NRAM refusing to extend negative equity mortgage term please help

beckyd13

I'm posting for help for my Mum as we're not sure where to turn.

Mum and Dad were Northern Rock customers for a number of years - they moved to their current home in December 2007 and ported their interest-only mortgage. They borrowed £100k to purchase a £108k house (93% LTV). All repayments have been made on time (they have never defaulted) but obviously the £100k is still outstanding. They had such a high LTV in their 50s due to having an IVA after their business closed about 15 years ago - they paid every penny back.

The mortgage term runs out in about 18 months. They planned to sell and move into rented accommodation, but the house is now in negative equity due to changes in the market. We've had four estate agents round and it's probably worth £85k on a good day, more realistically £83k.

The timescale to sell became pressured as Dad had been suffering from a progressive illness over the last few months and the house was no longer suitable for him so they needed to sell and move to ground-floor accommodation (whether rented or via the council) and they were in the process of getting the ball rolling with the estate agent when my Dad sadly passed away (last week). Mum has put the sale on hold for a little while so that she can consider her options.

The ideal situation is for NRAM to extend the mortgage term by say 4 or 5 years so that hopefully the market picks up and the mortgage can be redeemed in full upon sale. The house was owned jointly by my parents but my brother in his 20s still lives at home and pays board. There is no relevant insurance. Mum has no difficulty paying the mortgage each month. If NRAM could give us a few more years I could save up to help, the market would hopefully pick up and everybody wins.

The mortgage is now with NRAM. They had previously said that Mum and Dad should get the best offer they could and then call NRAM to discuss options. Mum called them again after Dad passed away and they were still reluctant to say what those options were but after making a fuss and getting through to head office, they confirmed that:

1. They cannot extend the term of the mortgage as they are not a lender
2. Mum should call them when the best offer comes in and if she's looking at a £17k shortfall they will consider her financial circumstances and probably loan her the money to be paid back "over say a year".

Now, my Mum is a 61-year old nurse, due to retire in 4 years, has just lost her husband and is now worried about her financial future. She doesn't have a big pension and is going to be largely reliant on state pension. NRAM have absolutely disgusted me. Mum and Dad were always people to pay their dues and Mum isn't looking for a fast way out, but it's inconceivable how a pensioner (or anyone) could pay back £17k over such a short space of time, especially when commercial rents are around double what she's paying on the interest-only mortgage.

My main issue is that the mortgage was taken out with a mortgage company - it's not Mum's fault that they went bust and yet now she's being penalised for the fact that she's with an asset management company. I see no reason why they can't extend the term as we're not asking them to advance any more money.

Can anyone suggest a way forward? Mum would be very reluctant to declare bankruptcy. I'm wondering if a formal letter of complaint and recourse to the Ombudsman would help? Kicking up a stink with our local MP would feel good but might not be that productive.

Thanks in advance,
Becky

nkkingston

My thought is if she sells and moves into rented accomodation, I'm pretty certain the £17k would be a non-priority debt i.e., they couldn't take her new home away from her, or her liberty. If so, then she can pay it back at a rate that's affordable to her, even if that takes longer than a year (and if it's under £20k, she could potentially qualify for a DRO, though if she isn't keen on bankruptcy other forms of insolvency may not appeal to her either). It's worth going to chat with a money adviser somewhere like Citizens Advice to explore her options, so she knows precisely what that debt would mean if she were to take it on. Also, if you do send a formal complaint, being able to show you've received advice from a neutral third party can carry more weight.

dunstonh

NRAM are tasked with running down the old "bad book" side of NR. They are not there to lend new money. They do have some discretion but the scenario you paint doesnt seem to offer any solution that would be improved by delay.

The ideal situation is for NRAM to extend the mortgage term by say 4 or 5 years so that hopefully the market picks up and the mortgage can be redeemed in full upon sale.

Or house prices could fall and make it worse.

NRAM have absolutely disgusted me. Mum and Dad were always people to pay their dues and Mum isn't looking for a fast way out, but it's inconceivable how a pensioner (or anyone) could pay back £17k over such a short space of time, especially when commercial rents are around double what she's paying on the interest-only mortgage.

I do appreciate their situation. However, its not quite as you make it.

1 - NRAM are not a commercial lender. They took on the bad quality lending book of NR.
2 - Your parents took on an interest only loan by choice. That is high risk and they failed to plan for that. However, they had the whole term of the mortgage to plan for it. It was rather irresponsible of them.

You are emotionally attached to it (understandably). However, you need to look at it without emotion.

My main issue is that the mortgage was taken out with a mortgage company - it's not Mum's fault that they went bust and yet now she's being penalised for the fact that she's with an asset management company.

It is not NRAM's fault your parents failed to plan to repay their mortgage. Warnings would have been issued every year of the consequences. Those consequences have been ignored and now they have come home to roost.

I see no reason why they can't extend the term as we're not asking them to advance any more money.

You are asking to advance more money as it would be classed as a new debt. The mortgage has an expiry date. Its not an open ended facility. Nothing in the future suggests any improvement in the ability to repay the debt. So, there is little logic in putting off the inevitable.

I'm wondering if a formal letter of complaint and recourse to the Ombudsman would help?

