Mortage Situation

sterling30

Hello

I am 48 years old. I have a £220,000 mortage on a £500,000 property. My current mortage is VARIABLE and has 10 years remaining. It is INTEREST ONLY. Over the recent months I have of course seen it going up as the base rate keeps rising. Considering all other expenses I can barely now afford it.

I am Director of my own Limited company, since 2004.

My company's previous year's profits were very healthy (the highest since the start), but this current year the business has pretty much collapsed, so I am hardly earning any money.

As well as being in a predicament as to what to do about the business and work in general, I am also in a predicament regarding my mortage and my property and it couldn't come at a worse time in this economic mess; mortgage lending situation and potential property market doom & gloom (remains to be seen where I live).

I have savings which tie me over for about 6 months living expenses.

I will probably have to get a job, even something temporarily so I can afford living expenses without my savings dwindling. Assuming I do and I am able to afford my living expenses, what should I do?...

1.

Stay on Variable rate; see it go up as the bank continues to raise the base rates. This would be more affordable to pay each month than changing it to Repayment. The RISK is that it could take me ages, or never, to get back to last year's earnings and therefore I will not be able to obtain a mortage/remortage for as long as that takes.

2.

Apply for a fixed rate mortage very soon whilst I am currently able to with my previous year's good profits, before the time slips into a period where 'last year's profits' become this years' terrible year's profits. I assume that this would have to be a REPAYMENT mortage. If so, should I go for 2, 3 or 5 years? The RISK, especially with 2 or 3 years is that I may not be back to earning enough to afford the repayments and risk losing the property. At least 5 years gives me a better chance but even then it might not be possible. Going ahead with this option would have to coincide with getting a job that pays enough to afford it, probably after being granted the mortage otherwise it may confuse an application - right?

3.

Sell the property. Get £300,000 (or thereabouts) in the bank. Move to a lesser priced property (with a new repayment mortage based on my previous year's profits) or rent for a bit. I'd rather not be rushed into this option and can see this potentialy being very stressful, so this is the less desirable at this current time.

Also...

I am not clear exactly what lenders look for, for a person in my business situation. Online research offers mixed answers.

Profit? Earnings? Net? Gross?

Last year? Last 2 years? Last 3 years?

Do they need evidence for current monthly earnings?

I hope someone can see the situation I'm in and can offer some good advice.

[Deleted User]

By all means make enquires about remortgaging. Perhaps your accountant can recommend someone, this is a day-to-day event for them, they have lots of experience helping Directors with financing.

What is your plan for repaying the original mortgage loan? Do you have investments maturing in ten years, or an expected windfall in the future?

What's going to change that will improve your situation?

I would be inclined to downsize, as close to debt free as you can be, assuming you can find a suitable property.
Build a nest egg and start planning/saving for your future.

sterling30

[Deleted User] said:

By all means make enquires about remortgaging. Perhaps your accountant can recommend someone, this is a day-to-day event for them, they have lots of experience helping Directors with financing.

- I will do this.

What is your plan for repaying the original mortgage loan? Do you have investments maturing in ten years, or an expected windfall in the future?

- Plan A was to sell and move to France mortgage free. Then BREXIT happened.
- Plan B was to switch to repayment or overpay the mortage as the business picked up, but it's been killed unexpectedly by the pandemic (many lost clients).
- Plan C. Awaiting decision.

What's going to change that will improve your situation?

- That is in the lap of the Gods right now. No idea.

I would be inclined to downsize, as close to debt free as you can be, assuming you can find a suitable property.
Build a nest egg and start planning/saving for your future.

- I don't fully understand that. As close to debt free? I have no debts apart from the mortage. I also live in Surrey. It's impossible to buy anything nice within 30 miles radius under £300,000. Build a nest egg? Yes that would be nice, but impossible unless I earn more money.

Thanks for taking the time to reply. My answers above.

housebuyer143

sterling30 said:

[Deleted User] said:

By all means make enquires about remortgaging. Perhaps your accountant can recommend someone, this is a day-to-day event for them, they have lots of experience helping Directors with financing.

- I will do this.

