Negative Equity - Possible way out?

Yellabowley

Morning all,

Firstly I have searched for this but with the site being so busy these days it's hard to be sure this hasn't been posted somewhere already, apologies if that's the case.

I thought i'd share something i've just heard for opinions and in the off chance it may help someone.

Our situation is as follows: We remortgaged two and a bit years ago. The credit crunch was forecast to get worse so we did the sensible thing and took out a cheap 5 year fixed rate to ride it out. A month later the Bank of England slashed their rates and our cheap deal was no longer cheap!

Circumstances changed unexpectedly in the form of an ill child and a resultant need to relocate. We now find ourselves in this situation:

Current house value: £178000
Mortgage Balance: £167000
Mortgage Get Out Fee: £6000

Unfortunately the house is on the market at £170000 and isn't selling so we thought we were stuck as we have no extra cash to cover the shortfall. But then my sister (a chartered surveyor) and my aunt (works for a large lender) suggested reducing the price as the mortgage company may agree to lose some of their interest rather than risk a client going bankrupt.

Apparently it works as in my example I have so far paid the mortgage company around £25000 in interest alone. Obviously if the mortgage company had kept the money rather lend it to me and (for the sake of numbers) earned 2% interest on it over two years they would have gained around £7000. This shows a profit of £18000.

So what I was advised to do was if I received an offer of say £157000 for my house, go to the mortgage company and tell them the situation. The correct departments have the power to say "OK give us £157000 and we'll call it quits" this includes writing off the early repayment charges. After all this eats into their profits but saves them having to repossess the house and potentially lose more.

Unfortunately I haven't yet received an offer of £157000 so I haven't been able to test this, and I apologise for my maths being a bit crude, but I hoped that if others were struggling but turning down offers as they thought they couldn't afford the shortfall then this might just help.

As always the lender could just say no but it's got to be worth a shot.

All comments are welcome especially from those who can either clarify or disprove what I have said. I'm not an authority on financial matters and wouldn't want someone taking the above as gospel.

clutton_2

are there other reasons, other than the mortgage, which are taking you down the bankruptcy road - or are you trying to use this as a device to not pay off the full outstanding loan ?

Annisele

Yellabowley wrote: »

So what I was advised to do was if I received an offer of say £157000 for my house, go to the mortgage company and tell them the situation. The correct departments have the power to say "OK give us £157000 and we'll call it quits" this includes writing off the early repayment charges. After all this eats into their profits but saves them having to repossess the house and potentially lose more.

Unless there are other things pointing towards bankruptcy, if the bank agrees at all it's far more likely to say "give us £157k now, and we'll convert the remainder of your mortgage balance to an unsecured loan over x years at y% interest".

If the bank does agree to a proposal of "£157k and we'll call it quits" (which I think is highly unlikely unless there's no way you'd be able to repay an unsecured loan), then it will do your credit rating no good whatsoever.

Yellabowley

Just to clarify, I'm not personally looking at bankruptcy, I just can't sell my house and have no extra funds to cover the shortfall. It may be that if I try the above they'll means test me and say no.

From what I have been told it's a case of the lender effectively agreeing to settle the loan by adjusting the terms retrospectively and therefore convert some of what you have already paid from interest into capital. It then becomes a case of simply paying off what is owed and your credit rating is unaffected.

Too good to be true? Probably yes. But for someone whose alternative is bankruptcy then it's another option. We're actually trying to rent it out as well which is the obvious alternative to selling.

mbga9pgf

Chancer. You bought, the mortgage lender never forced you to buy. Pay back what you promised you would pay back. Decent hardworking mortgage payers have to pay for your profligacy.

olly300

Yellabowley wrote: »

Just to clarify, I'm not personally looking at bankruptcy, I just can't sell my house and have no extra funds to cover the shortfall. It may be that if I try the above they'll means test me and say no.

The lender would probably be happier giving you a loan that could take you all your working life to pay back.

After all £16,000 is not a high amount to get someone to pay back over 25 or more years.

JQ.

You have to be joking. Did your sister and aunt understand the question you asked them?

The outstanding balance of £167,000 is the capital you owe the bank. The interest you have paid to date is the interest for borrowing the money over the period you have had the mortgage (in the past) - it's not profit, it's the cost of borrowing the money. They will not let you walk away from what you owe them, which is £167,000. If you sell for £157,000 they will chase you for the outstanding £10k, assuming they let you sell at £157,000.

