Pros & cons of handing house back to mortgage lender?

vancreef

My wife's old house is absolutely crippling us financially and her ex husband has stopped contributing towards his half of the mortgage because he "can't afford it".
Between the two of us we are paying £850/month for both my mortgage and the mortgage to her old house.
To make things worse the council have come up with an idea on how to reduce the amount of empty properties in the area, by charging the owner of the house 200% council tax, which means approx £200/month in council tax for a 2 bedroom terraced house. Renting it out is out of the question because of the amount of work that it needs to bring it up to standard, and we don't have it.
She has spoken to her mortgage lender with regards to selling the property but because it has about £15k negative equity, they have refused to allow her to sell it and offered no help whatsoever.
I recently bumped into an old friend who said that a friend of hers had been in a similar predicament and was about £60k negative equity, and she had just handed the keys back to the mortgage lender and was now paying a measly £30/month.

Is this worth considering or is it a bad idea?

Caladan

I would have expected the lender to be more supportive in selling the house yourselves as you're likely to get a higher price for it - She'll still be liable for the negative equity but that's something to worry about later.

I'd suggest talking to them again - They're in a no-win situation but selling the house is the only way they'll get the money back.

vancreef

Hi Caladan and thank you for your reply.
I was also shocked at their lack of sympathy and when she explained the situation and the fact that we simply couldn't afford to keep up the payments, all they did was read her the terms and conditions and warned her what would happen if she was to fall behind on the mortgage. They also said that the fact that her ex husband had stopped paying was not their problem, which it isn't but they just came across as totally heartless.
She has contacted them several times but I suppose there's no harm in trying again, and who knows, they may even get tired of her calling lol.
Thanks again.

Caladan

Is the Mortgage already in arrears? A lot of lenders wont do anything until you start missing payments, unfortunately that means damage to credit histories but it sounds like that's unavoidable now anyway.

You may find they're more helpful once it hits their collection department.

cattie

I'm not sure if it's any help to you but I understand some councils will take over an empty house in need of work for a set period, say 5 yrs & pay for any works needed to bring it up to standard for renting to people on their housing lists. I believe rents are supposed to be at market rate, so this may be something you could both look into.

gazter

cattie wrote: »

I'm not sure if it's any help to you but I understand some councils will take over an empty house in need of work for a set period, say 5 yrs & pay for any works needed to bring it up to standard for renting to people on their housing lists. I believe rents are supposed to be at market rate, so this may be something you could both look into.

Yes this is true. Considerable grant incentives are available to local authorities to get back empty houses into occupation. It is quite possible you could get the property into a rentable state and get some regular rent to cover the mortgage payments.

Speak to the housing department at your local council.

Handing back the keys should be the final option. You cant walk away from the debt. You owe the mortgage company X, your house is worth Y. The difference will be a debt you (your partner) have to pay.

jamesd

vancreef wrote: »

To make things worse the council have come up with an idea on how to reduce the amount of empty properties in the area, by charging the owner of the house 200% council tax

Contact the council empty homes team. There are likely to be grants and loans available to get the house into a condition where it can be let, some of those might be conditional on letting to a council nominated tenant for a while. Owners in financial distress are particularly likely to receive such assistance, as are those who own houses, for which there is quite likely to be a significant shortage of available properties.

vancreef wrote: »

I recently bumped into an old friend who said that a friend of hers had been in a similar predicament and was about £60k negative equity, and she had just handed the keys back to the mortgage lender and was now paying a measly £30/month. ... Is this worth considering or is it a bad idea?

It's currently a bad idea. There are better options to pursue first. Let the lender know that you're seeing whether the council will be able to help to refurbish the property. If that happens it'll also increase the property value and reduce their risk, so they have a clear incentive to play along.

Lenders may well not be willing to consider helping until an account is in arrears, though in theory they should and an explicit written notification of the financial difficulties and steps being taken to address the problem should at least prompt communication.

The lender can completely block the sale of the property so selling below mortgage balance isn't possible without their consent. Handing keys back is a default and the home owner will still be liable for the shortfall, but the selling price obtained will almost certainly be lower, so the shortfall amount will be higher. A sensible lender should not want to have the keys handed back and should be avoiding that by agreeing to other steps instead.

Best to do council first, with notification to lender, and get more feedback as things progress. Notification to the lender matters, including copies in writing. It helps to establish clearly that there is an attempt being made to eliminate the problem and if any legal action results, may end up showing that it is the lender acting unreasonably.

vancreef

Thanks for the advice. Never knew about the empty house schemes and will definitely look into that.
Cheers.