Negative equity - is bankruptcy my best option?

10papartment

Hi

I own a small studio apartment in an area of the UK that suffers from a bad reputation and a fairly high level of deprivation. I bought it in 2006 for 70k. The estate agents tell me its value is now 35k. I owe approximately £60k on the mortgage as I purchased with a high LTV. I moved from the apartment a few years ago for work and rented it out - which only just covered the mortgage but not the management fees. Since this time the rental market in the area has even seen a decline so the rent I now receive is £60 below my mortgage payments every month. I also still need to pay for repairs and management fees - nearly £1000 a year. I live in rented accommodation and have been finding the whole situation highly stressful and just want it to end as I cannot sustain it much longer as all emergency money for repairs is gone.

As far as I am aware my options are to sell the property and somehow find the shortfall of 30k - how? or to sell the property and declare myself bankrupt as I cannot make up that shortfall. I assume that bankruptcy is not that simple and was just wondering if anyone has any advice - short of a magic wand to make it all go away.

Notmyrealname

The only thing with bankruptcy is that if you want to move, you won't be able to unless you can find a LL that doesn't do credit checks so you'd better be damned sure you're in a property you want to stay in for at least 3 to 4 years.

Fire_Fox

Welcome Can you go to interest only on the mortgage? Add to the term so that the monthly repayment are lower? Have you checked the annual service charge accounts and service contracts to ensure everything is reasonable and being done according to the contract? Is the flat in West Yorkshire?

10papartment

Hi

Yes, the flat is indeed in West Yorkshire.

Thank you for the post about considering that a future landlord will most likely want to run a credit check. I think this is my major concern with this option - if I change jobs or location it could make things very hard. Additionally, from reading some of the posts on this forum it would appear that I couldn't sell as the dale would not go through without me providing the shortfall; so I would have to go down the re-possession route first? All of which I'm a little fearful of.

Fire_Fox

Ouch I wasn't aware the market had crashed quite that hard there. Definitely speak with your lender, tell them you are in hardship and ask them what they can do for you as regards reducing the mortgage payments or making it possible for you to sell.

Also look into those service charges and service contracts, I started reading mine a few years ago and it was very enlightening - we had cleaners coming once a month that should have been coming twice a week, caretakers spending so much on lamps that every light in the common parts could have been changed every week for a year. Is the studio in the correct council tax band (A)? If you can make the council tax or the service charges a little cheaper than might make it more attractive to a buyer. Useful stuff here http://www.lease-advice.org/publications/

How much have you done to try to dress the place for sale or rent, does the estate agent think there is anything you can do? Are you letting furnished or unfurnished?