Negative equity & leasehold property

Pixie5740

I thought in many parts of London it was cheaper to rent than have a mortgage because of rising house prices. Besides rent versus mortgage payments is comparing apples with oranges, there's more too it than that. The OP is currently responsible for repairs to the property which she cannot afford. God help her if the freeholder presents her with a large bill. They've outgrown the property. There doesn't appear to be a plan to pay off the interest only part of the mortgage. The lease is getting more and more expensive to extend. The mortgage repayments are manageable just now but when interest rates rise they may no longer be affordable and with such a high LTV and short lease the OP will have a really problem trying to mortgage so will be stuck on her lender's SVR.

continualdiamond

TBagpuss wrote: »

How old are your children? And are you and your partner both in work now?
Would it be possible for your children to share a room short term while you save to extend the lease & replace the boiler?
Do either of you have family who might be able to lend you money for a new boiler?

Our eldest daughter turns 3 in October and our youngest in 5 mths old. Yes both my husband and I are in work. My husband has been made redundant twice and I myself am facing it over a 3 year period, I have just survived the 1st lot of redundancies due to people taking voluntary redundancy but unfortunately it's a 3 year plan.

Our daughters will have to share a room, as it's only 2 bedroom flat. The boiler and hot water tank are in this bedroom on the floor. We need the boiler replacing obviously but also wanted it replacing to get this floor space back so the room was bigger for them to share. We were looking into custom made bunk beds to save on space as well.

My parents would of helped us out if they could but they have already paid for us to visit them at Christmas time (Australia, it's where I am from). Please don't shoot me down because we're going on holiday, we haven't paid for it, my parents were going to visit us as they are yet to meet our 2nd daughter but as I am on maternity leave they used the money to pay for us to visit them so we can spend a Christmas with them.

My in laws don't have much to do with us, so it would be up to my husband to ask them but he doesn't seem very keen to mention it to them.

bouicca21

I was pinning my hopes on a financial makeover providing a spade for OP to dig herself out of the mess. If she could get a realistic budget together it might just be possible to sort something out. If there is no realistic budget then she will face very similar problems whatever she does and it will end up as a spiral of decline.

continualdiamond

dancingfairy wrote: »

So to summarize -house too small, 80k left on mortgage, worth approx 75k? Needs new boiler.

You think 10k to extend lease ? How much would place be worth then? Is this an option to sell and extend lease at same time?

Other than that -you could try auction with minimum reserve but would need to agree a plan to address shortfall with lender.

Could you live there for another couple of years? Could your children share a room? Is there anything else you can do to make living arrangements easier? Are there other options for a smaller, more compact boiler that don't eat into living space?

Could you rent house out and rent another place? I think you'd need to get the boiler sorted before renting though.

Df

That's right. Last year I was told if I extended the lease the estate agent thought the property would be worth about £85,000. No one has extended the lease on any properties in my street. The lease apparently can be extended when sold, we start the process and then it's transferred to the new owner as you can't extend the lease until you've owned the property for 2 years.

Our girls will definitely have to share the 2nd bedroom. Until being turned down for credit for the boiler it was always our plan for our 2nd daughter to share the bedroom with her sister. The boiler wasn't going to move from the 2nd bedroom as too costly to put into the kitchen, it was simply going on the wall and we'd regain floor space back.

We thought of renting it out, but most definitely the boiler would need to be sorted first and the issue of the lease is what worries me with renting it out. The lease getting shorter and becoming more expensive to extend and then the property going down more in value because of it.

AdrianC

continualdiamond wrote: »

My husband has been made redundant twice and I myself am facing it over a 3 year period, I have just survived the 1st lot of redundancies due to people taking voluntary redundancy but unfortunately it's a 3 year plan.

This just confirms that taking on expensive debt is not the right thing for you to do.

GET SHOT OF THIS MILLSTONE ASAP.

StumpyPumpy

continualdiamond wrote: »

Problem is, it's now too small as have 2 children and it's in negative equity. It was fine when we had our 1st baby as it's got 2 bedrooms and before I fell pregnant with my 2nd it was up for sale but had no offers. Issues were always the same, kitchen too small and lease too short (now has 59 years left).

We cannot afford to extend the lease (not had a quote but expect it to be around £10,000 from quick look I've done online). Flat is worth roughly £78,000 and been told to look at selling at £75,000 to a cash buyer.
Is the valuation of £78k/£75k cash based on current value with 59 year lease or market value with a leasehold extension? This makes a big difference!

Issue we have is the boiler needs replacing as it is 40+ years old, the hot water tank is separate and stopped working in Feb so the boiler has been fixed up to now heat the water as well. Both of these are located in the 2nd bedroom which is my eldest daughters bedroom.

Our credit rating is low (in the 300's) and a quote for a new boiler is £2,300. We got refused credit today and are looking at 34% credit to replace the boiler.
Are you sure your boiler is totally kaput? Our boiler is 35 years old and still going strong, with the help of a local boiler specialist (not some chain or general plumber who would want to rip it out and charge a lot for it) I thought it had gone last year but he came round, rummaged in his van for a spare part and fixed and serviced for under £200. All boilers are, of course, different but it might be worth getting more quotes.

What on earth do we do???? The longer we stay in this property the shorter the lease gets obviously which then drives the value of the property into more negative equity, yet getting credit at 34% to get a new boiler is crazy and I feel like it's wasted money as need to move yet will then still be paying off a boiler in a property we no longer lived in.
Have you started the process to get the lease extended? The freeholder has to deal with you as you have lived there for more than 2 years, you can go statutory with a section 42 notice or negotiate informally with them. With a section 42 once the process starts the clock stops, you can do the first bits yourself for free and most importantly, you can transfer it before it is complete to the buyer should you get one. It can take some time to all come through so it is best to start it sooner rather than later.

