Selling home in an IVA in negative equity

Sboot3

Hi all,
Please can you help me?
I happily started an IVA in December, such a relief!
During the set up I mentioned to Payplan that in the future I am hoping to move in with my boyfriend and they said to keep them informed.
We have decided we definitely want to move in together with a view to starting a family in a couple of years etc. We live about 30 miles away from each other and have decided that his house is the one we want to live in, and rent mine out. I have a small 1 bed flat in a pricier area. I contacted my building management company to be told that the directors of the building have decided to go back to the original deeds on the buliding and not allow owners to sub-let! I explained my situation and that I am in negative equity so I can't sell but they don't think there will be any way they will go back on it.

So, my question is, is there any way I will be able to sell my flat whilst in an IVA and in negative equity? Does anyone have any experience of this?

I really felt the weight lift off my shoulders when I was accepted for the IVA, and now I can't sleep again for worry bout what to do. I don't want the IVA people to think I've lied, but equally I think moving in to share bills should mean that my payments into the IVA could increase.

Please help.

FoggyBrain_2

As long as your IP agrees there is no bar on you selling the flat. If you did make any profit it would have to be paid into your IVA.

However, if in negative equity, you are unlikely to be able to sell without taking a loss.

Have you seen the deeds to confirm there is a no sub-letting clause (actually should be a no letting clause, you an only sub-let something you already let)? Did your solicitor mention any such clause when you purchased ?

Sboot3

Thanks FoggyBrain, there would not be any profit, I owe £97k on the mortgage, I've not had estate agency valuation yet but I think Zoopla had it at £94/5kish. So when you say taking a loss, this is what concerns me, where would that loss come from?

I haven't seen the deeds and certainly was not told by my solicitors when I bought the flat (3 and a bit years ago). But the management company said that the directors used to allow letting with permission from them but it all kicked off a year or so ago when someone had horrid tenants in so they decided to revert to the letter of the deeds and said no lettings.

FoggyBrain_2

If it's the management companies rule as opposed to being in the deeds there is room for manouvre. You might be able to get them to agree if you undertake, for instance, to only allow lettings managed by a lettings company or estate agency, therefore ensuring the tenants are fully vetted.

As for the negative equity, Zoopla is a very rough guide, so you might be able to break even. Taking into account legal and sellers fees you can tell the agent to market at £100k. You simply cannot affordake to t any loss. Get an agent or two to have a look and explain that you HAVE to break even on costs and repayment (but only mention this after they have given you an idea of what they value it at --- if you tell them first they might undervalue for a quick sale).

You can't really make your mind up until you have a specfic valuation. Have a look on Rightmove to see if any like yours are on the market.

Sboot3

Thanks again for replying.

Oh dear then! I have had a look on Right Move, there are others for sale. They are advertised between £80k and £95k. Mine is nicely done and ready to move in (everything was new when I moved in 3 years ago) but still, not breaking even like you said.

I'm really not sure where to go from here then. Does it mean that because I'm in the IVA I can't move out of my flat?

I totally understand that it it no-one's doing than my own, no-one made me buy the flat 3 years ago, but equally I didn't know I was going to get made redundant and end up in this mess. I know that to move in with my boyfriend would reduce my monthly spend, but can't work out how to get to that point.

I'm also concerned because I'm on a variable rate mortgage as my fixed rate finished, so when the interest rate changes my mortgage payment will too won't it. I'm really confused what to do with it all. I've finally learnt that ignoring it doesn't make the problem go away, but at the moment neither does facing up to it.

silvercar

If you are intending to sell then you need to come up with a plan to find the difference between the selling price and the mortgage. Down the line, you and your partner should be able to live more cheaply than together so there is hope that you will make some saving that way.

The only effect of putting it on the market at a higher price than similar flats is that it won't sell.

Charco_2

I'm pretty sure the shortfall in the mortgage (the negative equity) can go into your IVA.

In fact it HAS to go into the IVA - it would now be an unsecured debt!!!

Give this a quick calculation, is the shortfall in the mortgage likely to be more than 10% of the total debts you have already included in the IVA? (ie, you have £20,000 debt, is the shortfall more than £2,000 OR you have £80,000 debts and the shortfall is more than £8,000?)

If the debt figures change by more than 10% then this will require a new creditors meeting to accept he IVA.

Obviously an increase in the debts is going to have an effect on the dividend in the original proposal. This might is likely to require an extension to the IVA to at least 6 years and I have known Payplan in the past to extend to seven years!

My advice is to seriously think about this all now! How serious are you and your partner? Are you definitely going to move in together? You'll not want to wait five years until after the IVA (which you shouldn't anyway because then you'll be left with full shortfall to yourself) or until property prices recover adequately. When will you be moving in together? How will this changed your finances?

It would be worth considering then that since you are giving up the property anyway, and presumably you only significant "asset", what about bankruptcy? you could save for it now (instead of contributing to the IVA) and make payments for three years instead of five, six or seven years!

Sboot3

Thank you all so much for replying!
Charco - In my IVA the total to pay back was approx £16.5k, the shortfall at this point, so if I could get the Zoopla amount then I guess the shortfall would be £3k plus fees, if it were to sell as £80k as per the others in the building that are advertised at the moment, it could be £17k! So definitely more than 10%!
I agree about the serious thought, it is a definite that we want to move in together, absolutely, and to move into my small 1 bed flat is not an option.
My IVA payments increase for the last 3.5 years (when I've paid off car) to £369 per month, to pay this for an extra 2 years would be frightening.
Currently I am paying out about £650 a month for the flat with bills, his costs him appox £700 so I would reduce house bills by £300 by moving into his house. Although I would spend probably about £150 a month more on petrol as his is further to my work.
All in all though I would still be approx £200 a month better off in theory.

But it feels like it's all a bit irrelevant if I'm not allowed to sell it or rent it out.

Is there likely to be a way? Or should I research more on bankrupcy? It's a scary word but then so was IVA when I first started looking into that!

FoggyBrain_2

I would definitely research bankruptcy -- but bear in mind the stigma is still worse than IVA in terms of recovering your credit rating. In the meantime I would also be trying to see if there is any workaround with your management committee. That said, I am not sure that renting would cover your costs, bearing in mind it counts as income and is taxable too!

Sboot3

Thanks again FoggyBrain.
I was wondering just that, I had seen it was taxable etc. In that case I don't honestly think the rent would cover the outgoings. The mortgage and service charge at the moment are £430 per month. I've had a look online and ones advertised similar to mine are £450 - £475 p/month. So I may cover that with the rent but would have no contingency for very likely things like the service charge increasing (it has done every year) or interest rates rising etc. And I assume I can't include that into the I&E!

I did discuss BR at the point of setting up the IVA with Payplan but I thought I would be able to rent out my flat at that point so didn't research it further than I needed to as I knew my Dad would want to strangle me if I went Bankrupt.

I am fine with not having any credit for a few years, but how many years would it be to consider getting a mortgage with my partner in the future?

FoggyBrain_2

No worries, Sboot. Your mortage question falls into the "length of a bit of string" category, I'm afraid. Basically, from the acceptance of an IVA proposal or the declaration of bankruptcy, your credit file is pretty much shot for 6 years. At the moment even those with pristine records are finding it difficult without unbelievable deposits! But, as the market improves (as it will) lending will relax again (though probably not to the same extent), and, in the meantime, you will have saved up a bit and be in a better position.