The ombudsman is not a consumer champion. It is an independent arbiter of complaints. There are ombudsman decisions published on a similar basis as yours (complaint rejected)
http://www.ombudsman-decisions.org.uk/viewPDF.aspx?FileID=67951
or
http://www.ombudsman-decisions.org.uk/viewPDF.aspx?FileID=99102
or http://www.ombudsman-decisions.org.uk/viewPDF.aspx?FileID=91875

Can anyone suggest a way forward?

Do as NRAM ask. Tell the estate agent that you want it priced for quick sale and let NRAM know of all offers. NRAM do have the ability to write some money off and go beyond lending on unsecured basis for over a year. They were given an example period but its not the only thing available to them.

Westminster

Or just hand back the keys and force them to make her bankrupt and move on.

Thrugelmir

beckyd13 wrote: »

Now, my Mum is a 61-year old nurse, due to retire in 4 years, has just lost her husband and is now worried about her financial future. She doesn't have a big pension and is going to be largely reliant on state pension.

My main issue is that the mortgage was taken out with a mortgage company - it's not Mum's fault that they went bust and yet now she's being penalised for the fact that she's with an asset management company. I see no reason why they can't extend the term as we're not asking them to advance any more money.

As a nurse she'll be receiving something from the NHS in addition to the state pension. Also she'll be receiving a lump sum under the scheme.

Why didn't your parents make any effort to repay the capital owed? Since they've bought the property there's only been record low interest rates. They went bust 15 years ago yet had the money to move 8 years ago. I think that you are muddling issues together that don't exist.

I do emphasise with you. However it was your parents responsibility to manage their personal financial affairs not NRAM's. So you need to detach emotionally from the situation and deal with the actual reality. Rather than trying to apportion blame.

megaginge

Unfortunately, this is as others have said - a result of bad planning, and an example of why you can't get 90+% interest only mortgages any more.

I would think the best option is bankruptcy and move into rented accomodation, unless you want to guarantor a loan to pay back the negative equity, or take the unsecured loan from NRAM's option.

MacMickster

Now, so soon after the loss of your dad, is an emotional time and so not the best time to take big decisions.

As others have pointed out, the facts are that your mum and dad took out an interest only mortgage in 2007, saying that they would repay the capital in full in 10 years time. It is perfectly reasonable for the lender to expect your mum to stick to that deal.

I'd suggest that in a few weeks you sit mum down and review her finances in full. Is she likely to be able to get a personal loan to pay the shortfall on the mortgage, use her lump sum when she retires, or did dad have any life insurance? Is there a car that can be sold to raise money or any other saleable assets? Is she entitled to a bereavement allowance that she can save towards the likely debt? Can she cut her spending?

There is little point wasting energy complaining about the lender. Your mum needs to take positive steps now to deal with the situation.

AnotherJoe

Didn't they have life insurance to cover the mortgage? Isn't that often a condition of taking a mortgage out? Could your mum have forgotten about it?Take a look through her bank statements for monthly payments to an insurance co.

beckyd13

Thanks for the advice guys, and to MacMickster for your sensitivity.

Those FOS links are extremely helpful and it looks like we can discount that as an option. I see now that buying more time with an extension (even if she was with a lender rather than NRAM) is unwise, as you say, as although the market is on the up again there's no guarantee what it's going to do. After all, i guess that's why Mum is in this mess. My view of NRAM was admittedly tainted by the way that they spoke to my Mum and them being, on the whole, generally evasive and unhelpful. I'm sure you'll all appreciate that it's a pretty horrible time for the family right now and if they had explained things a bit better and more sensitively it might have been easier to understand. She totally panicked about having to repay £17k in a year (which is around what she earns in a year to give you a sense of scale).

Sadly I don't think there are any lump sums due on retirement - mum has a small NHS pension but has spent much of her working life in private care homes. We're looking in to bereavement payments.

I'm sure that my mum and dad had planned on saving more to cover this eventuality, but with Dad's illness he had to take a lower paid job that was less physically demanding and then retire early, and Mum had to reduce her hours to care for him. It's not all down to poor financial planning, but unfortunately they didn't put themselves in a position where they could deal with the unexpected. Dad had a fixed-term life insurance policy that would have paid the mortgage off if he died but by the time it lapsed he couldn't renew due to his health.

I'll speak to my mum and look at ways we can tackle the shortfall together and have a look at scheduling in some independent advice for her when the time is right.

Do you recommend CAB, or someone like StepChange?

beckyd13

AnotherJoe - my mum has cover, but my dad's had lapsed (see post above).

dunstonh

NRAM still have to treat her fairly. That doesnt mean they have to give a really long period to pay but if she does have the NHS pension, they may well consider the lump sum from that in years to come. They may well write off £x amount and ask her to pay back £y amount for a few years and then repay the remainder from the tax free lump sum from the pension.

And a well done for listening. Very often people dont like to hear things that disagree with them or point out the scenario in an unbiased unemotional way. They respond by shooting the messengers. You have shown a maturity to take what was said on board. Keep that up when dealing with this and you should be ok.

In the end, do not be afraid to raise a complaint and refer it to the FOS if necessary if you feel NRAM are being unreasonable. However, at least you now know the sort of arguments people have made and failed on. So, you can avoid those pitfalls. The FOS would look for a reasonable plan over a short period.