Negative equity Lump sum offer.

Chimpolito

Hi,

I recently sold a property with significant negative equity (approx 60k). The mortgage company agreed to let me sell and now I am in discussions with them about repayment of the shortfall. The sale has been completed and I am now renting. The bank are now offering two options:

1. Monthly repayments to clear the full amount based upon affordability at 0% interest - I think I will need 5-7 years to clear it
or
2. An immediate reduced lump sum payment - which I would have to borrow.

I was wondering if anyone had been through anything similar or had experience with these types of things. I would prefer to pay the lump sum but will struggle to find any more than 35k. Does anyone know what type of percentage the banks work at?

Thanks

harvey115

both the options look very reasonable.

Once you know the 'reduced' lump sum, you may be able to make a choice. However option 1 does look a good option as well.

Chimpolito

I have to make them the lump sum offer and then they decide whether to accept it or have monthly payments. Obviously I don't want to offer them much more than is necessary or too little as I much would prefer option 2 and potentially be better off even with the interest costs. However if I offer them much more I could risk borrowing at a much higher rate.

marathonic

With the 0% interest, it'd take 7 years to clear £60k if paying off about £715 per month.

A £25k loan from Tesco Bank (the max available) would cost £389.65 per month - at that rate, £715 per month would pay off a loan of £45,874. However, the risk here is that rates rise in the meantime.

After factoring in the potential for rate rises, I reckon £35k - £40k would be a reasonable offer. I'd aim a bit higher than this if the money is available from savings and towards the lower end if I'd need a loan to raise most of the finance.

marathonic

Did they give a maximum term to clear the money at 0% interest? If not, select the LONGEST term possible and put any excess cash available into an ISA or high interest savings account. This will allow you to clear it even quicker.

Chimpolito

I would need to borrow the full amount. I've been turned down for a tesco/sainsbury's loan recently because changing address affected my credit score. The plan was to use loans and credit cards- hence not wanting to offer them more than necessary.

From the banks point of view I suppose they view it as:
1. How much money are they losing by giving me an interest free unsecured 60k loan for 5-7 years
2. How much risk is involved in this arrangement- if my circumstances change and I can no longer afford the repayments.

Chimpolito

The monthly payments will be assessed by a financial statement. I would probably need to pay about £1000 a month, however it is likely that my salary is going to reduce in a few months and it would need to be brought down to about £750. So the term of the loan is dependent on my payments backed by financial statements in changing circumstances.

SouthCoast

Advice from National Debtline on dealing with mortgage shortfalls can be found here:

http://www.nationaldebtline.co.uk/england_wales/factsheet.php?page=11_mortgage_shortfalls

TAF

Personal experience with NRAM>.... 48k (ish) short fall... they accepted 16k. I did tell them this was a loan from the family and i was currently unemployed. Basically made it look like that was the best they were gong to get. Either way make sure you get confirmation in writing about the agreed amount BEFORE you pay and afterwards ask for confirmation that youve paid and they will not pursue you further.

Chimpolito

Good result in the end. They took a 28k offer, so saved myself about 30k excluding interest. Very pleased. Bearing in mind I am employed and a high earner I was surprised they even gave me the choice but despite this I imagine an unsecured loan of such a high amount is considered very risky. And importantly my credit rating is unaffected- the deficit has been satisfied.

I would recommend to anyone who needs to sell their property and move and has unaffordable negative equity to do the same as me and get an offer and approach the lender. If their valuation shows that the offer is good they may well let you sell and then come to an arrangement later about the shortfall. And this is without having defaulted on any payments. Depending on your financial circumstances you may be able to hugely reduce the shortfall with a reduced offer to the lender. One advisor I spoke to said that they had a bank accept 4k against 80k loss for someone who had awful financial circumstances. Of course the other alternative is to rent out the property but this is a real option.

averagemummy

I'm really sorry to jump in on this thread and hijack it but I just wanted to ask a quick question - how do you get your bank to accept a lower offer than what your negative equity it? House is under offer at present and we will have a shortfall of about £16000. The bank and the solicitors are both saying we have to make an arrangement before before completion for the whole amount. Is it worth trying to haggle though? I'd never have thought it was possible!

Thank you