Stuck with flat, don't know what to do

145dude

Hi,

I purchased a flat at the peak and paid £135, borrowing £120k (I'm 37 years old).

My mortgage therefore was in the region of £760 per month (fixed rate expires Oct of this year)

I now live (with my partner) and work in a different part of the country and am "saddled" with the flat. We met only 6 months after I purchased my flat (typical!).

I tried to sell it a year ago unsuccessfully and even if I had, I would have just had enough to pay off the mortgage and I would have lost the money I put in as the deposit.

At the beginning of this year I rented out the flat and changed from the mortgage from repayment to interest only. Even then, I have to subsidise the rent slightly to meet this mortgage payment, then of course there are additional costs, e.g. ground rent, maintenance fees.

I'm unsure of what I should do next. Should I try and sell again and cut my losses, or should I try and think of the flat as a long term investment? I don't have enough disposable income to pay a decent amount into a pension AND pay off the flat (i.e. a repayment mortgage) and associated costs.

This of course also has a bearing on being able to (or not) buying any other property in the short, medium and long-term future!

pingu2209

You say you moved to an interest only payment mortgage. Did you tell the mortgage company that you were no longer living there and are renting it out?

Also, as you are already subsidising the mortgage as the rent doesn't cover it, what would happen if for some reason you do not have a tenant or have a tenant that does not pay?

If the answer to the last question is 'I would be up the proverbial financial !!!!!! creek'. Then I would suggest you can't afford to be an accidental landlord and you would be better off cutting your losses.

Start again.

kissingthepink

Just keep renting it out and paying the insterest only on the mortgage. Why sell now if you are going to lose money?

brit1234

Better to sell now before prices fall further.

RedSoleShoes

I think you should hold on if you can. Not sure what part of the UK you are in, but my flat (S.East) went to negative equity last year, and is now just out of it. The prices are definitely rising in my immediate area so I'm going to hold on a bit longer.

I presume you have been keeping check of the prices so you should have some idea of whether it is picking up or not.

If you can cover it a little longer, I would take the chance to try and claw some of your money back.

Unless you are having major financial issues right now, worry about tenants not paying etc if that happens. There are some honest tenants out there.

C_Mababejive

It sounds like bad news and probably is.

Such flats (once known as apartments) are and will be the social housing of now and the near vfuture thus making neighbouring flats unsaleable.

HAMISH_MCTAVISH

With prices climbing rapidly over the last year, it won't be long until previous peak is reached and exceeded.

And with rents also rising, holding for the long term is the smartest thing to do.

Pitlanepiglet

I did something similar in 1989 and found myself in negative equity in 1991 when I needed to move to a new area for work. I couldn't sell as despite putting in a 25% deposit I was in negative equity and I couldn't plug the gap.

I kept mine, let it the whole time (give or take a few months) and finally sold in 2007 as the market crumbled out from underneath me (just got shot of it in time!) and I made a decent profit (although you have to factor in CGT obviously).

Only you can make the final decision but keeping it may be an option although it won't necessarily be easy.

poppysarah

LHA rents could be in line to be massively reduced. Also jobs. The deficit is going to cause a lot of belt-tightening. I suspect everything is going to be hard for a long time.
I'd sell - the having to top up an IO mortgage is insanity.

145dude

Thank you every one for the replies. A mixed bag and all reflecting the scenarios I've been thinking through myself.

I should have provided a little more detail, it's a 1 bed flat in the South East and definitely a first time buyer kind of place, which is against me as I cannot see how any FTB could possibly get a mortgage right now or the immediate future. Property prices have risen in the area however unless FTB can get mortgages it's kind of a moot point I think.

It's true, topping up an IO mortgage is unfortunate, but if I were to try and sell I don't even know if I'd get enough to pay off the mortgage (it'd be a couple or few thousand at most, but still), let alone worry about seeing any of the deposit I'd put down. Hence the dilemma. Do I revert to repayment, put the money I'd normally put aside for a pension towards to the mortgage payment or cut my losses and lose the £15k (plus all the additional £ I have used, mortgage payments thus far, etc).

I don't know if I'm throwing good money after bad or whether long-term it'd be worthwhile. Plus regarding the comment about the ability to cover the mortgage if without a tenant, yes, I could do this (it'd leave me quite short!), but it would feel like throwing more money at the flat that I am already "subsidising".

property.advert

People are missing the important numbers here. 120k mortgage on 135k flat but costing £760 a month, deal expiring in October. I see an implied interest rate of 5.8% (120k over 25 years repayment).

Initial deposit was 15k or 11.1% so the high interest rate reflects the high LTV (89.9%).

The question is what happens after October ? If the rate on the mortgage reverts to a better rate, as I suspect it might, then the repayments would fall. However, if the OP could pay off some of the balance, then he might be able to get a better rate. The amount, property price in October etc. all come into play then.

I would keep it on an interest only mortgage and concentrate on getting the best deal I could in October and look at paying some of the capital off. The worry of course in this is that the rental income seems low relative to the mortgage. I would see whether the OP is truly getting market rent.

Getting out of this property and into another one has significant costs and I think the continued risk of retaining this property is lower than getting out and starting again.