Is there a solution? Advice Please

polarbear79

I am looking for advice regarding my house predicament. I can see now that our position is probably due to a series of poor decisions made when I was younger and certainly did not see the current economic and house market.

I bought a house in Aug of 2004. Great place which a loved, a little quirky coach house which has made it difficult to value. Bought it for 137,500. Professional status but first time buyer. Companies were mad keen to give me a 100% interest only mortgage. OK OK I see now but there we go, mistake number one, lets put it down to naivity of youth.

Fine no problems but then interest rates started to raise and in about 2005 I managed to find a discounted mortgage with my bank. 2% discount. They wanted a higher lending charge which I just thought was standard with these things and they were more than happy to value the place at 148000, and give 90%ish loan to value. This I think were mistakes 2 and 3. Now owed £141,000 interest only.

Then 2007 promotion. This means leaving the house and moving several hundred miles away. Buildling still going on, on the estate which means great amenities but also brand new houses every month. House prices not raised much above £144,000, therefore we opted to hang on and rent the place out. Have a letter of intent from the bank so therefore did not need to change to buy to let mortgage. Mistake 4 should have got rid when had the chance.

Had Tennents in most of the time and been able to charge for most of the mortgage and made up the short fall. Occasionally without Tennents which eats though savings very quickly. Then Credit Crunch hits. This has actually helped us in the short term as the drop in interest rates has made the mortgage very affordable, especially in a time where we needed to save for other things. Mortgage payments are about £486.

The problem is this place is now a ticking time bomb. It is affordable now but when the interest rates hike back up again it is going to bite. We cannot get a new mortgage anytime soon as they are looking for 25% deposits and we are not in the position to put forward anything like that.

Getting rid of the place is not a favourable prospect either. The latest estimate put it at £116,000, a £25,000 negative equity.

We are currently living in a very nice flat owned by a friend which is very reasonably priced.

The Bank have offered to fix the mortgage at 6.29% for five years (repayments at about £739 interest only, £900 for capital).

We cannot up the rent much more as the rental market is saturated with people who are desperate to rent out and is therefore quite competitive and some tennants is better than no tennants

I am finding it difficult to decide which way to go, i.e. which way will loose us the least.

If anyone could help with the dilemma or has any bright ideas then they would be much appreciated. I suspect there are many in my boat. Finanical advice so far has been unhelpful apart from the obvious, 'you're pretty screwed'.

Sorry for the long posts, and for making those more financially savvy shudder at my mistakes, I can promise I have learned my lesson.

Thanks for your time

S