In a terrible mortgage situation, please help

lemonjelli

We are in such a pickle. Another forum recommended MSE so we would be grateful for any advice.

Long story short, in 2007 my husband (H) had a friend, 'Adam'. Adam couldn't get a mortgage because his job was very 'cash under the table'. Adam's girlfriend 'Mary', had an okay-ish job though, so my husband and Mary got on a Northern Rock mortgage together with the plan that all three would live together, then sell and make a profit!

However, as soon as they moved in Mary announced she was pregnant. So after two years, H moved out, stopped paying towards the mortgage any more but said in return he wanted nothing to do with the house, any future profit was all theirs. Prior to that, they had all been splitting the mortgage three ways, even though Adam wasn't officially an owner. My husband didn't get any legal advice at the time. He now realises how silly this was!

Fast forward a few years, me and H meet and marry. We are now living abroad.

Now, we've had a message from Adam saying they can't afford the mortgage any more so are going to default on the payments. H has messaged back saying that's madness, for so many reasons, but they don't seem to understand. Adam says the only option is to default or to get tenants and H to "split the cost".

Ideally they would all love to sell and wash their hands of it, but they got a 110% mortgage and the house is now in about 20-30k negative equity. We could just afford to pay H's half of that debt (if we cash in H's pension!) but H is convinced they would default on Mary's half. Meaning the whole debt would be his, right? The mortgage is repayment but Adam and Mary say they couldn't afford it even if it changed to interest only. But they don't seem to understand the effect that defaulting would have on credit ratings etc, and that it's not the way to go.

So, what are our options? So far the plan is:

-To ring NR on Tuesday and see what they say.
-To get an estate agent in to value the house for sale/rental

Then what? Would NR be able to transfer the mortgage to me instead of Mary? Could we transfer it to BtL? Could we even get a mortgage seeing as we live abroad?

Stats:
House bought at £122k
Mortgage was £132k
Mortgage current balance around £124k
Zoopla/Rightmove say current selling price around £100-105k

I'm sorry its a long essay, thank you for reading and we would be grateful of any tips or advice. If you need any more info, please ask. We are so worried

CLAPTON

H can't cash in a pension unless he is 55 and then only 25% of the pot.

As it's a joint mortgage and Mary doesn't pay her share then NR will chase H for the full amount

Renting may delay the matter if the mortgage then becomes payable: best to get some figures asap (maybe look on rightmoves to see what similar properties rent out for)

lemonjelli

Oh dear, is that true even if H has left the company? He was under the impression "well I paid it in so I should be able to take it out again!", ha, we are both naive I guess!

Rightmove seems to say about £500/month for rental; the mortgage currently is about £670/month.

So do you think the best option is to keep the mortgage as it is, but just ask NR whether they can have tenants in? Does anyone have any experience of if NR might agree to this?

To be honest, we don't feel we can trust Mary not to default, even if it was rented for £500 and her and H split the remaining £170. I guess ideally we would just like her off the mortgage and then H to take it on by himself or perhaps with me. But like I say, we are both abroad and will be for up to another 3 years, so.. I don't even know if it's possible. What a mess!!

Thrugelmir

You need to ascertain the other parties overall financial position, i.e. other debts. As will impact any alternative options.

If they are unable to fund the mortgage even on an interest only basis. Then one assumes that arrears are already mounting and the debt is in the process of spiralling out of control.

There's no guarantee that renting the property out will work. Rental income and mortgage payments are only two factors of many to be considered. There may be void periods, tenants that dont pay , repairs to pay for , etc etc. Also if you are abroad how will you manage the property. As a managing\letting agent will take a fair % of the rental income as a fee.

Prepare for the worst. Breaking the financial link between the parties may be the solution. NR a would more than likely agree to a lump sum settlement for your H's share of the debt (i.e. you obtain a loan). Although this cannot be guaranteed. Where parties have gone their separate ways lenders do take the pragmatic approach of recovering what they can. This will have the impact of tarnishing his credit file for a while, but time will repair this.

lemonjelli

"Prepare for the worst. Breaking the financial link between the parties may be the solution. NR a would more than likely agree to a lump sum settlement for your H's share of the debt (i.e. you obtain a loan)."

Hmm, without being able to get H's pension money we don't have any other money we could use to pay off a lump sum. We don't really earn enough to be paying off a loan.

This is just a terrible situation whatever happens. If things stay as they are then the house gets repo'd and H's credit goes up in smoke. If H and Mary stay on as owners and rent then that can still all go very very wrong. If the house is sold there's a 30k debt plus all the fees, which we have no hope of paying off.

I'm so so upset, I can't be angry with H because he got into all this mess before we even met, but dear god the future is looking exceedingly bleak indeed.

Thrugelmir

lemonjelli wrote: »

I'm so so upset, I can't be angry with H because he got into all this mess before we even met, but dear god the future is looking exceedingly bleak indeed.

I'm not asking for an answer, but what is the worst consequence of this on you if the property is repossessed. Just resolving the matter will at least relieve the anxiety and stress.

lemonjelli

Worst case scenario is my H is left with 30k+ of debt that we have no hope of paying back, a terrible credit history (or even bankrupt?), we will have no chance of getting a mortgage or house together in the future...

holly_hobby

What a mess ...

Several issues here....

Your being resident abroad (which unless under employment with a UK or Multi National company in accepted overseas locations, with a known date of repatriation), you're not classed as an ex pat, so sourcing of a new BTL mge would be an issue and half in itself - but this may be ok under a consent to let arrangement with the current lender (given the underlying circs).

