Buy to let mortgage - prisoner!

crazybadger61

Hi, I am new to the forum so please be gentle!  Could just do with a bit of advice / info before approaching the lender directly please.  My wife purchased a property in 2003 for 25k (aged 18) and lived in it for 3 years.  When she left uni, she moved out and remortgaged to a buy to let mortgage..  At this point (3 years after buying for 25k):

- Bank valued property at 80k (via esurv valuation) in 2006 (no works carried out between buying for 25k in 2003 and valuation in 2006)
- Bank granted 25 year interest only BTL mortgage for 67.5k at 5.3% for 2 years then 6.49% variable for remainder
- Mortgage offer contained a condition stating 'the loan made by us exceeds that which we would normally lend in these circumstances.  To cover the possibility of you defaulting under the mortgage and our taking possession of your property and not being able to sell the property for a sum sufficient to repay the mortgage debt we will take the additional security in the form of a mortgage indemnity policy - being solely for the benefit of us'

My wife has been unable to remortgage / even consider selling for over 10 years as the property has continually been in negative equity.  Lender has consistently stated that they would not switch to another product / rate, leaving her trapped.  16 years on property is now being valued at 70k (in a good market!).

The condition in the offer suggests to me that they were aware that the lending was risky and to my eyes, the valuation shouldn't have come in at that price in a million years - do we have a case to take up with the lender re being trapped?  My wife is well aware that she should have taken stock at the time but hindsight is a wonderful thing.

Thanks again and as I say, please be gentle!  Really appreciate any assistance / advice on next steps.

MWT

The condition you mention is usually a result of the LTV rather than any judgement on the level of the valuation.

So it reflects the risk implicit in the LTV being above 75%.

This was a business decision and an unregulated loan which I imagine your wife was happy to be able to get at that level at the time, so not sure where the grounds would be for a complaint...

k3lvc

Over the last 16yrs has any attempt been made to repay any of the loan ? Presumably part of the agreement was a recommendation that a suitable repayment vehicle was in place and not to rely on the continued increase in property prices ?

Out of interest where in the country is this ? Low priced property in core university locations seems to have fared better than many others over the period

[Deleted User]

Completely common from ye olden days.  No sniff of a claim here.   The valuation wasnt even done for your wife's benefit, it was done for the bank so any dispute against it is between the lender and the valuer if a loss is incurred.  No one has missold anything,  just an investment that went bad which unfortunately isnt uncommon.  

https://mortgagerequired.com/news/what-is-a-mortgage-indemnity-guarantee#:~:text=A Mortgage Indemnity Guarantee (MIG,being made redundant at work.&text=MIGs are usually required when,to Value (LTV) Ratio.

Saying she couldnt even consider selling the property seems a bit disingenuous.  She could have sold it 15 years ago and be done with paying back the losses and moving on at this point.  She just wasnt able to sell at terms she wants to so chose to hang on and hold out hope for the investment to go back up.    Its no different than someone holding shares in a company that go up and down. They can either choose to cut their losses early, or hold out for the value to return

No one is trapped.  She can sell the property at any point.  She doesnt live in it so wont be homeless if she sells it.   Its just a bad investment, thats all.  Loads of people are in the same position with their actual homes so are a lot more trapped. 

Sorry for being harsh but anyone who held investments around the same time was in the same position.   I worked for a high street bank and invested in its shares that went from £12 to about 40p!!  Sometimes bad decisions are made but no point looking to change the attitude to risk based on hindsight.  

crazybadger61

Thanks for your comments. 

dimbo61

So what did your wife do with the £45,000 in 2006 ?
What has she done with the rental income over the last 16 years ?
Time to overpay the mortgage every month and invest some money in the property to get a better return on her investment.
Yours HMO Student Landlord