Mortgages are recourse loans in UK?

beatallica

Just to confirm, someone explained me the other day that in the UK mortgages are recourse loans, i.e. if lender can't fulfil its debt by selling the property off then I will be personally liable to them for any remaining amount. As opposed to the US I guess where you can just walk out of the property.

Just thinking of worst case scenario where (1) I lose my job so can't pay monthly payments and (2) house prices fall such that I am in negative equity

In the above case, guess the bank will take possession, try to sell the flat and if they don't get enough from sale, I would still be liable, is that correct?

When does it all start impacting your credit rating? The moment you don't pay your first monthly mortgage payment?

Thanks !

ACG

Yes you are correct.

It impacts your credit file from the first missed payment.

beatallica

Thank you, realise I asked a similar question elsewhere but didn't get answer so asking here.

So in a scenario as above, if I lose my job AND am in negative equity situation, then personally the best thing for me would be to let it out to someone else and move in a super cheap flat for short term till I find a new job. In that case, would need to ask "consent to let" permission from bank, how likely is that to come (given at that point, flat is in negative equity)?

thanks

ACG

It will depend, if its a month or 2 after you buy it - probably quite slim.

If its a year or 2 then potentially more likely. It will depend on the lender, it is looked at on a case by case basis.

The chances of property being bought now going into negative equity anytime soon is pretty slim though.

If you do not feel secure in your job, you can take out unemployment insurance - this will give you a year or 2s "income" on top of your redundancy pay whilst you sort out a new job.

Foxy-Stoat_3

beatallica wrote: »

Thank you, realise I asked a similar question elsewhere but didn't get answer so asking here.

So in a scenario as above, if I lose my job AND am in negative equity situation, then personally the best thing for me would be to let it out to someone else and move in a super cheap flat for short term till I find a new job. In that case, would need to ask "consent to let" permission from bank, how likely is that to come (given at that point, flat is in negative equity)?

thanks

This will be more likely an issue if you take out a high LTV mortgage.

Rather than let out the flat and open another can of pain if that goes wrong, you could get a lodger in if the flat is big enough to help out with the bills until you get another job.

Or filing for bankruptcy and walk away.

beatallica

I am planning for a 90% LtV so would imagine that is classified as "high" LtV right?

Thanks

Foxy-Stoat_3

Depends if the property your buying is cheap/market value/overpriced. The value, age and location are factors.

I personally don't like the idea of a 10% deposit on a new build place that's overpriced in the first place, but assuming your not selling in the first 5 years it should give you time to build on the equity.

Thrugelmir

Seeing this is your third question along similar lines. Perhaps you should consider saving to increase the size of your deposit before purchasing. Mortgages are a long term committment. So if you have any doubts hold fire for a period of time.

beatallica

Thrugelmir wrote: »

Seeing this is your third question along similar lines. Perhaps you should consider saving to increase the size of your deposit before purchasing. Mortgages are a long term committment. So if you have any doubts hold fire for a period of time.

Many thanks for your comment. I appreciate 90% LtV is fairly high but I am pretty sure I want to go ahead and just spending time appreciating all the risks involved and make myself mentally prepared in case anything adverse happens. True that doesn't take the risks away but better to have all possibilities in mind ! But I do appreciate the comment