Voluntary Possession

aimingforadebtfreelife

Hi all, just need a little advice.

My brother bought a 1 bedroomed flat at the height of the property boom. He was naive, bought it off-plan hoping he would make a profit and sell on. He owes about £75k on the mortgage but the property at best will struggle to reach £50k. He rents it out for £300 a month after fees but on top of that he pays £60 ground rent and service charge himself. He pays about £500 a month on his mortgage interest only.

In my opinion the flat which is tiny will never get back to its mortgage redemption figure. He is a teacher, has a credit card and bank account so if black listed he can get by. He has moved back in with my parents and will never buy again just rent when he does move out.

I know if he approached his mortgage company they would say nothing he can do but is there a case of emptying the property and posting back the keys recorded mail. He has no assets. He is not in arrears with his credit card so no real need of bankruptcy. He is struggling to get by so he is trying to stop it getting any worse.

Can anyone tell me the likely scenario the mortgage company will take?? Ie. The shortfall after auction sale passed onto a debt company and their likely course of action??

Many thanks in advance.

dimbo61

Your brother is a teacher so must earn £20/25K a year if not more.
He is living at home with Mum and Dad so won,t be paying that much in rent.
So every month he needs to pay off some of the debt on the mortgage which he is also renting out.
Making himself bankrupt will damage his credit for the next 6 years if not longer ( No mortgages, no loans, no credit cards, no mobile phone contract etc)
Has he got an IPHONE at £45/50 a month, couple of holidays a year ( long summer hols), nice clothes, smoker, drinker, nights out.
Get a second job to earn extra or teach night school/private lessons.
Pay off his debts do not make things worse

holly_hobby

He would negotiate a repayment schedule/agreement with the lender for its repayment.

To which, if no payment is made or he refuses to engage any remedy, the shortfall may be pursued for a period of up to 12 yrs from default, and registered on his credit records for 6 yrs from the same time.

If he owns another property, the lender may look to seek a charging order on this in relation to the os debt.

The lender, if they feel no other option or chance of repayment from him, may well apply for a bankruptcy order - which will affect him both financially (and employment wise for certain industry's) for some considerable time (including the application for private rented accomodation, and he may well find himself in social housing for a period, due to the damage this will do to his credit record and how that will affect tenancy checks).

My advice would be to ensure that he is charging the market rate of rental income and to see if he can lower any associated charges or fees to increase the net rental income. Changing the mge over either partially or wholly, to a repayment basis would also be advised in this situation, in an attempt to try and make in roads into the neg equity situ and thereby avoid or mitigate any shortfall on disposal.

It is also adviseable to have a chat with the lender, to see if he can change onto a lower payrate deal, and look to see how he can overpay, again all with a view to readdress the mge to market value defecit.

Hope this helps

Holly

SandC

I don't understand why he thinks this is such an impossible situation. He could look into what it would cost per month on a repayment mortgage, he should even be able to overpay each month on a teacher's salary if he stays interest only.

He needs to stop thinking in terms of what the flat is valued at and look at paying off the loan that we call a mortgage. He is in a good position to do so - no debts and a £75k mortgage - others would love to be in his shoes from what I read on here.

ValHaller

I am with the others, this is a storm in a teacup.

The fact that it is in negative equity does not make it uninhabitable or only fit for tenants to live in. If he just lived there himself, he need not notice the negative equity apart from overpaying the mortgage. Overall, he would have a better quality of life and probably more money.

ILW

It was all about getting rich quick, now it hasn't paid off he does not want to play any more. Great example for a teacher to set.

holly_hobby

Spot on assessment Van.

H x

ACG

I think the other posters have summed it all up pretty well.

There is no reason to not be able to afford this on his wage, especially if he has rent coming in from it. I bet if he knew another boom was coming his thoughts would change!

Also if he does hand the keys back, who will he rent a house off? They credit check people, he wont pass that will he?

There are a lot of potential pitfalls by handing the keys back, it should only really be done as a last resort and i would be very surprised if thats his last resort.

mrginge

Brother sounds like a !!!!!! to me. Spongeing off the parents just cos he made a dodgy investment

Crashandburn

My first thoughts are to get the figures checked. It doesn't look right to me.

I assume it was in 2007? If he bought it off plan and got a 100% mortgage on it, then the 100% mortgage providers were all high street brands.

This means by default, he should be paying something like 4.85% at worst. At £500 per month interest only of £75,000, he has a rate of 8%. 8% interest rates are the home of the sub prime lenders of the very very worst scenario. And sub primes would not have been lending 100% in 2007.

Might be worth getting someone to check over exactly what he has as it doesn't seem right with me. Also if it was a 100% mortgage, you couldn't get these interest only.