Why don't you sell me your house for £10,000 and get the bank to write-off the debt and I'll give you a brown envelope with £50,000 in it once we complete. Everyone's a winner.

Yellabowley

mbga9pgf wrote: »

Chancer. You bought, the mortgage lender never forced you to buy. Pay back what you promised you would pay back. Decent hardworking mortgage payers have to pay for your profligacy.

I had forgotten why a lot of people hate this site. But it didn't take long for the 'holier than thou' brigade to rear their ugly heads. You are unhelpful in the extreme and drag this forum down. Please don't post if you're not going to be helpful or constructive.

I'm trying to offer an alternative, and at that one which eats into the profits of the lender. If that lender chooses to pass this loss of profits on to borrowers then the borrowers will go elsewhere. If this prevents one person going down the IVA or bankruptcy route then that's better for everyone.

As for me I have never defaulted on a debt or failed to pay back what I owed on anything. People like yourself have to realise that there are people out there who end up with financial problems through very little fault of their own. Unexpected job losses, illness or being defrauded. Not everyone has borrowed beyond their means with no intention of ever paying it back. Maybe I should have insured against my child being born with a life threatening illness that would bring about the need for my wife to give up work and have to sell our house in the middle of a recession. Sorry but I missed that one on the comparison sites.

I now work every hour God sends in a world where overtime is non-existent. Did you enjoy Christmas with your family? I was working Christmas day. I hope you have a good night tonight. I start a 10 hour shift in 4 hours. I apologise if I don't fit your criteria for a decent hard-working mortgage payer.

Think before you decide to belittle people.

missile

.... your sister is a qualified chartered surveyor <LOL>

papermoney

This is my experience (in July 2009) I needed to sell my property because at the time i'd just moved into my husbands property (we'd just married) and there wasn't any point forking out 2 mortgages and mine was the higher mortgage but smaller house.

I owed £135,000 mortgage
Then had £6000 redemption
so all in all £141,000
The house was valued at £125,000
I spoke to my mortgage company explained the situation, I could afford the mortgage payments but I was then on maternity leave and planning on going back to work part time.
They agreed that I could sell the property for less than the mortgage (which I did so at 120k)

They then reverted the 15k I owed them into a unsecured loan based on their current standard rate. At the time we worked out an agreement where I pay back X amount over 5 years and it covered the whole amount (minus the redemption because I didn't have to pay that unless I paid the whole amount back before June 2012)

Since speaking to them again they have told me that if the above happens from July 2010 then the remainder is now calculated over the remainder term so in theory I could now pay less but over 26 years.

They wouldn't let me off not paying back the shortfall (and why should they?).

I have since tried negotiating with them over the shortfall and offered 8k (now owe 12k minus the redemption) but they turned me down so I used the money to pay off some other debts instead.

So in short from my experience they probably would let you sell for less but they would enter some agreement with you over the shortfall.

Yellabowley

JQ. wrote: »

You have to be joking. Did your sister and aunt understand the question you asked them?

The outstanding balance of £167,000 is the capital you owe the bank. The interest you have paid to date is the interest for borrowing the money over the period you have had the mortgage (in the past) - it's not profit, it's the cost of borrowing the money. They will not let you walk away from what you owe them, which is £167,000. If you sell for £157,000 they will chase you for the outstanding £10k, assuming they let you sell at £157,000.

What they're saying is that the interest I have paid so far is not what it cost to borrow the money. What you're saying is that them lending me £167000 cost them £25000. What I'm saying is that if I were to pay it off at £157000, then in total I will have given them £182000 pay back from an initial loan of £169500.

In other words they've lent £169500 over two years and get back £182000 which equates to (unless I'm wrong) 3.5% a year. It might be that this would work purely because I've been stuck on a high interest deal for two years and the mortgage companies would have no room for manoeuvre for people on good rates.

Just another point, the reason I asked family was because the mortgage lender said that if I received an offer lower than the mortgage value to ring them and they may be able to accept it. It could well be that they offer to convert it to a loan. I just want to make sure there aren't people out there who might be declining offers to buy before consulting their lender thinking the offer is too low.