Interest Only come to the end and no funds to pay the capital back

TH1878

Hi all,

I have a friend whose parents are 66 and 64 and around 9 years they got into a load of debt. They ended up re-mortgaging the house to repay the other debts opted for an interest only mortgage to keep the monthly repayments affordable.

Long story short, their mortgage (not their mortgage deal) came to the end a month ago but they don't have the funds to repay the capital. The lender has agreed to extend the term by 3 months but wants to see them taking some action.

The outstanding debt is around £129k but we're not sure about the value of the house. When the lender did some checks, they estimated it to be around £120k (i.e. negative equity) but my check on Zoopla estimated it to be about £160k.

Let's assume that the lender is right; what options do they have? The lender has said that they no longer do interest only mortgages and don't lend to the over 65s.

They're both still working and can't see retirement coming along anytime soon but I don't think they're pulling in a massive amount so wouldn't be able to increase their monthly payments by much, and I imagine they have a pretty poor credit rating.

Any ideas? I've told them to get some valuations from estate agents to get a better idea but not sure where to go from there....

Many thanks

TH1878

ILW

Lotto win.

ValHaller

Where to go from here? Repo or sell up. Or buy the right lottery ticket.

HappyMJ

They would need to sell and find a landlord willing to rent to them. How are they going to pay the rent? Do they have pension income they could use to pay the rent? They wouldn't be eligible for council housing as they have made themselves intentionally homeless. To be entitled to a council house they would need to stay in the property and continue paying the mortgage payments to the best of their ability by reducing expenditure to the absolute bare minimum...i.e no Sky, cigs, alcohol, entertainment, holidays, unnecessary travel, unsecured debt repayments...etc.... just basically gas, electricity, water, council tax, food and travel to work expenses. Eventually the lender will repossess the property and they will be evicted from their house. It's very stressful so I really wouldn't recommend that course of action.

TH1878

HappyMJ wrote: »

They would need to sell and find a landlord willing to rent to them. How are they going to pay the rent? Do they have pension income they could use to pay the rent? They wouldn't be eligible for council housing as they have made themselves intentionally homeless. To be entitled to a council house they would need to stay in the property and continue paying the mortgage payments to the best of their ability by reducing expenditure to the absolute bare minimum...i.e no Sky, cigs, alcohol, entertainment, holidays, unnecessary travel, unsecured debt repayments...etc.... just basically gas, electricity, water, council tax, food and travel to work expenses. Eventually the lender will repossess the property and they will be evicted from their house. It's very stressful so I really wouldn't recommend that course of action.

That's pretty much what I said to them. They are meeting the current mortgage payments at the moment but couldn't if it was switched to repayment. Both are already in receipt of State Pensions and any private and occupational pensions.

I think the first port of call is to remind the lender of their duty to treat their customers fairly (ha ha) and to try and work with them to find a solution.

£9k isn't a huge amount of equity to find if house prices continue upwards. Selling the house in a year or two will mean they're debt free at least, even if they are renting. Hopefully the lender will see that they'll get much less at auction if they re-possess and let them extend.

Just wondering if anyone has come across this scenario before...?

Thrugelmir

TH1878 wrote: »

I think the first port of call is to remind the lender of their duty to treat their customers fairly (ha ha) and to try and work with them to find a solution.

The lender doesn't have to find a solution. The problem is the borrowers. The terms of the contract are explicit, repayment is due. Lenders also have to consider affordability when granting an extension which obviously is a problem.

keystone

TH1878 wrote: »

When the lender did some checks, they estimated it to be around £120k (i.e. negative equity) but my check on Zoopla estimated it to be about £160k.

Lenders valuations will always be pessimistic. Zoopla always seem to be wildly optimistic although I note that they've gone over to a min/max value approach and quote the average at you but still think they overegg the pudding. Mouseprice seems far more accurate to me. Give that a try.

There are lenders out there that will lend to over 65s but not necessarily cheaply. They need to find a good mortgage broker to chat to. I was also going to suggest Equity Release but it sounds as though thats a non starter.

Cheers

keystone

TH1878 wrote: »

I think the first port of call is to remind the lender of their duty to treat their customers fairly (ha ha) and to try and work with them to find a solution.

I don't. I agree with Thrugwotsit (sorry - ). Their lender doesn't have to do squat. They need to try and find a new lender.

Just wondering if anyone has come across this scenario before...?

Its a problem that has been recognised for some time. Have a read of THIS

Cheers

TH1878

Thrugelmir wrote: »

The lender doesn't have to find a solution. The problem is the borrowers. The terms of the contract are explicit, repayment is due. Lenders also have to consider affordability when granting an extension which obviously is a problem.

They are also required by the regulator (the FCA) to take into account any reasonable requests to repay debts (which this would become) before taking court action. They also shouldn't start court action whilst you're trying to come to an agreement, which could buy them a year or two in itself.

I'm a financial planner so don't have a problem arguing the contract side but I steer clear of mortgages because they're more trouble than they're worth!

HappyMJ

TH1878 wrote: »

That's pretty much what I said to them. They are meeting the current mortgage payments at the moment but couldn't if it was switched to repayment. Both are already in receipt of State Pensions and any private and occupational pensions.

I think the first port of call is to remind the lender of their duty to treat their customers fairly (ha ha) and to try and work with them to find a solution.

£9k isn't a huge amount of equity to find if house prices continue upwards. Selling the house in a year or two will mean they're debt free at least, even if they are renting. Hopefully the lender will see that they'll get much less at auction if they re-possess and let them extend.

Just wondering if anyone has come across this scenario before...?

Many times...it's much better if they can sell the house themselves...even with a small amount negative equity. They should be able to borrow £9,000 from somewhere. Personal loans, credit cards, friends, family anywhere. I wouldn't wait for house prices to rise...in my opinion the interest on the mortgage and any maintenance costs over the next few years will offset any potential increase in house prices. If they at least put it on the market at a fair asking price in the next few weeks the lender will see they are doing something towards resolving the problem and should continue to extend.

TH1878

keystone wrote: »

Lenders valuations will always be pessimistic. Zoopla always seem to be wildly optimistic although I note that they've gone over to a min/max value approach and quote the average at you but still think they overegg the pudding. Mouseprice seems far more accurate to me. Give that a try.

There are lenders out there that will lend to over 65s but not necessarily cheaply. They need to find a good mortgage broker to chat to. I was also going to suggest Equity Release but it sounds as though thats a non starter.

Cheers

Cheers Keystone. Mouseprice is showing £143,500. I forgot to mention that a similar house in the cul-de-sac sold for £145k last year so wouldn't be a problem if they could get that.

Yep, equity release is a non-starter. They may well get an inheritance in a few years but you can't start planning for that!

I work with mortgage brokers so will ask them tomorrow but just thought I'd come on here to seek out the wise opinions of you lot!

Cheers