How do we avoid losing our house?

crular

We have been in our house for just over 3 years now, and although we were comfortable paying the mortgage back then, a change in financial situation means we're in trouble now.

The house is worth around £400k I would guess, and the mortgage is for £240k at an interest rate of 5.590%, which is interest only. This equates to around £1100 a month.

My wife was made redundant is March, and the only way we are still paying the mortgage is by using her redundancy money, together with my earnings. This will run out in the new year, and if she has not found a job by then, we will need to sell the house.

We desperately do not want to do this. If only we could switch mortgages for a better deal, we could keep the house, but I know no lender will help us when I'm the only one earning. Also Woolwich, who we are currently with, want £14000 early redemption penalty to change.

We have arranged to meet a Woolwich mortgage advisor next week, but I'm concerned the redemption penalty will be an immoveable object, and they may not be prepared to help with a lower interest rate, even with the benefit to them that we stay their customers and avoid the cost of redemption?

Perhaps we should offer to pay the £14k fee with an interest free credit card; at least then we can change to a better interest rate?

Any constructive advice, that doesn't include we should have made a better mortgage choice at the beginning, would be gratefully received.

MFSaver

You might have already considered this, but if you manage to reduce your monthly payments, would you be able to claw back the 14 grand? People more knowledgable in this area might post soon, but I think having a 14k debt will not be looked upon favourably should you seek to remortgage.

This is not an answer you will like, but if you foresee not being able to afford the monthly payments, you need to downsize. Simply said, one has to live within their means. That is not to say that your previous decision was wrong. Circumstances change and people have to adapt. The good news is that with the equity you have, downsizing is a very possible option for you and you are in a position to get a good interest rate. I suggest upsizing at a future date when you are in a position to do so.

maninthestreet

So you have a credit card with £14K credit available? Sell the house, move into rented accomodation.

getmore4less

I would get it on the market if the money runs out in less than 6 months.

HOw were you planning to pay back the £240k.

Tixy

Hi

Not specific advice on your mortgage but how far short are you of being able to meet your mortgage repayments a month (on just your income & any benefits etc the family receives). Have you cut back on all non essentials, luxuries etc and been through every item of expenditure to see how far short you would be a month? or as you really want to try to keep the house to see if you could 'eeek' out the remainder of her redundancy package to give her longer to try to find employment?

Do you have a credit card with £14k of empty credit? if not then that would be a heftly limit to get on a new card and I wouldn't say to woolwich that you can afford to pay off the redemption fee without being certain that you can.

pinkteapot

getmore4less wrote: »

HOw were you planning to pay back the £240k.

Not quite sure how this is an issue. Firstly, if the mortgage is a capital repayment mortgage then they are paying it off through their repayments. Secondly, even if it's interest only then they have significant equity in their home and a sale would comfortably cover the mortgage capital.

It's only a problem if it's interest only and we're talking about what happens in 20 years when the mortgage matures. I think the OP's problem is a little more pressing than that.

WestonDave

£14k is roughly 6% of your current mortgage amount, so you won't save enough by dropping the interest rate to pay off the redemption penalty in one year (which is about the maximum you will get on a 0% credit card - transferring it on will mean a typical 3% charge and basically given that you won't get an interest rate below around 3% at present there simply isn't the room to do this).

To me it sounds like you might have been comfortable paying interest only, but interest only is generally for those who wouldn't be comfortable paying repayments unless you have a pension backed mortgage (as that's about the only way a 3 year old mortgage wouldn't have an accessible repayment fund to reduce it).

Unless you can persuade Woolwich to let you onto a lower interest rate, you're only chance is to close the gap as much as possible by getting your wife to get somekind of job - anything that brings in income even if its night shifts at Tesco, cutting back your outgoings and selling any other assets you might have (decent car?).

getmore4less

If they had no plans/downsize then the best option might be downsize sooner than planned.

The £14k penalty will be difficult to recover from reduced rate.


eg.
current payment £1100 which they can't afford, do not know what they can afford.
say CC rate of 15% thats £175 per month less they have forthe mortgage payment.

so they can afford (1100-175) £925 or less, the rate on the mortgage needs to be

£925 4.6%
£825 4.1%
£725 3.6%

Borrowing £14k is unlikley to help unless they can get it at a very cheap rate so that means putting on the mortgage if they can find one.

What is the income multiple for £254k? LTV is OK.

Thrugelmir

crular wrote: »

Any constructive advice, that doesn't include we should have made a better mortgage choice at the beginning, would be gratefully received.

Prepare to sell up. Adding an additional £14k to your existing debt is merely compounding the problem. At the moment you are frittering away money renting a property.

The greatest downside and risk is that house prices could reduce meaning that even your equity starts to evaporate as well.

macman

pinkteapot wrote: »

Not quite sure how this is an issue. Firstly, if the mortgage is a capital repayment mortgage then they are paying it off through their repayments. Secondly, even if it's interest only then they have significant equity in their home and a sale would comfortably cover the mortgage capital.

It's only a problem if it's interest only and we're talking about what happens in 20 years when the mortgage matures. I think the OP's problem is a little more pressing than that.

The mortgage is interest only-see line 2 of the original post. OP is paying £1,118pm interest just to stand still.

GlamGirlie

I assume from your post you have no savings built up with which to pay the mortgage for the time being? Which begs the question, how exactly were you intending repaying the capital when the time comes??????

You have put yourselves in an irresponsible position, I'm afraid. I would suggest you put the house on the market ASAP, and in the meantime you wife should redouble her efforts to find gainful employment.

I know there are not so many jobs out there at the moment, but my company had one advertised three times earlier this year with not one single applicant, so there are jobs out there.