Housing Dilemma: Is Bankruptcy the best way out?

Dr_Ben

Good evening!

Long time lurker (20yrs or so) first time poster...

I am in the privileged position of owning two properties, a Flat in London and a House in a small town, outside of London.

I have been trying to sell my London flat for 18 months with limited success - I sold it in Feb 2024, but it fell through in June 2024, I've had 3 offers and 5 viewings over that time.

The flat was bought in 2018 for £406k and when I sold in Feb 2024 it was for £386k. I recently put it up for auction at £315k and had no interest whatsoever, not a single viewing. So assume nobody is looking in this area. - Added to this complexity, I have £350k mortgage remaining, so hard to flip into a rental. (Rental income in my area is typically £1,800 pm excluding fees/income tax and the mortgage + service charge is £2,300 pm)

I have recently moved to interest only for 6 months on both properties under the mortgage charter scheme...

Adding to this, I quit my job when it was sold originally, as I had no indication that the buyer would pull out and the worst job market for what I do in history means I'm still out of work now.

My savings hit £0 this month and I have some freelance work that will cover me for maybe 3 more months - I'm working on growing this as a major priority.

My wife is pregnant and we want to bring our child up in the house outside of London. (Which is in both our names)



What are our options here:

 - Rent the London flat at a loss and limit damages? Can I apply for consent to let if I've already gone interest only for 6 months? If so, how long can I get consent to let for? (I think local market will take at least 2 years to recover) - Is there anything I can do in terms of limiting the tax I would pay on the rental income?

 - Could I move the house into my wife's name only, to shield it from Bankruptcy? Would I also have to move the mortgage as well?

 - Is there something clever where I could sell the Flat to a cash buyer and swallow the difference into the House mortgage?

 - Can I just go to the bank and say I can't pay the mortgage, so take the flat home, or will they come for everything else too?

 - Are there any things that I can do here that I might not have thought of?

I've tried with CAB and various money/debt charities - All who tell me to call them back in 12 months when I'm in life altering debt - I refuse to believe there isn't something clever I can do to either dispose of the property, or reduce the outgoings in a reasonable way...

Feel free to ask any questions or details I might not have shared...

Doozergirl

Goodness, you are in a bit of a pickle. 

Can I suggest that you go to the debt free wannabe board, as they are much more likely to go more in depth into your finances and answer that bankruptcy question. 

 Or call Step Change and get some genuine, impartial advice.  BR is almost certainly not the only option to you, but probably the worst one.  you just need help knowing what you don't yet know.  

Is your problem with selling definitely the local market or is it more a high rise building:fire regulations type issue?  

kimwp

@enthusiasticsaver , is it worth moving this to the DFW board?

fatbelly

I would say not to move the thread.

The op has already had advice not to rush into bankruptcy from cab,  and othet debt/money charities. On dfw we would say the same.

The question the op is asking this board is 

Is there anything clever I can do from a housing perspective?

[Deleted User]

Provided the London flat is at least 1 bed, sell the house outside of London, live in the London flat until the situation improves. Take any job in London even outside your sector. I imagine the above is by no means your ideal choice but all options should be considered. Take in a lodger if space permits.

Dr_Ben

Doozergirl said:

Is your problem with selling definitely the local market or is it more a high rise building:fire regulations type issue?  

It's primarily the local market, but our fire cert is with trifire too, so a few people who've had interest (2-beds) are struggling to sell too.

Dr_Ben

[Deleted User] said:

Provided the London flat is at least 1 bed, sell the house outside of London, live in the London flat until the situation improves. Take any job in London even outside your sector. I imagine the above is by no means your ideal choice but all options should be considered. Take in a lodger if space permits.

Challenge here will be that we know nobody locally, so the wife will end up housebound for a year in a 1-bed with no support and wants to go back to work when childcare is thousands a year, versus hundreds outside of London.

It's definitely on the list of options and logically makes sense, but one of the lower options.