What is your plan for repaying the original mortgage loan? Do you have investments maturing in ten years, or an expected windfall in the future?

- Plan A was to sell and move to France mortgage free. Then BREXIT happened.
- Plan B was to switch to repayment or overpay the mortage as the business picked up, but it's been killed unexpectedly by the pandemic (many lost clients).
- Plan C. Awaiting decision.

What's going to change that will improve your situation?

- That is in the lap of the Gods right now. No idea.

I would be inclined to downsize, as close to debt free as you can be, assuming you can find a suitable property.
Build a nest egg and start planning/saving for your future.

- I don't fully understand that. As close to debt free? I have no debts apart from the mortage. I also live in Surrey. It's impossible to buy anything nice within 30 miles radius under £300,000. Build a nest egg? Yes that would be nice, but impossible unless I earn more money.

Thanks for taking the time to reply. My answers above.

If you sell and buy said house for £300k you are basically debt free and then don't need to worry. Then if you earn more in the future you will have lots of savings to do as you wish.

[Deleted User]

sterling30 said:

Tucosalamanca said:

By all means make enquires about remortgaging. Perhaps your accountant can recommend someone, this is a day-to-day event for them, they have lots of experience helping Directors with financing.

- I will do this.

What is your plan for repaying the original mortgage loan? Do you have investments maturing in ten years, or an expected windfall in the future?

- Plan A was to sell and move to France mortgage free. Then BREXIT happened.
- Plan B was to switch to repayment or overpay the mortage as the business picked up, but it's been killed unexpectedly by the pandemic (many lost clients).
- Plan C. Awaiting decision.

What's going to change that will improve your situation?

- That is in the lap of the Gods right now. No idea.

I would be inclined to downsize, as close to debt free as you can be, assuming you can find a suitable property.
Build a nest egg and start planning/saving for your future.

- I don't fully understand that. As close to debt free? I have no debts apart from the mortage. I also live in Surrey. It's impossible to buy anything nice within 30 miles radius under £300,000. Build a nest egg? Yes that would be nice, but impossible unless I earn more money.

Thanks for taking the time to reply. My answers above.

Yes, it's certainly hard in South UK, and Surrey prices are ludicrous if on a modest wage.
Perhaps consider selling and renting?
Only you can do the sums and work out what's best for you.
£300,000 in the bank will generate over £1,000 per month, which would go some way towards rental costs.

Debt free? As @housebuyer143 has said.

Serve_the_Servants

sterling30 said:

Hello

I am 48 years old. I have a £220,000 mortage on a £500,000 property. My current mortage is VARIABLE and has 10 years remaining. It is INTEREST ONLY. Over the recent months I have of course seen it going up as the base rate keeps rising. Considering all other expenses I can barely now afford it.

I am Director of my own Limited company, since 2004.

My company's previous year's profits were very healthy (the highest since the start), but this current year the business has pretty much collapsed, so I am hardly earning any money.

As well as being in a predicament as to what to do about the business and work in general, I am also in a predicament regarding my mortage and my property and it couldn't come at a worse time in this economic mess; mortgage lending situation and potential property market doom & gloom (remains to be seen where I live).

I have savings which tie me over for about 6 months living expenses.

I will probably have to get a job, even something temporarily so I can afford living expenses without my savings dwindling. Assuming I do and I am able to afford my living expenses, what should I do?...

1.

Stay on Variable rate; see it go up as the bank continues to raise the base rates. This would be more affordable to pay each month than changing it to Repayment. The RISK is that it could take me ages, or never, to get back to last year's earnings and therefore I will not be able to obtain a mortage/remortage for as long as that takes.

2.

Apply for a fixed rate mortage very soon whilst I am currently able to with my previous year's good profits, before the time slips into a period where 'last year's profits' become this years' terrible year's profits. I assume that this would have to be a REPAYMENT mortage. If so, should I go for 2, 3 or 5 years? The RISK, especially with 2 or 3 years is that I may not be back to earning enough to afford the repayments and risk losing the property. At least 5 years gives me a better chance but even then it might not be possible. Going ahead with this option would have to coincide with getting a job that pays enough to afford it, probably after being granted the mortage otherwise it may confuse an application - right?

