Bad credit mortgages?

banofi

I was made redundant last year and have now found a higher paid job which requires me to move away from my current area. I've been in employment since the redundancy (a 6 month contract then a new job which I left after 2 months because I found a much better one, I can see myself staying at this new job long term). I currently have a mortgaged flat, with a Northern Rock Together mortgage, now NRAM. I am currently living near my new job Monday to Friday and paying £80 rent each week, plus travel costs. However - I am on a debt management plan and probably don't have much equity, I'm estimating maybe 5%. I'm wondering what my best option is, I don't expect to be able to get a new mortgage unless there's a lender willing to lend to me which is unlikely! Can I obtain 'consent to let' from NRAM and rent out my flat until I earn more equity and improve my credit file? I don't really want to come off the property ladder.

Thrugelmir

banofi wrote: »

I don't really want to come off the property ladder.

If you have no intention of moving back "home". Then sell your property, release the equity and speed up repayment of your debts.

There's no guarantee that letting the property will be profitable in the longer term. The fact that you are in a DMP is a huge negative factor that isn't going to be cleared for some years. So personally I would suggest taking a very long term view.

banofi

Hmm I'm just worried about coming off the property ladder as I probably won't get back on it. In a few years it will be worth more and give me more equity. If I let my flat i'll get enough to cover the mortgage, but it will come with the usual risks (unexpected costs) but I could budget for that. Ideally I'd like to just sell and buy somewhere else but I don't think it would be that easy.

ACG

Im on the fence with this one. A bit more info is needed really...

In order to get a Mortgage with a DMP you are looking at a minimum 25% deposit and the dmp cleared in full (not settlement figures). If you rented the property out, it would potentially give you some additional income, i would use that to clear your dmp sooner rather than later.

The other option is to sell your house and put the equity towards your debts.

However, we do not know whether you would make a profit from the rent, how much the dmp is for and how much the 5% represents so its difficult to say. But im like you, i would be reluctant to come off the property ladder, so i think personally i would lean more towards using any profit from the rental payments you receive to overpay on the dmp.

banofi

My outstanding debts are approx £12k. My mortgage is currently at about £135k, and the flat worth approx that amount (I think). So I might actually have no equity at the moment. If I rent it out, the rent will cover the mortgage (I'd get around £650 per month, mortgage is £628 per month). My new job pays me about £400 per month more than my previous one, plus overtime. I'm thinking if I can rent it out for a few years, build up a bit of equity and possibly make overpayments on my DMP and clear that asap, then I'll be in a better position. But how does consent to let work? Would it be a new mortgage or will i stay in my existing deal?

ACG

consent to let with northern rock will involve a loading on your current rate of 1% i think.

So you will still end up sibsidising the mortgage, just not as much as you currently are.

banofi

Ok, I'll phone NRAM next week and see how much it would be. Thanks!

kingstreet

Nah. There's no rate loading.

NRAM charges an annual fee which is dependent on the loan to value and is in the range £375 to £1,250.

https://forums.moneysavingexpert.com/discussion/4490485

Thrugelmir

banofi wrote: »

If I rent it out, the rent will cover the mortgage (I'd get around £650 per month, mortgage is £628 per month).

Only the interest is tax deductible against the rent, not the capital element of the mortgage repayment.

As the Landlord you will be responsible for the maintenance of the property.

If the property is empty, i.e. void periods or the tenant fails to pay the rent. You will have no income.

If you live a distance away you will incur costs in visiting the property. To vet new tenants, leaving tenants etc. Employing a managing agent will cost you at least 15% of the rental income.

A few observations that renting property out is not merely a question of banking the rent.