Mortgage downfall

jessicajb

My father passed away and we have inherited his home which we rented from him. He had an interest only mortgage with 101k on it and the property has been valued at 90k, we are buying the property but what do we do with the shortfall

SMR710

I presume you have to make up the shortfall to be able to pay the bank the full mortgage

SameOldRoundabout

I would expect you’d had to cover the shortfall as well as any deposit on your mortgage. 

yksi

You seem surprised and confused about it being a shortfall. But it isn't a shortfall. Basically you haven't inherited anything. All he had was a loan/debt. He didn't own the house, and if I understand you correctly, he didn't actually own any of it, not even the front doormat.

So now you want to buy a house which belongs to someone else (the bank) and the cost is 101k. The house is only worth 90k.

1. Do you have 101k to buy this? Or can you get a mortgage for 96K plus add about 20k of savings to buy it?
2. Do you want to pay more than the house is worth in the first place?
3. What was his plan to pay off the house - he had an interest-only mortgage and people who have these are supposed to have investments or some plan on what to do when the loan falls due? Did he have savings?

You might be better off letting it be sold as part of his estate, and then buying something better value. Or even just continuing to rent from the new owner.

(Now if you actually meant there is 90k equity, then you need to find a mortgage for whatever is left and it might be worthwhile.)

Retired_Mortgage_Adviser

Sorry for your loss.
Unless there's a typo in the post, it appears you stand to inherit (or have already inherited) a house in negative equity.

You do not have to accept it if you cannot afford to take on responsibility for the outstanding mortgage. The legal term for refusing to accept an inheritance is ‘disclaiming’ it. You can disclaim your inheritance by sending the appropriate paperwork to the executer of the estate, or whoever is transferring the property. This must be done before you have accepted the property and you will unfortunately have to forfeit your whole inheritance, you cannot disclaim part of it.

Please could you confirm that it is indeed 101k outstanding mortgage and the house is only valued at 90k?

jessicajb

Retired_Mortgage_Adviser said:

Sorry for your loss.
Unless there's a typo in the post, it appears you stand to inherit (or have already inherited) a house in negative equity.

You do not have to accept it if you cannot afford to take on responsibility for the outstanding mortgage. The legal term for refusing to accept an inheritance is ‘disclaiming’ it. You can disclaim your inheritance by sending the appropriate paperwork to the executer of the estate, or whoever is transferring the property. This must be done before you have accepted the property and you will unfortunately have to forfeit your whole inheritance, you cannot disclaim part of it.

Please could you confirm that it is indeed 101k outstanding mortgage and the house is only valued at 90k?

Hi, yeah so it’s 101k outstanding on the mortgage and the house is only valued at 90k, the original plan was always for my sister and I to buy it but with my dad passing away it has sped up this process, it has been left to us in a way that we don’t need to pay a deposit or stamp duty, we just need to get a mortgage but now that it has been valued less we aren’t sure on what happens. 

jessicajb

yksi said:

You seem surprised and confused about it being a shortfall. But it isn't a shortfall. Basically you haven't inherited anything. All he had was a loan/debt. He didn't own the house, and if I understand you correctly, he didn't actually own any of it, not even the front doormat.

So now you want to buy a house which belongs to someone else (the bank) and the cost is 101k. The house is only worth 90k.

1. Do you have 101k to buy this? Or can you get a mortgage for 96K plus add about 20k of savings to buy it?
2. Do you want to pay more than the house is worth in the first place?
3. What was his plan to pay off the house - he had an interest-only mortgage and people who have these are supposed to have investments or some plan on what to do when the loan falls due? Did he have savings?

You might be better off letting it be sold as part of his estate, and then buying something better value. Or even just continuing to rent from the new owner.

(Now if you actually meant there is 90k equity, then you need to find a mortgage for whatever is left and it might be worthwhile.)

The plan was for my sister and I to buy the property as we rent it already, the process of this has just been sped up due to his sudden death. We have already been told we Can get a mortgage from the bank the confusion comes with it being valued at 90k but 101k on the original mortgage, I don’t understand why it would make more sense for us to sell it when when we want it and we would still be in the same position with the difference in the price. Thank you anyway for commenting

Thrugelmir

Who are the executors of your late fathers estate? Is your late fathers estate solvent? 

Retired_Mortgage_Adviser

Ok. In that case, very generally speaking, you will (at most) be able to borrow 95% of the value of the property ie 85,500. The remaining 15,500 may need to be made up in cash.

The first avenue I would explore is talking to the current lender. In case of inheriting houses in negative equity, I have known cases where they have agreed to alternative arrangements considering the circumstances.

Who's the current lender?

What's your income and debt, to get an idea of whether you meet affordability for an 85k repayment mortgage and if there's enough leeway that the current lender may consider alternative arrangements.

yksi

jessicajb said:

yksi said:

You seem surprised and confused about it being a shortfall. But it isn't a shortfall. Basically you haven't inherited anything. All he had was a loan/debt. He didn't own the house, and if I understand you correctly, he didn't actually own any of it, not even the front doormat.

So now you want to buy a house which belongs to someone else (the bank) and the cost is 101k. The house is only worth 90k.

1. Do you have 101k to buy this? Or can you get a mortgage for 96K plus add about 20k of savings to buy it?
2. Do you want to pay more than the house is worth in the first place?
3. What was his plan to pay off the house - he had an interest-only mortgage and people who have these are supposed to have investments or some plan on what to do when the loan falls due? Did he have savings?

You might be better off letting it be sold as part of his estate, and then buying something better value. Or even just continuing to rent from the new owner.

(Now if you actually meant there is 90k equity, then you need to find a mortgage for whatever is left and it might be worthwhile.)

The plan was for my sister and I to buy the property as we rent it already, the process of this has just been sped up due to his sudden death. We have already been told we Can get a mortgage from the bank the confusion comes with it being valued at 90k but 101k on the original mortgage, I don’t understand why it would make more sense for us to sell it when when we want it and we would still be in the same position with the difference in the price. Thank you anyway for commenting

Well, it depends whether it's important to you on a personal level compared with the actual value of the home. The house is only worth 90k, and paying 101k is not good value (on paper) but you might still think the home has sentimental value making that worthwhile. I hope the bank does help you out!

ACG

The shortfall would generally be made up from your fathers estate, if there is nothing else of any value in his estate then it becomes a bit tricky. There is potential that you would buy it for its value (£90k) but you still need to put down a deposit and the remaidner (£11k) would be written off.

You need to speak to the lender and find out what the process is in this situation.