Long term mortgage tie-ins - HELP!

steph5138

This is my first post so forgive me if i get things a bit muddled.

Three years ago I signed up for a mortgage which gave me around 7k 'cashback'. At the time (pre-moneysaving days) it seemed like a good deal. However, in reality it wasn't a good deal as the interest rate is well-above the base rate, and I have a 6 year tie-in with heavy penalities for changing or paying back the money. Since then i've got married and since both my husband and i had a house we've moved into his as its the bigger of the two. We've rented out mine for the past year, but this has been a very unhappy experience (even when using a rental agent) and has recently resulted in a lot of expense in getting the house back into a liveable condition. I can't handle the stress of renting it out any longer and so am going to sell. The trouble is i still have another 3 years of penalities on the mortage (currently at 4%, dropping to 3% Jan 08 and 2% Jan 09). I've had friends say they think this length of tie-in is illegal, but i'm not sure. Has anyone had any experience with this type of situation and any advice about how i might be able to reduce the amount of penalty i pay. (as it is i'm set to lose money on the property due to the amount of money i've had to spend to get it liveable in - i just want to try to limit the amount i lose).

Thanks.

Gorgeous_George

The tie-ins are not illegal as far as I am aware.

You could consider moving your tied-in mortgage to OH's house if his mortgage has no tie-in.

Failing that, renting isn't always problematic. With the experiience that you have gained, you should be better placed to ensure new tenants comply with the terms of the agreement. However, if you believe that the house may lose value over the remaining tie-in period, you should look at cutting your losses by selling now and paying the penalty.

Did you advise your lender that the house was being rented out?

EDIT to add:
You may wish to consider any CGT liability. I'm not sure if/when the house would become liable for CGT but if it does, you need a valuation dated when you started to rent it so that CGT can be calculated.



GG

steph5138

Thanks for this. I hadn't thought about transfering the mortgage to the other property. We don't have a tie-in with that mortgage but the interest rate charged is lower - i'll look at this in more detail.

I'm not sure that the property would lose more value through renting it out longer term (i have my mortgage company agreement to do this and have paid the fee they charge) but i may loose my sanity! One of the problems is that with the rising interest rates the amount of rental income it generates doesn't cover the mortgage payments.

cattie

One idea that may work for you if they have such schemes in your area is where a local authority or housing association will rent the house off you for a period of 3 yrs. You have the benefit of a guaranteed rent during that period with no voids & they guarantee that the house will be handed back to you at the end of the 3yrs in as good a condition as it was to start off with.

This may well be the ideal situation for you as you can then reconsider selling when the 3yr agreement is up.