Our 2nd daughter needs to move into the 2nd bedroom soon as replacing the boiler = more floor space and obviously the new one will go on the wall.

I'm in a complete mess about money every single day. My husband seems to just bury his head in the sand and I feel like it's just all too much for me to try and deal with, especially as on maternity leave as 2nd daughter is only 5mths old.

What would people do? Should I go to citizen advice?

continualdiamond wrote: »

This was the estate agents suggestion last year. It needs a new kitchen and this is what puts people off. Every viewing people said they loved the space and garden etc but the kitchen is too small. Only positive i's as it's ground floor other the kitchen can be extended but people can't see this as just see how old and pokey it is.
It is unlikely (though not impossible) that the freeholder would give anyone permission to extend a ground floor flat, I wouldn't mention this to buyers.

Your best bet would be to try and declutter it as much as possible, even if that means removing a cupboard or two, and making sure it is a bright and tidy as it can be. There are lots of low cost ways to maximise what you've got and most people looking at flats like yours will not be expecting a massive kitchen anyway.

See in-line for comments

[Edited to add:]Cross posted this with your latest comments - just wanted to add, I can't believe that if your flat has a market value of £85k with an extended lease, that you would get anywhere near £78k/75k without one when you say the cost of an extension would be £10k!


SP

hazyjo

Sell (it will sell if priced low enough, or auction it) and consider renting a one bed flat in the short term. It won't be ideal, but the kids can share and you can use a sofa bed. My friend (in her 40s) has been doing the same thing for years. Living over a funeral parlour, they have the lounge with sofa bed and their now-21 year old son has the bedroom.


Not like you're buying it, so just see it as a short means to an end. Start again from scratch in a year or two. Hopefully the rent on a small place will be cheaper than what you're currently paying out (including the debt you are building up).


Jx

pinkshoes

Are you in receipt of any benefits so that you could qualify for the government boiler scheme?

http://www.boilergrants.info

This needs to be your priority rather than selling. You need to research any sort of scheme that might give you a low interest loan.

Could one of you take on another job to bring in some extra cash?

how much would it cost to rent a two bed property compared to what your mortgage interest is?

continualdiamond

AdrianC wrote: »

Way back in your original post, you said...

...now you tell us that part of the mortgage is interest-only, but you have no endowment or other investment in place to repay that when it comes due?



Sorry, but you did say enough for people to make at least some assumptions about the choices and priorities you have made.

Just from what you've told us - you've been living in your flat for the last decade, watching the lease rapidly diminishing from dangerously short, past the point of unsaleability, as the renewal cost rapidly rises. The kitchen desperately needs replacing. The boiler desperately needs replacing. Your mortgage is relatively tiny, yet you are still in substantial negative equity. You are nearly half way into an unrepayable interest-only mortgage timebomb. Your credit rating is borderline toxic. Your husband doesn't either care or understand the situation. Your first child isn't three yet, and your second child was born only a few short months ago.

But that's a decision you have consciously made.

Now you need to figure out how to get out of this mess as inexpensively as possible.

Given the lack of support you're getting domestically, your least-worst bet is going to be to just bite the bullet and just sell it as a project to a cash buyer, and accept the debt that comes from it. If you walk away with five grand of debt, plus legal fees, that has to be better than taking potentially £15k of expensive finance then hoping for a rapid sale at a high enough price, while the repayments kill you through stress and your husband just ignores the mess, right?

Let's assume the lease renewal can be financially tied-in to the sale. That still leaves the kitchen and boiler. With a baby and a toddler in in the house, even if your other half is competent enough at basic DIY to replace the kitchen himself, I would presume the upheaval is not going to be acceptable, and there's still the question of funding even basic kitchen units and the boiler.

Yes I openly admit we bought this place not understanding what a leasehold property entirely meant. We always intended to live here for about 3 years, make a profit and move to a bigger property. Yes we should of sold in 2008 as our next door neighbour made the biggest sale of about £92,000, since then the properties have all sold for a hell of a lot less.

We had no idea the property was in negative equity until we decided we needed to move and unfortunately we had no idea that extending a lease would be so costly, yes yes I know stupid.

I know it was our decision to have children and for me I didn't know what to do re in terms of waiting for be better off money wise as how long could that take and then would I have passed my chance to have children. I'm 34 and obviously if we had decided to wait we wouldn't have any children now.

The kitchen is a nightmare as it's extremely tiny and the previous owner tiled over tiles and then put units over them, its roughly an 1980's kitchen and poorly laid out.

No one asks to be in rubbish situations, yes we made poor decisions and that is our fault but circumstances out of our control didn't help. In the beginning for us it was being effectively kicked out of my now in laws house, we hadn't had chance to save up any money and my in laws basically found us a caravan to rent and told us our moving day.

I know blaming others doesn't change anything, just saying it didn't get us off to a good start.

Kynthia

bouicca21 wrote: »

But if OP sells where do they go? In my experience a mortgage is cheaper than rent - but that may be a London phenomenon.

Normally I would agree with you but you're ignoring the increasing shortfall between what they owe and the value of what they own plus maintenance bills. In this case the OP is paying lots of mortgage interest each month which could be spent on rent instead. If they rent they wouldn't have a property that was devaluing each year due to the lease and the lack of maintenance/updates as well as bills for the boiler and other repairs. Each year they stay their debt us getting bigger and their living standards getting lower. Renting is probably cheaper overall as they would have flexibility to find somewhere that meets their needs, change areas if they wished, all while someone else maintained the property.