Negative equity and debt concerns

javiergarcia0312

Hello,

I have a small rental property in Bradford which, in around 5 years time, looks likely to be reaching the end of its mortgage term around 50-60k less than the value of the mortgage. It's only a small studio which was sold to me off plan and I naively dived in as it was sold to me as a cheap deal (100k) in an area that was going to be regenerated. That regeneration never took place and the estimated value of the flat is somewhere in the region of just 40-50k.

Although I currently rent it out, it doesn't cover the outgoings of the mortgage (like many I have paid the price for the impact on interest rates especially after the Truss budget) and the service and maintenance fees and I dont expect a spike in its value to make up the shortfall in the time left on the mortgage.

I have concerns that once I reach the end of the mortgage, there will be a financial hole that I will need to plug and my only other asset is the family home which I wouldn't want to lose, for obvious reasons. 

What would be the best way to protect my main asset should, if I fear, I get to the point of having to hand the flat back to the lender and find 50k that I don't realistically see myself having then?

Thank you

Caz3121

is this an interest only mortgage? what was the original mortgage amount? can you make overpayments?

MWT

Is the rental property in your name only, or joint names, or a company name?

Similarly is the family home in your name only, or in joint names?

silvercar

Taking average values of the figures you posted. So the property was bought for 100k and now worth 45k. Your mortgage is 55k more than that, so 90k. 

So you managed to get a 90% LTV mortgage on a rental. I didn’t know that was ever the case!

Bottom line is that you either sell the property and ask the lender to convert the outstanding mortgage to an unsecured loan (you’d need to get the lender’s consent to sell. Or you hand the keys back to the lender and let them sell it (voluntary repossession). Then they will expect you to agree a repayment plan for the outstanding amount.

Other options would involve you borrowing money elsewhere to cover the shortfall.

In terms of timescales, the lender will probably give you some flexibility, if it’s on the market and a sale is in the offing.

If you can afford to keep going with it for the next 5 years, I don’t see the value of crystallising the losses now, unless you need to.

javiergarcia0312

MWT said:

Is the rental property in your name only, or joint names, or a company name?

Similarly is the family home in your name only, or in joint names?

Rental is in my name, my main home is in joint names with my wife

javiergarcia0312

Caz3121 said:

is this an interest only mortgage? what was the original mortgage amount? can you make overpayments?

Interest only

I've asked my lender - thank you.

ACG

It might not be a bad idea to be making overpayments to the mortgage to bring it down. our obviously not going to bring the balance down by £40k in 5 years, but keeping the repayments as they are now and overpaying by £100 a month will reduce the balance by £7-8k. 

If you go to the lender in 5 years time showing you have paid of £7-8k that shows you have some intent to pay it off and shows some goodwill in paying it off. 

But I think Silvercar raises a good point. I dont think it has ever been possible to get a 90% Mortgage as a BTL. So unless you moved into the property for a while and then obtained consent to let, I would imagine you have probably committed mortgage fraud and potentially broken the terms of your mortgage. Whilst I doubt anything will come of that, (made it bold because I honestly dont think it will) having to sell your family home might be the least of your problems in a worst case scenario. 

But dont stick your head in the sand, try to do what you can to make it look like you are trying. Which in fairness you do seem to be doing. As 5 years will come round quite quickly. 

ReadySteadyPop

javiergarcia0312 said:

Hello,

I have a small rental property in Bradford which, in around 5 years time, looks likely to be reaching the end of its mortgage term around 50-60k less than the value of the mortgage. It's only a small studio which was sold to me off plan and I naively dived in as it was sold to me as a cheap deal (100k) in an area that was going to be regenerated. That regeneration never took place and the estimated value of the flat is somewhere in the region of just 40-50k.

Although I currently rent it out, it doesn't cover the outgoings of the mortgage (like many I have paid the price for the impact on interest rates especially after the Truss budget) and the service and maintenance fees and I dont expect a spike in its value to make up the shortfall in the time left on the mortgage.

I have concerns that once I reach the end of the mortgage, there will be a financial hole that I will need to plug and my only other asset is the family home which I wouldn't want to lose, for obvious reasons. 

What would be the best way to protect my main asset should, if I fear, I get to the point of having to hand the flat back to the lender and find 50k that I don't realistically see myself having then?

Thank you

Can you raise the rent?