3.

Sell the property. Get £300,000 (or thereabouts) in the bank. Move to a lesser priced property (with a new repayment mortage based on my previous year's profits) or rent for a bit. I'd rather not be rushed into this option and can see this potentialy being very stressful, so this is the less desirable at this current time.

Also...

I am not clear exactly what lenders look for, for a person in my business situation. Online research offers mixed answers.

Profit? Earnings? Net? Gross?

Last year? Last 2 years? Last 3 years?

Do they need evidence for current monthly earnings?

I hope someone can see the situation I'm in and can offer some good advice.

Sorry to hear this. Personally I would be looking to cash in and pay off the capital. Doesn’t sound like you are keen on being in another situation where you’re overextended. On that basis, look around at what your £300K might buy you outright. If you were going to move to France, what about a different area of the UK? You will get much more for your money the further north you move. Or look again at moving abroad to a different countries and what that would entail. The dream could still be rescued! 

ACG

I have not read all of the posts, my initial thought however is if you can not afford your mortgage on interest only and your income has dropped I cant help but think you would be mad to tie into a new deal. 

Can you not sell up? There are a lot of area where £300k would allow you to buy a home for cash, or alternatively you could you downsize/downgrade and port your mortgage to a new property? Maybe a £400k home? That then takes a big chunk off your mortgage payment. 

sterling30

I am enjoying reading all the comments and feel quite emotional that so many have responded and in such detail and consideration. Thank you.

Weighing it all up thus far, currently I feel it is either best to keep the mortage as it is and focus on somehow earning enough to afford it and see where it takes me (into the unknown), or sell up which as Tucosalamanca said could earn a lot in a savings account each month (I hadn't considered that so thank you), which would help towards rent if that was a temporary option, or to do what ACG suggested to port the mortgage as a compromise and look for a home that would require a £100k mortage (for example).

I feel bad for saying this, but one thing that is making this so hard is that despite some drawbacks I really like where I live and its location and I have heavily invested my time into my property (DIY etc.). This makes it so hard to consider selling. On the other hand I know that I can't stay here forever. It's a 2 bed flat by the way, in a converted Victorian Villa. No disrepect to any Northerners but the thought of going up North is nay appealing as I've always lived here and near London. Try as I might, i'm finding it impossible to imagine how I'd feel in probably another flat somewhere completely different. Although I'm effectively 'location independent' my partner works within walking distance.

silvercar

I would concentrate on boosting your income. If time allows, find a full time job and see your current ltd company as a side earner. That way you could make decisions based on remortgageing with an income that can justify the mortgage you need.

Could you take a lodger in your spare bedroom to boost income in the short term? That wouldn't help for a remortgage, but would help with income.

Incidentally the rules allow for interest only mortgages once you hit 50, so affordability becomes easier; though you still need to  think about clearing the mortgage in the future.

sterling30

Thank you Silvercar.

I think your first paragraph is probably the answer, but I'm still mulling it over (probably for some time).

I took in tenants for many years and it was an up and down experience. I'd have one now but my partner doesn't. It's doable but really the place isn't big enough for 3. It's temping though as I could get £850 per month.

mi-key

Hi, I am in a very similar position to you and the same age. I think downsizing may be the best option ( this is what I am considering ), I can get a decent size house around the same size as I have now, but not such a 'select' location for about 2/3rds the price I can sell mine for, so could either reduce mortgage to about 50% what it is now, or have a very nice lump sum to pay off the credit cards, reinvest some into the business, and also have a nice buffer for the next few years depending on what happens. 

I am lucky to have a long term fixed rate at 2% that I can hopefully port over to a new property

If you did this at least it would take the pressure off, and if the business picks up over the next few years you can always look at moving again. The danger is getting off the property ladder, then having a reduced income and not being able to buy again in the future and being stuck renting.

It is hard being self employed though as we get hit twice, once by the cost of living increases, and then again by income dropping because of it ! 

I think it is worth making a decision sooner rather than later though while you still have some savings and wiggle room to be able to choose, rather than being forced at the last minute