The GF is the weak link here, so you may want to consider a transfer of equity (TOE) to get her off and you on the mge and deeds (with no SDLT as the effective 50% share of mge is under 125k), and a switch to IO with combined Consent To Let, may be a short to medium term option, depdending upon the level of rental income that may be achieved, and if you are able to top any shortfall to mge up.

If the house is repossessed, and sold with a shortfall, then although there is no longer a CML repossessions register, all mortgagors may be pursued for the os debt and costs for up to 12 yrs (some lenders adopt a CCA stance of 6 yrs, as in line with Limitation Act 1980) - so both the GF and your Hubby want to avoid this. And bankruptcy, this is so damaging both financially and employment wise, and must always be revealled if asked no matter how long ago, that it is the absolute last ditch option, not recommended, but I accept may be his only way out ...... but please think long and hard before pursing this avenue.

I suggest that hubby contacts the lender (whom will normally want to avoid a repossession at all costs), sees if there are any arrears, discusses the issues and see what solutions/mediation they can offer (inc the TOE and CTL I mention, with say a view to sell when the property increases in value/you're able to reduce the debt a bit more to bring the LTV back into positive waters). Including their stance on how they would generally manage any shortfall on either voluntary or forced sale. (NB - even though hubby doesn't pay the mge, he remains an official mortgagor, so the lender is fully able to discuss the conduct of the account with him).

Get several estate agents round to have the house valued for both sale and rental income - to give you an idea on what figs you're likely to be working with, and above all keep talking to the lender throughout.

Hope this helps

Holly xx

lemonjelli

Hi Holly,

I just wanted to say thank you for your post. You have really made me feel a bit better. Me and my husband have talked it through and think what you propose could be the way forward. TOE from her to me, move to IO for now (until we're back in the UK), and try to rent it out. We could probably be ok to manage financially to top up any shortfall if we juggled things around.

I have just a couple of questions, if I may:

- Should H tell the lender that Mary has told him she plans to default? Or would that make them nervous if you know what I mean?!

- Would H be in trouble because he has moved abroad?

- Could you clarify what we mean about not being treated as expats? H has a yearly contract, so far guaranteed up to 2014, but visa rules mean it is impossible to be renewed past 2016. Would we be treated as resident? Surely that makes things simpler?

- Does a TOE from her to me involve a remortgage? Fortunately I am employed too so would this make it easier for me to get onto the mortgage?

Thank you ever so much x

holly_hobby

lemonjelli wrote: »

Me and my husband have talked it through and think what you propose could be the way forward. TOE from her to me, move to IO for now (until we're back in the UK), and try to rent it out.

That would be the ideal solution, BUT it will be down to the lender and affordabiity assessments (inc their acceptance of he being overseas), as to if this will work. BUT, if it is to be rented, you have a tenant ready, and the rental income sufficies the mge (esp given the current neg equity issues etc), this may be an attractive alternative for them given the circs.

lemonjelli wrote: »

I have just a couple of questions, if I may:

- Should H tell the lender that Mary has told him she plans to default? Or would that make them nervous if you know what I mean?!

No, because that is conjecture at this point, and won't really help in anyway, so I'd keep that quite for now - unless there is already arrears when the cats out the bag a bit.

If Mary agrees to move out and be removed from deeds and mortgage, then this is how its presented ot the lender. That Mary is moving out, wants off the mge/deeds, he is now married to you and you and he want to replace her with you as joint mortagor (borrower) - then take it from there.

lemonjelli wrote: »

- Would H be in trouble because he has moved abroad?

Not necessarily.

lemonjelli wrote: »

- Could you clarify what we mean about not being treated as expats? H has a yearly contract, so far guaranteed up to 2014, but visa rules mean it is impossible to be renewed past 2016. Would we be treated as resident? Surely that makes things simpler?

Is he abroad purely through his employment and has been temporarily posted overseas via his employer, which should be UK based or a multi national ? If not, then typically he's not classed as an ex pat for mortgage purposes (which is completely different to the general definition of the term ex pat).

You'd also need to put in place absent landlord arrangements (ie engage a letting agent) due to you being stationed overseas at present, as well as standard tenant deposit gtes etc.

lemonjelli wrote: »

- Does a TOE from her to me involve a remortgage? Fortunately I am employed too so would this make it easier for me to get onto the mortgage?

No, its not a remortgage (which is essentially a change of lender), but simply the current lender removing the GFs name from the mge and her being replaced by you, this should also involve the removal of her name from the property deeds. There will typically be a lender admin fee for this, and also solicitor fees of circa £450 (give or take !), if the lender does agree to the TOE.

Consent to let (CTL) - is typically timebound by about 3 yrs, as its essentially designed to assist accidential landlords, at which time the lender may switch you onto a traditional BTL or may ask you to source another lender, if you intend to continue letting.

Seeking CTL with sufficent rental income, may hopefully circumvent the issues with overseas employement/income if not accepted under ex pat regs - but this will be at lender discrection.

The mge interest rate will be typically loaded by about 1%, although some lenders may choose to leave you on the existing rate for a period.

You will have to disclose rental income for tax purposes (via self assessment), even if there is no resultint tax due to no profit or even a loss.

This should be enough to get you started, speak to the lender about the underlying reasons re neg equity issues and why you would prefer not to sell until the market recovers, plead your case well and then when you have a bit more meat on the bones, come back if you want to chat more.

Hope this helps

Holly xx

lemonjelli

We did come abroad for employment, but not through his UK employer. He left his job in the UK and is now employed by a company here. So I guess we would be considered as neither resident nor expats, how funny!

You have really put our minds at rest, we feel we will approach the conversation with the lender a lot better now (as you have laid it out), you make the TOE sound so straightforward, we can only hope!

If we think of any more questions before Tuesday I will come back and post but if not I'll update after the big chat! Really appreciate your help