Negative Equity Options

gaz2180

Hi all,

I've trawled for a while through the site looking for someone in a similar position to me and haven't found anything yet - apologies if I've missed something.

Some quick info: my wife and I own a one bedroom flat and had the pleasure of using a Northern Rock Together mortgage for the purchase. Using a mortgage statement from last quarter, we owe £139k on the mortgage part and £29k on the unsecured part. The flat would probably sell (based on the one below us which is identical and sold 2 months ago) at about £130k. Excluding fees etc this leaves us in NE of £38k. Our monthly payment is currently £794 and we are out of our fixed period and currently on the SVR of 4.78%. We have no problems meeting the repayments. We've never missed a payment.

The £29k unsecured loan would stay with us (with an increased interest rate) if we sold the flat.

However the problem is with the £9k mortgage shortfall.

We have no savings and we already have other loans and credit cards which are preventing us from getting a loan to cover the shortfall.

We need to sell because of an expanding family and our flat simply isn't big enough. Our families can't help us with the actual money but they have given us use of a 3 bedroom house rent free.

I don't want the hassle of renting the flat out.

So I'm wondering whether Northern Rock will firstly let me sell? And if so, would they let us arrange to pay the £9k shortfall back? I've worked out the unsecured loan part would be about £300 a month so we could pay £500 a month towards the £9k shortfall. We just don't want it affecting our credit negatively? We have no arrears or financial difficulties (other than getting more credit). We don't want to worm our way out of paying - we're more than happy to pay back what we borrowed, we just want to know if anyone else has successfully done this?

I look forward to hearing from someone.

Flyboy152

What is the problem with letting the property?

The negative equity is nine thousand pounds, the rest is just a loan, I presume it was a way around the LTV problem.

Most mortgage lenders will restructure the debt, to take account of it no longer being secured and will probably lump it in with the remaining twenty-nine thousand pounds. You will most likely be charged the same loan rate as the current unsecured element of the debt, all of which will very much depend on your credit scoring.

gaz2180

I guess if we're having to leave the flat anyway I'd rather just forget about it and not have to worry about arranging agents/tennents etc.

Obviously would do it if it was the only option but I'm hoping NR will see that we are willing to pay the shortfall back so would hopefully agree to the sale.

I'm hoping they'll do what you've said though and lump it together with the unsecured loan. I was just wondering if anyone has actually had success doing this? And if it would be seen as a repo or anything like that?

Flyboy152

Letting a property can be relatively "hassle" free. It can solve the problems you are facing and might even earn you a profit. If you find an agent and elect to go for full management, you just leave it and let them look after the property. However, in most cases, single property landlords tend to prefer to manage the property themselves, it is cheaper that way and they remain in control. After a while, the property might gain value, negating your negative equity issues, allowing to pay off your debt even sooner. Freeing up your resources to purchase again.

Your best bet is to discuss this with Northern Rock direct. Only they can answer your question for certain.

gaz2180

Will give them a call tomorrow.

Thanks for the speedy advice!

maninthestreet

As you have no savings for a deposit, you can't buy another property even if you weren't in NE. So renting out the flat isn't going to help.

Flyboy152

The OP has been given the use of a three bedroom house for free.

reviewbyme

Did you get to speak to Northern Rock?

Don't forget you may also have an early repayment charge or help with costs to pay back also, which will increase the amount of the shortfall. (in addition to estate agents and solicitors fees)

Any Shortfall may be charged at the standard variable rate - 4.79% - but as you know the unsecured loan could be increased up to 8% ABOVE the svr.

In saying that it sounds like you may be asked to fund the shortfall as you are not at risk of loosing your home.

Engeroosi

Rent out the flat for what you can then Overpay what you can while your rent free, that way in 2-3 years you will have less mortgage/loan and the flat should be worth more than what your in debt.