Negative Equity HELP Complicated!

stuart2588

Hi there

I am writing this post for some help on behalf of my dad and my bro.

My brother and my dad bought an apartment a few years back while my brother was studying at university, with the intention of selling it on and making some money in the future.

The apartment was purchased with a mortgage of approximatley £135k. My brother was in a apart time job at the time and my dad also owned our family home with a small mortgage of £44k. My dads income was used for mortgage lending purposes and the mortgage was taken out over 13 years as my dad is in his fifties.

It was taken out on an interest only basis to keep payments low until my brother finished his civil engineering degree and got a job and then the plan was that the bank would then take my dad off the mortgage and increase the term of the mortgage to 25 years as my brother would have a good salary to repay it. This was agreed at the bank.

Anyway fast forward to the present day and my brother has left university and has secured a good job as a civil engineer.
However, the value of the property has decreased to £75k leaving a massive shortfall in negative equity. In turn the mortgage lender will not remove my dad from the mortgage and will not let my brother apply for a 25 year mortgage due to new lending criteria. So as things stand the bank have changed the mortgage to REPAYMENT over 13 years and wont extend it. Hence the payments are huge and crippling us.

We are just looking for some advice as to how to move forward..

(1) Should he try to meet the repayments and hang in their until the market improves if it ever will??

(2) Should they hand the keys of the house back to the bank and allow them to repocess it and go down the bankrupty route?

If they decided to let the bank take back the house what would happen with the shortfall? Would they come looking money from the equity in my dads family house? My dad has retired now and could not afford to increase the mortgage on this property.

Any help would be greatly appreciated.

Thanks again

Stuart

holly_hobby

In the event that the house goes through a possession order, either forcibly or voluntarily (ie keys handed in), this repossession will affect the future mge borrowing of all named mortgagors (Dad & Bro).

Additionally they may both be pursued for any shortfall on disposal, for a period of upto 12 yrs (although some lenders leave it at 6).

Unsure why they won't allow a TOE between Dad & Son - unless due to his employment history, status &/or any adverse credit data - but if they won't allow the TOE its set in stone - as its their call.

Unfortunately, Dad & Bro won't be able to remortgage to another lender and do a TOE at the same time, due to the neg equity situation - so its rather a catch 22 situation for them (unless there is access to capital to mitigate the shortfall issue on redemption)

There is only 2 solutions I can see, you sit tight and hope the maket recovers managing the repayments as you go, or you sell the property yourselves for the best poss price, and come to a repayment arrangement with the lender for any shortfall realised on sale.

Bro will need to then save a depoist for his own place (if no status issues)

However you should note that if the property is sold under a possession order, Bro will not get a further mge for a number of yrs, and any private landlord properties will be out, as they will ordinarilly seek a credit search on applicant tenants, and the record of any repo order will scupper his chances I fear. (Dad will be largely unaffected as he has his own residence, although a charging order may be placed on it for repayment of the shortfall by the lender)

So my advice would be to avoid at all costs letting it go or simply "handing the keys in" (although it may seem the simpliest solution right now) - as it will benefit no one, Dad & Bro's credit record will be trashed and they will continue to be pursued for the neg equity in any event - no matter how the property is sold.

Who lives there ? Is it let, can you let ?

Sorry I couldn't be more positive - I may have missed something, if so one of the other guys will pick me up on it - but I think the neg equity is the killer in the mix.

Hope this helps

Holly

ACG

Dont let your brother go through bankruptcy - at his age it will affect him forever.

Can you rent the property out? That would atleast clear the bulk of the repayments on a monthly basis if not all of it.

ItMightBeUsefulOneDay

stuart2588 wrote: »

The apartment was purchased with a mortgage of approximatley £135k. It was taken out on an interest only basis

However, the value of the property has decreased to £75k leaving a massive shortfall in negative equity.

In answer to question 2:
Both your dad and your brother are liable for the whole amount outstanding on the mortgage on this flat. If they "hand the keys back" the bank will sell the place for whatever they can get (read not much) then come after both parties for:
The shortfall
Plus all the interest
Plus all their charges from selling it.
Plus anything else they can add on.

The bank won't care who pays, just so long as they get their money back. If your dad has another house with plenty of equity the bank will go after that.


In answer to question 1:
Only you (or rather they) can answer that. No-one really knows what's going to happen to the property market in the future but you can make some educated guesses. It's unlikely that the flat will return to the value of £135k any time soon. Many people believe that property prices will continue to fall even further. So it may be years (many, many years) before enough is paid off to be able to sell without having a shortfall.