Please help! Not sure what to do!

lobsta100

Hi everyone

Here is our situation..... I would appreciate any advice you can give:

We bought our flat in mid 2007 for £250k and managed to obtain a guarantor mortgage Interest-only fixed for 2 years with Nationwide at 5.34%. We were paying interest costs of around £900/month.

Once the deal ended we reverted onto the BMR of 2.5%. We have been on this ever since, as the low payments of £440/month were so attractive.

So unfortunately I have only come to the realisation that we are in a very bad situation recently. It is now almost 4 years later, we still owe £212000 on the mortgage (we paid a 15% deposit on purchase), which is obviously not decreasing.

The biggest issue is this - since we bought at the "top of the market" when lenders were not so careful, we were not advised of the seriousness of not having a "Repayment Vehicle" to pay off the mortgage at the end of the term. Instead, I somehow thought that selling the property was all you needed to happily repay.

So we are now 4 years later, with no capital paid off and no investment in place to pay off the debt.

Our flat has probably held its value due to the area of London we live in.

We have a young son of 2 yrs old and our flat is small. We would potentially have the space for another baby, but beyond that we would have to look to move.

I can only forsee that we have to stay put as long as possible as there is no way we would get a mortgage at the moment (I earn £35k and my wife does not work at the moment).

I guess my main worry is not having a Repayment Vehicle, which is now a requirement for our sort of mortgage. Is there any way for me to attempt to pay back some of the capital to reduce our loan on our interest-only mortgage?

I would appreciate any comments or advice you can give.

Adam L

dimbo61

Well the good news is that you are with a main stream lender on a great rate of BMR currently 2.5% or 2% above BOE base rate.
Now you can either contact the Nationwide and ask if you can pay off some of the capital each month or put savings into cash ISA,s each month which are paying more than 2.5%.
try and op or save so that when you want to move you will have a bigger deposit.
You have little chance of moving lender ( and why bother!) with a loan of 6X income and 2 dependants so wait until your oh is back at work GOOD LUCK

HarveyGal

You have realised you need to pay back the money borrowed - start to pay back some and it will lower your Loan to Value Ratio when you need another mortgage deal (on this property or your next). Check your mortgage Terms and Conditions - or ring your lender. You may be able to repay,say upto 10% annually without incurring any Early Repayment Charge, or it may be unlimited amount.

You need to look at your budget - what have you done with the money when your £900 a month dropped to £440? Can you afford to keep the payment at £900 a month and that would mean an overpayment of £460 a month - it all adds up.

Good Luck

Jonbvn

I hate to sound facetious OP, but you were hugely naive by taking out an IO mortgage with no repayment vehicle.

Instead of OPing the mortgage, I would suggest you save in cash-ISA's, which are giving a return higher than 2.5% (generally). You and OH can save GBP5.1k each per tax year.

originalmiscellany

my favourite signatures on here says something like:

"It's a big deal, it's not like you're just buying an ipod" or words to that effect.

It's all of our responsibility to read the fine print of the contract, even if it takes us a week of evenings to read through and understand.
When we sign up for a mortgage for 20+ years, we need to be clear what we're singing up to do.

I'm pleased you've seen the light and can hopefully progress from here with advice from some very wise people.
As Harveygal said where have the savings from your mortgage dropping from £900 gone to - £460 a month savings from mid 2009 could be as much as: 18 months at £460 = £8000 you could have taken off your mortgage and made a significant dent in?

At 35k salary, and a mortgage of 212k you have a mortgage to salary ratio of 6.05 - which is huge.

I think as other people have said the only advice we can offer is to pay off as much as you can, to lower your loan to value (value of house to value of mortgage) to try to get yourself a better deal when the interest rates inevitably go upwards.

It may be worth posting an SOA to see if friends of this forum are able to advise on any savings you can make - e.g. cheaper broadband/downgrading TV could save you £20 a month, which over a year is a saving of £240 - factor in a number of other cuts and these are certainly areas to be making progress in.

All the best

amancalledmartin

I think lobsta needs help, not a lecture. They've admitted they were naive. We've all made mistakes somewhere in our lives.

I disagree that a loan to salary ratio of 6.05 is huge. I actually think an awful lot of people are in that position and how serious it is depends a lot on your loan to value ratio, which admittedly doesn't sound great in this case. It does just mean a very close eye on what you're spending and try to put as much into the mortgage as you can to try and reduce it. Afraid I can't really otherwise add to the very sound advice already given here.

Really good luck with it. I hope it works out.

Queen-Bee_2

amancalledmartin wrote: »

I think lobsta needs help, not a lecture.... really good luck with it. I hope it works out.

I'd echo these sentiments and would also say that providing you can sit tight for a bit, all is not lost. You are, at least, on the property ladder. Many people can't even think of accessing it in your financial position.

