Financial Suicide??

Lisa1978

Hi all,
Your thoughts on the following wld be much appreciated :
Before i met my husband i owned a house that we now let out. The house has a mortgage of £93k, i pay £423/month and receive £450 rent/month. The value of the house has unfortunately gone down to £90-95k realistcially. Others in the area have their houses up for sale at £100k but they aren't shifting! The tennant i have is great,tehrefore i'm happy to keep the house let out.

The problem is our apartment that my husband and I own. We bought 3 years ago for £125k, deposit of £13k (by remortaging the house) and have just realised that we have been paying INTEREST ONLY. Our finanical advisor set this up, IO for 35 years, we thought it was Repayment over 25yrs, our fault for not checking i guess. Anyway, the apartment is only worth £95-105k and we own £112k so in negative equity.
We would love to move to a house with extra space/bedrooms in the next year as we wld like to start a family. I know the suggestions will be to move into my house but it's not in the kind of area i wld want to raise my children (not being snobby but i've worked hard to get to were i am now and don't want to go backwards!).

Therefore, would it be crazy for us to purchase another property and let our apartment out? I have been advised that a company will let us borrow £200k (scary!). I'm worried that if either or both properties were to be vacant, i know we cldn't afford to pay the mortgages, nor afford to fix anything that would go wrong.
What are your suggestions? I'm guessing that changing to repyament on apartment and sitting it out a few years is probably best :(

I should add, husband has no debts but i've approx £8k (reduced from £13k last year and hoping to get down to £4k by end of year).

Thanks :)

kingstreet

Lisa1978 wrote: »

Hi all,
Your thoughts on the following wld be much appreciated :
Before i met my husband i owned a house that we now let out. The house has a mortgage of £93k, i pay £423/month and receive £450 rent/month. The value of the house has unfortunately gone down to £90-95k realistcially. Others in the area have their houses up for sale at £100k but they aren't shifting! The tennant i have is great,tehrefore i'm happy to keep the house let out.

The problem is our apartment that my husband and I own. We bought 3 years ago for £125k, deposit of £13k (by remortaging the house) and have just realised that we have been paying INTEREST ONLY. Our finanical advisor set this up, IO for 35 years, we thought it was Repayment over 25yrs, our fault for not checking i guess. Anyway, the apartment is only worth £95-105k and we own £112k so in negative equity.
We would love to move to a house with extra space/bedrooms in the next year as we wld like to start a family. I know the suggestions will be to move into my house but it's not in the kind of area i wld want to raise my children (not being snobby but i've worked hard to get to were i am now and don't want to go backwards!).

Therefore, would it be crazy for us to purchase another property and let our apartment out? I have been advised that a company will let us borrow £200k (scary!). I'm worried that if either or both properties were to be vacant, i know we cldn't afford to pay the mortgages, nor afford to fix anything that would go wrong.
What are your suggestions? I'm guessing that changing to repyament on apartment and sitting it out a few years is probably best :(

I should add, husband has no debts but i've approx £8k (reduced from £13k last year and hoping to get down to £4k by end of year).

Thanks :)

What deposit do you have?

I think the bold bit answers your own question.

Sorry.

Gorgeous_George

Lisa1978 wrote: »

...not being snobby but i've worked hard to get to were i am now and don't want to go backwards!).
...

Where you are now is you are in debt to the tune of £25K plus selling costs of two properties.

Your BTL is making a loss (after tax and assumed selling costs). You have a mortgage on your house that is greater than the value of it.

I think you would be crazy to buy a third property.

GG

Cyril

I think your situation is too precarious at the moment.

Tennants can leave at any time and you are in negative equity on another property together with a few debts.#

Personally I'd set a savings plan and save for 5 yrs and reassess at that time.

Boozer

I am surprised you only learnt that you are on IO mortgage, are the payments not a lot less than your other mortgage of 423?? that should have set alarm bells ringing.

What are your salarys?? you seem to already owe approx 200K, but they are willing to give you another 200K, must be earning a lot of money.

Lisa1978

Thanks everyone, my thoughts exactly! Guess just in a no-win situation with wanting to move yet knowing deep down that it would be crazy!
Unfortunately at the minute i've no deposit, but was thinking instead of paying off the £500-£800 a month that i currently do on debt, i could save it instead.. but i guess paying off the debt and staying where i am, while changing mortgage to repayment wld be best option??? Thanks for replies :)
PS : Gorgeous George, loving the name, lol

Lisa1978

Boozer wrote: »

I am surprised you only learnt that you are on IO mortgage, are the payments not a lot less than your other mortgage of 423?? that should have set alarm bells ringing.

What are your salarys?? you seem to already owe approx 200K, but they are willing to give you another 200K, must be earning a lot of money.

No, the interest only payments are £483/month for the apartment.
Joint they are £42k plus a part time job we do together of £8-£10k.

Boozer

Well i guess it is better you found out now rather than years down the road, one of the most memorable threads on this forum was someone who had an I/O mortgage and had paid 50K over some years and was surprised that nothing had come off the capital.

You are earning quite well so you should not have many problems in getting back in shape, although it will just take you some time.

Good luck with it.

Lisa1978

Very true Boozer! Holy smokes, thats lethal! I only knew when a statement came through. Thank you

Thrugelmir

Lisa1978 wrote: »

I know the suggestions will be to move into my house but it's not in the kind of area i wld want to raise my children (not being snobby but i've worked hard to get to were i am now and don't want to go backwards!).

You are in considerable danger of going backwards. That's the inherent risk. The let property is more likely to lose than make you money in the short term.

I would suggest switching the mortgage on the apartment to repayment. Take a close look at your outgoings and make a concerted effort to cut back for a while. Use the money saved to overpay the mortgage. Once in a position to. Sell the apartment and move back into the house. Then build upwards from there.

Even if you start a family it'll be a while before you need to consider schools etc.

Dave_the_Ginger_Cat

I know there've been lots of comments on the risk to you.

I would also expect you to get some resistance from good quality lenders, which would support that they also might not think it's a good risk right now.

Most lenders would not need to count your house's mortgage in your outgoings if it's been let for a reaosnable period of time and it's been declared to the HMRC or if you've audited accounts.

In terms of the flat, they would most likely deduct the mortgage payment from your income before coming to any decision to lend. They would also ask that you put a decent sized deposit towards any new propety.

Support all the suggestions for medium term planning, and wish you all the best