ‘lifestyle’ may involve commitments which it is difficult to adjust to fit, hopefully temporarily, reduced means. I may get another contract tomorrow (in which case, there is no obvious problem); I may not get one for a year. What was essentially a ‘sure thing’ has become a guessing game due, perhaps largely, to the economic climate.

My wife will get a pay-rise soon but that will only bring in another £200 (net) per month. In the meantime, I don’t really want to reduce the debt (which, to me, remains manageable) but to achieve some sort of equilibrium before it spirals beyond control. Most current debt is currently on a 12-month interest free time-bomb and I’m hoping to find the means of disposal!

I think that everyone’s points are very interesting especially in the perceived relationship between spending and lifestyle. Previously, I have always spent what I wanted to spend and controlled my income to match those outgoings by seeking work as and when I needed it, relatively secure in the knowledge that it was out there. Now, for better or for worse, everything may have changed and those who clearly allow their income to dictate their spending are in a better position or, at least, a significantly more resilient one.

I am not minded to “accept that you can’t afford your current house” on the basis of 3 jobless months; it seems so overly dramatic. I am just trying to get a grip at a relatively early stage of ruin in order to slow down progress toward the latter stages (which, themselves, seem far from inevitable).

uzubairu

No, I haven’t worked at all in those three months and the shortfall is due to that. I haven’t been entirely idle though, considerable time has been spent refreshing and augmenting technical knowledge which might make my skill-set more marketable. Of course, while useful, none of that pays the bills.

I am frequently reducing my wage aspirations downward (they are currently a little more than half of October’s expectation). However, there is considerable downward pressure on wages (more correctly, daily rates) in the market within which I work. I have also moved location since I last sought a new contract and that has also diminished earning potential. Again, I am trying to readjust in terms of both location and market conditions. More than approaching the retailers you suggest, my dilemma is how far to widen my search. A couple of months ago, I was turning down opportunities which now I’d jump at because they were further than I wanted to travel. This was likely a miscalculation. However, the main questions remain, how far do I want (or am willing/able) to travel? Should I restrict myself to a car-based commute or consider the train? (At a push I could reach London via rail where, though slightly tarnished, the streets may still be paved with gold.)

Christ, I abhor the idea of a commute (I’ve spent the past eight years working from my home office) but I realise the necessity.

beecher

The mortgage is currently approximately 3/5ths of income. No gym, dining or vacations to cut back on but I currently spend £60.44 on Sky/Setanta per month. Obviously this is near the top of my list of potential savings but I’m worried that the lack would drive me into the pub to watch the football (which was the previous default state). My wife has been talking of opting out of her pension scheme to save £200 per month but that seems like insanity to me. Surely we should be cutting expenditures which wouldn’t be so long-term detrimental?

SouthCoast

Thanks for the link. The Homeowner Mortgage Support Scheme sounds really interesting and, to be honest, this or something similar but less formal was along the lines of what I was hoping the Nationwide would suggest. I don’t know if it is applicable to my situation or not (I’ve just read the Directgov link). Are there any more details yet?

paulsin

Perhaps “far too many people are just not willing to work to keep their house” but, like everything else, it has a cost and a value which is most obviously financial but not entirely. Perhaps the house is just not as elevated in some personal hierarchy of needs for some as it is for others. Personally, I wouldn’t countenance losing mine at this stage (it’s taken so long to get it) but, you’re right, what I’m willing to do is ultimately a reflection of how much I want to keep it. However, like many people I’d guess, I’d rather do the minimum I can to retain the property rather than go ‘above and beyond’.

My parents were/are not so different, perhaps, from yours (in attitude, at least, I suspect). They were actually ‘comfortably off’ but as a result of considerable graft. Due to commuting, I barely saw my father during the week and, for him, it was all about the ends justifying the means. However, I still feel a pang of resentment that such devotion absented him for so much time. I wonder if he feels that it was worth it or simply obligatory.

Miggie

Unfortunately, not enough room for a lodger. Thanks for your wishes. I remain bullish (or just over-confidant) about my chances.

beecher

I have had significant credit problems in the past, predominantly a CCJ which I waited patiently to be cleansed from my record. Nothing recent though. I was mostly referring to the trawl of the credit references agencies which I preformed in preparation for the mortgage application only to find a bushel of incomplete and inaccurate data on file. Mostly stuff like non-contiguous electoral roll information, a failure to link addresses which made it appear as though I’d spent most of my adult life with no fixed abode, incorrectly registered credit cards, credit agreements which been legitimately cancelled but subsequently appeared to be bad debts. It was frightening, all the more so for being mistaken. Correcting it took considerable diplomacy and patience in seemingly interminable communications with the agencies. It was all fixed over a period of months but the quality of service from agency to agency (Equifax to Experian for example) varied enormously and the level bureaucracy remind one of The Trial.

RadiantSoul

Wouldn’t a temporary payment reduction (without the threat of credit suicide) be in both parties interests? Their equity must already have been significantly jeopardised by the tumbling market though, obviously, further falls bring further damage. It seems, to me, that the benefits of reduction over the risk of default is significant and that a willingness to be flexible is likely to bring greater medium/long term reward. They did offer to extend the term of the mortgage from 25 to 35 years. However, the small benefit to me (a reduction of less than £170) was counterbalanced by a huge increase in the eventual sum paid in terms of interest.

It is true that a £15K profit makes the business appear only marginally viable, however that was the figure for the 2006-2007 company year which was the most recently filed at the time of application. The profit for 2007-2008 was £28K, though this year (which ends August 2009) is no longer looking fantastic. My ‘model’ (if one can call it that) has always been to increase income to meet spending which, although previously valid, is proving increasingly difficult to achieve. As I work in a services industry, I can modify the price of my services or seek to offer them more frequently. The former is broken because what was once moving inexorably upward is now being squeezed down (market flooded with other people in a similar situation) and the latter bust due to an abundance of supply (workers) coupled with a scarcity of demand (jobs). The control I always had, fictionally at least, has evaporated.

Who knows? Maybe there will be work tomorrow. I’m waiting on a promise from a recruitment agent. I’m always waiting on a promise for a recruitment agent...