You will however, need to 'cut your coat', and that means you'll need to make a few sacrifices along the way and trim your outgoings as far as possible... There are some great tips on the forum to get you going in this regard.

Eventually, property prices and salaries will start to rise again, though personally, I think it's unlikely they'll start galloping in the foreseeable future. At this point, your debt will appear to be more manageable.

There will also come a time when your wife can return to work, at which point you can start to make some real inroads into the outstanding balance. If you're seriously worried about the debt, perhaps your wife could do take on some part time work, maybe in the evenings?

Whilst I'm cautious about playing too many games with my money, I'd be tempted not just to pay off, but to think about putting some cash into a basic stocks and shares ISA - L&G do some tracker ones which have very, very low admin fees. Over time, and tbh you can't take a short term view of this kind of investment, the returns on these products can be better than simply stuffing money into a savings account or against your current mortgage product (given the rates of interest you mention).

Finally, if you have space for another baby in your existing place, then, once again, you have some blessings to count... there are thousands of people out there in a similar financial position, but living in one bed homes with very little potential to accommodate one child, let alone two!

So... although you're right in that it could be a good move to batten down the hatches for a bit, at least you have insight into your situation and there are some positives you can latch on to.

Best wishes

QB

lobsta100

Queen-Bee wrote: »

I'd echo these sentiments and would also say that providing you can sit tight for a bit, all is not lost. You are, at least, on the property ladder. Many people can't even think of accessing it in your financial position.

You will however, need to 'cut your coat', and that means you'll need to make a few sacrifices along the way and trim your outgoings as far as possible... There are some great tips on the forum to get you going in this regard.

Eventually, property prices and salaries will start to rise again, though personally, I think it's unlikely they'll start galloping in the foreseeable future. At this point, your debt will appear to be more manageable.

There will also come a time when your wife can return to work, at which point you can start to make some real inroads into the outstanding balance. If you're seriously worried about the debt, perhaps your wife could do take on some part time work, maybe in the evenings?

Whilst I'm cautious about playing too many games with my money, I'd be tempted not just to pay off, but to think about putting some cash into a basic stocks and shares ISA - L&G do some tracker ones which have very, very low admin fees. Over time, and tbh you can't take a short term view of this kind of investment, the returns on these products can be better than simply stuffing money into a savings account or against your current mortgage product (given the rates of interest you mention).

Finally, if you have space for another baby in your existing place, then, once again, you have some blessings to count... there are thousands of people out there in a similar financial position, but living in one bed homes with very little potential to accommodate one child, let alone two!

So... although you're right in that it could be a good move to batten down the hatches for a bit, at least you have insight into your situation and there are some positives you can latch on to.

Best wishes

QB

A big thank you to the last 2 posters that have understood that telling me how wrong we were in the past doesn't help me so much for the future!

I am glad to hear you say that we are not alone in our "salary multiple" position!

I definitely am of the opinion that we could be in a much worse position and PG we will be able to try and reduce our loan amount and therefore be in a better position whenever we come to sell.

A hypothetical question for all of you that just came into my head - if we could somehow get to a situation in our current property that we have a 60% LTV, could we remortgage onto one of the cheap lifetime trackers with our current lender, and then (if allowed) port this new mortgage over to a new property, therefore avoiding the current situation of never being able to secure a mortgage? Or does the salary multiple issue apply to just switching products on the same property?

newgirly

Hi, we are currently borrowing extra from our provider and they want all bank statements/payslips etc. again even though they had them for the same amount in may 2010. As far as I'm aware, they will ask for proof of earnings for re- mortgage or for a new house, we had to provide proof of earnings a few years ago when we were porting to a new property, and I would imagine they will be even more strict with their checks nowadays. But its definatly worth asking your provider you never know, best of luck.

dimbo61

To get a 60% LTV you need to put in another £72,000 ?and even then that would leave a mortgage of £140,000 which is 4X income with 2 dependants.
Like I said you need to build up savings in cash ISA,s and overpay a little each month

amancalledmartin

I would never say never. Mortgage companies are peculiar things. We moved 18 months ago from a really small mortgage and very low LTV ratio, increasing the mortgage threefold and going to an LTV of about 65%. OH is self-employed and couldn't prove his income so we had to rely solely on mine. A bit complicated but I have a second income stream (or at least I appear to ;-) ) through a family company, which made the mortgage about 4 times the income. My existing provider wouldn't increase the mortgage to quite enough so we went to A&L. They suddenly decided they weren't going to use the second income stream and I panicked massively because my proof of income at the time was 7x income and I thought they'd never grant the mortgage. But amazingly they did.

Don't put yourself in a situation where you're going to have mortgage applications turned down because it will hurt your credit rating, but also don't be afraid to ask for what you think might be impossible when the time comes. If you can get yourself to a 60% LTV ratio then you will be in a far stronger position.