Negative Equity Trap

MoneySpendingAmateur

Nearly five years ago just before my partner and I met we bought our first homes. After a healthy courtship we have been trying to move in together of over a year now, though we are unable due to a number of issues.

My girlfriend bought her one bedroom ground floor flat for 73.5k with a 110% mortgage from what is now a publicly owned asset management company.

After completely refurbishing the uninhabitable property, with a new bathroom, kitchen, combi-boiler carpets, real wood flooring and decorating throughout, estate agents now value it at 60k, while there is still an outstanding mortgage on the property of 74k.

While selling seems to be out, we considered letting the property, though the leaseholders contract forbids sub-letting.

My own property on the other hand, a 2 bed mid-terrace, again after spending thousands to make it habitable it is now worth slightly less than the remaining mortgage.

We are not in ‘financial hardship’ but far from comfortably off, obviously we can’t afford to be paying for two properties with one sat empty.

Stuck between a rock and a hard place we consider our options as follows:

• Rent out the property against the terms of the lease holders contract,
• Sell the property and be left with 14k debt, which we can’t afford to pay,
• Attempt to negotiate with the mortgage lender to write off or split the difference of the remaining debt after sale, or
• Default on the mortgage and end up with a bad credit score and other penalties.

We are not currently financially linked, no joint accounts etc. and have no savings.

My partner is constantly cut-off while being transferred trying to speak to the mortgage lender on the phone and they do not have premises to meet advisors to talk to face to face.

Can anybody offer any advice on a way forward as our financial worries are seriously affecting our relationship, sleep and our health.

Thanks for reading.

DannyboyMidlands

Sell yours and live in hers?

DannyboyMidlands

Rent yours and live in hers?

Mishomeister

MoneySpendingAmateur wrote: »

Nearly five years ago just before my partner and I met we bought our first homes. After a healthy courtship we have been trying to move in together of over a year now, though we are unable due to a number of issues.

My girlfriend bought her one bedroom ground floor flat for 73.5k with a 110% mortgage from what is now a publicly owned asset management company.

After completely refurbishing the uninhabitable property, with a new bathroom, kitchen, combi-boiler carpets, real wood flooring and decorating throughout, estate agents now value it at 60k, while there is still an outstanding mortgage on the property of 74k.

While selling seems to be out, we considered letting the property, though the leaseholders contract forbids sub-letting.

My own property on the other hand, a 2 bed mid-terrace, again after spending thousands to make it habitable it is now worth slightly less than the remaining mortgage.

We are not in ‘financial hardship’ but far from comfortably off, obviously we can’t afford to be paying for two properties with one sat empty.

Stuck between a rock and a hard place we consider our options as follows:

• Rent out the property against the terms of the lease holders contract,
• Sell the property and be left with 14k debt, which we can’t afford to pay,
• Attempt to negotiate with the mortgage lender to write off or split the difference of the remaining debt after sale, or
• Default on the mortgage and end up with a bad credit score and other penalties.

We are not currently financially linked, no joint accounts etc. and have no savings.

My partner is constantly cut-off while being transferred trying to speak to the mortgage lender on the phone and they do not have premises to meet advisors to talk to face to face.

Can anybody offer any advice on a way forward as our financial worries are seriously affecting our relationship, sleep and our health.

Thanks for reading.

I would tell the freeholder that the only way you can keep paying them ground rent, service charge etc is by letting the place out so they are either giving you a content to let or you go bankrupt and they get nothing at all

poppy10_2

MoneySpendingAmateur wrote: »

obviously we can’t afford to be paying for two properties with one sat empty.

Aren't you already paying for two properties at the moment? What difference would it make if you both stayed in one and left the other empty?

beecher2

I'd agree that selling up your own house and moving into hers might be the best option, if the lender allows you to come to an arrangement to pay off the negative equity. You'd then be in a position to overpay your partner's mortgage with the money you'd previously been paying in mortgage.

Thrugelmir

MoneySpendingAmateur wrote: »

My girlfriend bought her one bedroom ground floor flat for 73.5k with a 110% mortgage from what is now a publicly owned asset management company.

After completely refurbishing the uninhabitable property, with a new bathroom, kitchen, combi-boiler carpets, real wood flooring and decorating throughout, estate agents now value it at 60k, while there is still an outstanding mortgage on the property of 74k.

No mortgage would have advanced if the property was unihabitable. Maintaining a property costs money and doesn't necessarily add value.

After 5 years none of the original mortgage advance has been repaid. That's the root of the problem.

You need to prioritise your finances and make a longer term plan. Perhaps by selling your property and building some equity.

MoneySpendingAmateur

Thanks for your comments guys.

Your right it does seem more obvious now, from the outside looking in, that selling the house and living in the flat or trying to negotiate with the freeholder to rent the flat out are the best solutions.

I guess that we’re blinded by other issues (space, location and my house is in a more desirable area).

Leaving the flat empty and continuing to spend money on it can’t be cost beneficial especially due its location, we’re worried it would attract burglary or vandalism. Also, part of the point of living together would be to improve our financial situation and cut our collective outgoings.

I do concede that describing the flats condition when bought as uninhabitable was an unintentional exaggeration on my part, maybe I should have said very undesirable living conditions.

I also agree the root of the problem is that the mortgage has not been paid off, though this is not by doing the wrong thing, we pay our mortgages and bills and have spent a lot of money making our homes nice places to live, and did hope the improvements would increase the properties value (or at least negate the reduction in value to some extent), but with market downturn and the fact that properties were then selling on potential rather than existing condition we have now found ourselves a bit stuck. We have no other debts, but also no savings.

Has anyone had experience (or heard) of a mortgage lender splitting the difference after selling short of the remaining balance? I know it is only small fry to them but I thought they may consider it if they were going to get the majority of their money back, especially as they are a ‘bad debt lender’ trying to recoup monies.

It’s not that we want to shirk our debts but we are trying to make sensible, informed financial decisions to better our future together.

Thanks again.

opinions4u

The best advice I can give is to use the standard MSE font.

I got a headache trying to read those posts!

MoneySpendingAmateur

Sorry, done.

Thrugelmir

MoneySpendingAmateur wrote: »

Has anyone had experience (or heard) of a mortgage lender splitting the difference after selling short of the remaining balance? I know it is only small fry to them but I thought they may consider it if they were going to get the majority of their money back, especially as they are a ‘bad debt lender’ trying to recoup monies.

Why should people that pay their mortgages in full , pick up the tab for you?

Ultimately somebody pays. Not the business itself but other customers.