Mortgage Prisoner - help

blckdog

We're in a bit of a dire scenario and would appreciate any advice as to the best course of action.

We bought our Belfast house in 2006 for £210k with £30k deposit, were sold an interest only mortgage with no repayment vehicle with First Trust AIB (please don't lecture me about this, I know it was bad choice but we were young and foolish). The property market crashed and we ended up in negative equity. First Trust won't let us remortgage or change product because the loan to value of the house is so marginal (currently valued at £185k with 12 years remaining to pay the £180k balance).  Our financial advisor has not been enable to provide any feasible options for remortgaging based on our current income.  We have worked really hard at paying off our personal debt and getting in the best possible financial shape we can & have perfect credit score (I know, who cares).  We have two kids (aged 13 & 11) and the house is small & not really fit for purpose, despite being in a good location.

Here are the options we've been considering:

• Sell & rent - we basically go back to square one. I'm 40 now and can't see us getting on the property ladder if we take this choice.  We're basically renting from the bank at the moment anyway and rental options would be more than the cost of our current mortgage
• Extend the house - an architect friend drew plans for an extension which would cost £30-40K and would add at least that amount of value to the property. However I'm not sure if we could finance that, or if it even would be wise to do so? This would make the house much more liveable for the next few years until we're ready to move on and might give us the option of remortgaging given value it would add
• Overpay the balance - with ~12 years left I'm not sure how much of a dent we can make in it, but with kids growing I feel like we're not in a good place for them.  It's such a vital time in their lives & I want the best for us as a family

My wife has just been made redundant from her job as a pastry chef (she is incredibly talented & passionate about it).  Extending the property could provide her a space to start a business from home, but at the moment the kitchen is too small for that to happen.

I feel like I'm failing my family not being able to give them the space to be a functional family together.  Thanks in advance for any advice!

foxy-stoat

You will need £1250 a month to clear your mortgage in 12 years time, assuming zero interest rate.  How much can you afford to save for this?  You maybe able to be in a position to move if you save up enough and the property prices rise by a few percent.  Maybe buy £750 a month in premium bonds, you may get a medium size winner which could help things, may not but worth a try.

Doubt you will be able to secure finance for £30,000-£40,000 and even if you could why would you, you not going to make any money as your not going to make enough profit and if you can afford the extra £40,000 monthly payments.

If you sell and rent you will be renting for a long time, but as you say you are doing that anyway.  You can deal the the pain now or later - good job you are thinking about this now while you have 144 months left, some only deal with this when they receive the letter with a year to go.

You are not failing, you have a roof over your head and its yours, for another 12 years, which isn't as bad as some folk at the moment.

Paulpen

Im not able to offer any advice in the financial side but you certainly shouldnt feel like you are failing - you have a house to live in and you are planning for the future so in my eyes you are sensible and caring for them with a ling term plan

Petriix

You should overpay the capital on the mortgage as much as possible until you are in a better position and able to remortgage to a better product. You are wasting money on interest that you could have avoided with better planning.

It's not too late. We took out a 30 year mortgage when my partner was 39. It will be paid off in under 15 years because we are overpaying but we had to go with the longer term to meet 'affordability'.

You need to get yourself into a position of being able to meet affordability ASAP. By overpaying the capital, you will reduce the total interest you pay and gradually improve your position. Start now.

Socajam

I agree with Petriix
Starting living like a pauper and attack that mortgage with a vengeance.

Thrugelmir

12 years only takes you up to 52. You've at least double that period of time. There's an old Chinese proverb. "A man who wishes to move a mountain starts by moving the smallest stones first".  Start addressing the mortgage balance by over paying by whatever you can afford. No point in looking backwards either. Your future is in your own hands. 

blckdog

Thanks everyone for your advice.  We already live like paupers and have pulled ourselves out of substantial debt (full Dave Ramsey).  The main problem is the house is becoming less and less fit for purpose as the family grow up.  We've decided to pursue doing a small bit of work to it which won't involve a lot of borrowing (if at all) and will add value that will allow us to renegotiate our mortgage rate, then work on paying down the main mortgage.

walletmoths

I remember being in the same position as you just 3 years ago. We had 15 years left on an interest only mortgage and just couldn't get another (cheaper) mortgage from anywhere, including our own bank. We couldn't afford to overpay either. Eventually, as a last resort, I hand-wrote a letter to my bank (FD at the time), telling them of our predicament and that my job was safe and we'd never missed a payment etc - and basically begged them to allow us to move to a much cheaper house. Amazingly, after a 5hr gruelling phone call with them, they agreed to let us buy cheaper - moving to a house where we could afford a repayment mortgage. We were totally elated at the time, and managed to move quickly. But... since that move from a nice area into and 'OK' area, we've pined and pined to move back. The kids miss their friends terribly and we all miss the area. That's the price we paid for being able to pay our mortgage properly. So, whilst I can't offer you advice one way or another - hopefully our story helps you to make a decision? What I'd say though is to definitely not borrow more money. It only digs you into a bigger hole. My vote would go with doing your level best to overpay, and if it's not looking worth it after a while, moving cheaper is better than renting forever.