Dr_Ben

Doozergirl said:

Or call Step Change and get some genuine, impartial advice.  BR is almost certainly not the only option to you, but probably the worst one.  you just need help knowing what you don't yet know.  

I've tried a few debt charities and they're pretty useless, as they only really kick in when you're in irreparable debt - most recently they asked to call back when my mortgage is in arrears - there's nothing they can do for me at the moment.

Seems wild I'm trying to be proactive and can't find the help. Appreciate it's a relatively complex/unique scenario

enthusiasticsaver

kimwp said:

@enthusiasticsaver , is it worth moving this to the DFW board?

I think this should stay in housing. This is not specifically to do with OPs debt but more the pitfall of owning property in a static market and being over committed in non liquid assets. High rises and flats have been affected by out of control service charges and fire regulations. 

@Dr_Ben   I would not consider bankruptcy due to the danger of other assets being affected namely your other house. Have you spoken to the mortgage lender for the flat to see what your options are? If they repossess by you handing back the keys and stopping mortgage payments you are likely to be left with a large deficit which will remain as an outstanding unsecured loan but personally I would suggest you are better handling any sale yourself. £500 deficit a month between mortgage/service charges and anticipated income is a lot to cover each month so renting it is not really a great option and the bank probably would not agree if you are struggling to pay the mortgage now. BTL mortgages are also more expensive usually and you need at least 20% deposit so moving the mortgage would not be easy given the negative equity. 

Do agents think the market will improve in the Spring for the area? 

My advice would be to continue trying to sell and weather the loss. Speak to the bank about how that could be managed as they must be seeing a lot of this now. A salutary lesson that property ownership particularly in an overheated market like London is not always the way to go unless you are putting down a sizeable deposit. Mortgage rates increasing won’t have helped and you have been unlucky with the perfect storm of rising service charges and the aftermath of Grenfell with high rise and fire certificates. 

I don’t think they will go after your house. No court will sanction that. 

ian1246

Dr_Ben said:

[Deleted User] said:

Provided the London flat is at least 1 bed, sell the house outside of London, live in the London flat until the situation improves. Take any job in London even outside your sector. I imagine the above is by no means your ideal choice but all options should be considered. Take in a lodger if space permits.

Challenge here will be that we know nobody locally, so the wife will end up housebound for a year in a 1-bed with no support and wants to go back to work when childcare is thousands a year, versus hundreds outside of London.

It's definitely on the list of options and logically makes sense, but one of the lower options.

If you go bankrupt, all your assets are fair game - incmuding the house. I also have to ask - Why is your wife going to be housebound for a year when your the one who is unemployed? 

If your wife has a job and you can't find one, the solution will be she returns to work early off maternity and you be the housebound one raising the child. Ideally both of you will be able to find work & perhaps both work reduced hours, rather than 1 full time & 1 no hours - allowing better support of each other & ensuring no single person is "housebound".

Have you factored in the childcare fee funding and if you are going to send the child to nursery, are you on the waiting list? Some nurseries have such a shortgage of spaces you need to get on the list prior to the child's birth!

GDB2222

I am surprised at the suggestion that bankruptcy won’t affect the house outside London. 

There’s no way for the op to give his share of that house to his wife before bankruptcy. That would just be unwound by the TIB. If the wife has sufficient income, she may be able to get a mortgage to BUY the OP’s share of the house from him or from the TIB. 

Tri Fire is a disaster, and I don’t think the flat is saleable until there’s a new EWS1 in place, and a plan to deal with any resulting issues that arise. Bankruptcy is one way of dealing with this, as the flat becomes someone else’s problem, but you have to be aware of the consequences. 

London property prices have been quite buoyant, and prices generally are up since 2018 in most areas. Your difficulty selling is probably to do with your particular flat, most likely the EWS1, rather than the market generally. You say that it attracted no attention at 20% below what you paid. 

https://www.statista.com/statistics/620414/monthly-house-price-index-in-london-england-uk/