Mortgage Help for debt

davie987

Hi

I am writing on behalf of my parents as they are in need of some financial help.

Basically having joined the family business 3 years ago (due to a number of problems back then) it has emerged that during the difficult times they built up a lot of credit card and unsecured debt to keep themselves and the business afloat.

They at present have around £70-100,000 in loans/credit cards - all with interest rates over 18% (a few being 22-24%!). Their business is now doing a lot better but they are presently drawing about 70-£75,000 each just to meet their mortgage, minimum payments/costs of living.

Their house (purchased back in 2007 for £455,000 and have spent a good £40,000 in renovations) - and was a good price. This should be worth £500-550,000 even in this market.

Their current mortgage is £360,000
They are both in their mid 50's
Currently they are on a fixed mortgage through Nationwide i believe (i think its part repayment and part interest only)
They are due to come into some money in the next few years to clear their mortgage so an interest only route would be best

Any advice would be really appreciated as its worrying them but I dont think they see any ways around this.

Cheers

Conrad

Firstly the valuation must be accurate. I can tell you my day to day experience is EVERYONE over estimates thier own value - indeed reading your comments is like dejavu.

Prices have fallen about 20% in nice popular middle class areas.

As for advice - there is vastly more information required - for example are those earnings to be confirmed as net profit or profit plus salary plus dividends, by a fully qualified Accountants?

Are those earnings demonstrable for 3 years, 2 or just the 1?

Do they want interest only?

What term?

If the term goes into retirment, have they documentary evidence of retirement income?

TBH, I've only scratched the surface - many many items need resolving - will all debts be cleared for example, or just some, and if its only some of them - what will remain?

davie987

Hi Conrad

Thanks a lot for the quick reply firstly.

Further to your comments:

Firstly the valuation must be accurate. I can tell you my day to day experience is EVERYONE over estimates thier own value - indeed reading your comments is like dejavu.

Our industry is actually in Property and there is a house up for sale at present next door to theres on a significantly smaller plot for £575,000. The house they have is a 4 bedroom bungalow and has quite a lot of land in a very desirable village where very few properties come up - so I dont think the price has dropped quite as vastly as in many areas.

As for advice - there is vastly more information required - for example are those earnings to be confirmed as net profit or profit plus salary plus dividends, by a fully qualified Accountants?

In terms of what can be prooved, it is put down on their taxable drawings and is fully documented. The business type is Sole Trader and my mum is employed. It has been established 20 years and she has worked for him for 10 years.

Are those earnings demonstrable for 3 years, 2 or just the 1?

To be quite honest, this has been going on for a few years so I would imagine this could be shown for at least a year at this figure.

Do they want interest only?

I think at this stage interest only would suit them better

What term?


If the term goes into retirment, have they documentary evidence of retirement income?

In terms of documented income they dont - they are due to come into some money from a relative that will clear their mortgage however. I know they have a pension of sorts but I think they would ideally like to retire whilst still drawing a salary from the business or sell the company.

TBH, I've only scratched the surface - many many items need resolving - will all debts be cleared for example, or just some, and if its only some of them - what will remain?

I believe all the debts will be cleared yes. Im really just trying to get to the bottom of it all myself but dont know what options are out there.

Conrad

Davie,

I too live in a very desirable leafy village, in the South East with amazing highly sought after schools etc, but definitely the prices are 20% down. That doesn't stop villagers trying for unrealistic prices, but they don't sell.

I don't say this to be obtuse, just the fact I'm quite tired of people telling me thier valuations, and without exception the official valuation comes in lower.

Lets assume your valuation of £500,000 is spot on though.
There are options up to 90% thus a £450,000 mortgage but they will have to demonstrate an income (after debts accounted for) of somewhere between £100 - £150K pa.

Self cert is not an option over 75%.

My gut feel based on limited info is that they won't be able to remortgage, but by all means try. Any underwriter now will be spooked by all those debts and consider the application to be high risk in the sense those debts could escallate once more. Removing the debts is all very well if the whole picture makes sense.

As for comming into future monies - that will count for nowt. Lenders deal in cold hard certainties only.

Please feel free to ask further questions, but in the end they will only find out by applying.

davie987

Thats fair enough and I would rather live in the real world!

I appreciate your honesty and I think we will just have to apply and hope for the best.

I think they could show an income of £100k+ for the last 3 years with consistant loan repayments.

The other option is whether to consider a business loan. The company is doing a lot better than it as 2/3 years ago (after costs/wages should make in the region of £100,000) and we opened another branch this year - so its whether that would be a more feasible route. The main objective for me is to cut these crazy APR rates down!

I can also understand their reasoning behind the money inherrited - however they may actually be able to get this earlier if needed but its very much a 'last option' in my eyes.

Conrad

Commerical finance is of course difficult at present - I must come accross a bit negative with all this gloom, but just trying to keep it real.

Thier own Bank would be the first port of call, but they may want copious security in any event.

Good luck

davie987

No, your advice is appreciated - anything at this point I regard as a positive step forward.

Well our accounts show a profit after all wages for last year of £60,000 and this year will be in the region of £150,000. We had a business loan a few years ago of £60,000 which we cleared in 2006 and our bank has offered us borrowing in the past few months if required so maybe its something we should consider.

Trollfever

House say £460k

Mortgage £360k
Debts say £100k

Equity £0

davie987

To be honest, I think at £460k it would be a very very conservative estimate but im not experienced with mortgage valuations - only on 1 property.

I think it would be a very minimum of £500,000 - a developer was in the process of buying it to put 4 properties on just for the land however my parents knew the owner and got it for the £20,000 less than they were paying. It was a good deal. I appreciate valuations are difficult to guage however and mortgage companies will use several variables.

Trollfever

House £500k

Max LTV @ say 80% £400k
Existing mortgage £360k
Equity £40k

Debts £100k
Shortfall £60k



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davie987

lol thanks for that