Renting at a loss

kar-kier

I REALLY need some advice!

I currently own a property in Scotland which we rent out for £675 a month (get £600 in pocket once agent takes fees), and our mortgage is £730 a month! So, we are having to put £130 a month to it. We tried to sell the house a year ago (before letting), but it wouldn't sell. We got it valued again the other day, and it is only worth £120k, we have a mortgage of £130k :eek:. Add to this the fact we are now living in Australia!!

So what can we do? We can't keep renting it out at such a loss, and we can't make enough money by selling it to cover the mortgage! I just want rid of the house, but no idea how!

Any help/ suggestions would be VERY much appreciated!

princeofpounds

Ok, you can't 'get rid' that easily. You are in negative equity and a cashflow deficit which is a very serious situation to be in and could potentially lead to a bankruptcy situation.

Now that's worst-case scenario, but I want you to be clear about this because there is no easy way out of this I'm afraid.

First thing is to look at your mortgage. Is it fixed or variable? If it is fixed, when does it run out? And what rates are you paying? If you can get a better mortgage, you might want to try that (consult the appropriate board and article here on MSE).

If you cannot afford the mortgage now, at historically low interest rates (assuming it is variable) then you will be in serious, serious trouble if/when interest rates rise.

Try the DFW board here on MSE to maximise your cashflow.

Probably your best bet is to take advantage of the current relief rally and price the house for a sale. Hopefully your mortage company will allow you to move the debt that isn't paid off on to an unsecured basis. At least then you have a known liability.

This is because you are running huge interest rate and house price risks.
Your other option is to struggle along with the best mortgage you can find. You will bear any cashflow risks from interest rates and will be fully exposed to the price of your house going up or down. Given that interest rates are so low you may well find you get hit in both directions at some point.

silvercar

Sell the house and take an unsecured loan to cover the difference needed to clear the mortgage.

If the worst happened and you were unable to keep up with the unsecured loan repayments the lender may not put much effort to chasing you in Australia.

ILW

Put the rent up?

adouglasmhor

ILW wrote: »

Put the rent up?

And if it's protected or assured tenancy?

getmore4less

kar-kier wrote: »

I REALLY need some advice!

I currently own a property in Scotland which we rent out for £675 a month (get £600 in pocket once agent takes fees), and our mortgage is £730 a month! So, we are having to put £130 a month to it. We tried to sell the house a year ago (before letting), but it wouldn't sell. We got it valued again the other day, and it is only worth £120k, we have a mortgage of £130k :eek:. Add to this the fact we are now living in Australia!!

So what can we do? We can't keep renting it out at such a loss, and we can't make enough money by selling it to cover the mortgage! I just want rid of the house, but no idea how!

Any help/ suggestions would be VERY much appreciated!

Whats the mortgage rate? interest only or repayment?
interest only
£130k @ 6.75% £730pm
£130k @ 5.55% £600pm

If your rate is below 5.55% then rent cover the interets you are paying of capital with the rest so could let it run till values improve.

Might take a while though and at hte mercy of rate rises

kar-kier

Thanks for all your replies!

The current fixed rate ends in October, it is with the Chelsea, who have barely lowered their rates at all, and since I have a shocking credit rating I won't get a mortgage elsewhere - this also means I won't get a loan to cover the deficite amount.

I think that bankrupsty may be my only option. I have absolutely no savings/ investements/ property other than the house in Scotland. I have found companies that can help you make yourself bankrupt in the UK while living abroad, but all only apply to England and Wales - does anyone know about Scotland? May be worth noting that I also have about £20k of unsecured debt that is being paid by DMP, which I am also stuggling to afford.

Doozergirl

If silvercar's suggestion really isn't suitable...

Chelsea's current Stadard Variable Rate is 5.79% from what I can see. I've no idea what your fix is but if it is interest only, your payments should come down to £627 a month. If it is repayment then perhaps you should move to interest only.

Full management is also pretty useless from an agent and so if your tenanats are half decent then it's worth dealing with them directly and dumping the full management service. Frankly, for the little things, once the tenants have called us with a problem we let them get the work sorted themselves, send us the receipt and knock it off the rent. When we were tenants we also did the same with our landlord.

Managing agents will take a cut of everything and ultimately still have to run work past you and make you pay for it (really expensive from what our friend in London keeps getting bills for!). The fee is simply for being at the end of a phone line.

Doing that should turn things around for you so you're at least not making that loss every month.

jayss

What visa are you on in australia?

You need to check if going bankrupt will affect you being able to renew.

kar-kier

Doozergirl wrote: »

If silvercar's suggestion really isn't suitable...

Chelsea's current Stadard Variable Rate is 5.79% from what I can see. I've no idea what your fix is but if it is interest only, your payments should come down to £627 a month. If it is repayment then perhaps you should move to interest only.

Full management is also pretty useless from an agent and so if your tenanats are half decent then it's worth dealing with them directly and dumping the full management service. Frankly, for the little things, once the tenants have called us with a problem we let them get the work sorted themselves, send us the receipt and knock it off the rent. When we were tenants we also did the same with our landlord.

Managing agents will take a cut of everything and ultimately still have to run work past you and make you pay for it (really expensive from what our friend in London keeps getting bills for!). The fee is simply for being at the end of a phone line.

Doing that should turn things around for you so you're at least not making that loss every month.

Thanks for that. Chelsea make you have a buy to let mortgage, which is higher than their standard rate. With regards to the tenants, they are not great and I would seriously worry about them not paying.

kar-kier

I am currently on a 457, I will be sponsored for permenant residencey in 18 months time. I know that bankruptsy will have no effect on my visa application, so not worried about that.