Negative Equity, but want to sell

SimonTheGoat

Hello,

Over the past couple of year my partner has been living with me and renting out her flat as she was in negative equity. Rather than dealing with issue, it seemed renting and hoping the property market picked up would be the best way to go.

We're now in a situation where it is becoming a bit of a bind. The rent only covers the mortgage and so any months it is empty, or needs work is more money out and with it only being an interest only mortgage we aren't any closer to get out of the problem.

The current tenant is looking to leave, so we figured it would be a good time to try and get rid of the property. Here is the financial situation on it.

Interest only mortgage: £101,995
Loan from company who built the flat: £33,409 (used as deposit)

We've just had the valuation back and they are suggested the property should go on the market for £89,950.

If it sold for that, before solicitors fees, etc, we are looking at a short fall of the following, if my calculations are correct:

Mortgage shortfall of: £12,045
Loan repayment of 25% of sale price (max): £22,488

Grand Total: £34,533 owed

There are some positives, in that my house is currently totally in my name and her flat totally in hers, so we don't have worries of losing the current house. Also, we've been trying to save over the last few years and have managed to got together £7,000 towards it.

Can I ask, what are our options?

Her parents have kindly said they would lend us the money, but even with this extremely kind offer, we are effectively crippling ourselves financially for the next few years and we had hoped to get married and maybe even find a larger property to move into together.

Any ideas?

shortchanged_2

There is no simple answer. You will have to cover the shortfall.

ACG

Could you see if the current lender has any lower rates you could switch to? This may enable you to generate some extra money from it and pay down th mortgage. Realistically its not going to allow you to pay it down massively but surely that is better than losing £30k.

Caz3121

if you are currently on consent to let, how long is it valid for? (I have seen 2 years max in many places before you need to go to BTL)
The risk if you wanted to keep renting it is that you would likely need to address the LTV and the interest would increase so agree getting shot may be the best bet

laura_louise

If you do sell it and borrow the money off family, please do figure it all out in advance.... my seller didn't..

https://forums.moneysavingexpert.com/discussion/5187803

runicfire

I feel your pain - we're in a similar situation, although maybe not quite as much of a shortfall.

I think if you want to sell you'll have to find the money to cover the shortfall unfortunately, unless you can persuade the bank and\or developer to write off some of the debt or even convert it to unsecured...depends on a number of factors though.

Bear in mind that you may not sell it for that much either, and check your contract with the developer for repaying the 25% share, as ours requires us to pay back 25% market value, not sale price (and they will want you to shell out for a survey to prove the market value no doubt)

If you really want rid, borrowing the shortfall from the parents may be the best option, but beware - money does strange things to families :-(

Hope you can find a solution.

Thrugelmir

Sell your property and move into the flat for a while. While addressing the issue of the negative equity.

If you are saving rather paying down the mortgage on the flat. Then you'll go no where. There's no easy answers or get outs. I'm afraid to say.

SimonTheGoat

Thanks very much for all the feedback. It's good to hear your thoughts, even if there aren't any silver bullets of getting out of this predicament.

runicfire wrote: »

Bear in mind that you may not sell it for that much either, and check your contract with the developer for repaying the 25% share, as ours requires us to pay back 25% market value, not sale price (and they will want you to shell out for a survey to prove the market value no doubt).

Thanks runicfire, good points and ones I make sure I follow up on.

Thrugelmir wrote: »

Sell your property and move into the flat for a while. While addressing the issue of the negative equity.

Unfortunately this isn't an option Thrugelmir, we've had a couple of children in last 3 years and the flat wouldn't have the room for us all.

Anyone else, any ideas?

ViolaLass

If you've saved £7k towards the neg eq, why hasn't it been paid off the mortgage? Are you getting a better interest rate on the savings?