[Solved] Negative equity

Hi there

Has he talked to the mortgage provider? They may be able reduce the payment so that he only pays the interest.

As far as the council tax, I think if he empties the house of furniture he can get a 6 month exemption from that which might help.

Other than that he might like to think about renting it out to cover the mortgage, if he puts it in the hands of a letting agent then he will be covered for nonpayment etc....if he shops around letting agents he could get a good deal on the fees. Even if it doesn't cover the full cost it would still be a big help as he wouldn't be liable for council tax or bills.

If he stopped paying they would repossess the property and as the property is in negative equity they would pursue him for any shortfall.he may also be blacklisted and would find it very difficult to get another mortgage in the future.

Hi There,
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I agree with he above and was going to suggest letting the flat, as said it may not cover all the mortgage but would help so he doesn't have to find the full amount, he could make himself bankrupt and this doesn't have the same sigma attached to it that it used to have, as far as I am aware after 3 years the bad credit rating will start to repair itself,
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If jis ex is listed on the mortgage then she will be liable for any shortfall also, the mortgage provider will look for either of them to come up with the funds to pay and not just him.
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GTTS

Thanks. He has approached NRAM, but since they want to get rid of their "toxic" loans and aren't taking any new business, they are trying to get him to re-mortgage as a buy to let. That means he'd have to find abut £20K which he can't do.
They don't want him to let the flat as its on a residential mortgage. His ex is on the mortgage still, and because she gets housing benefit she doesn't want him to let it as she'd have to be on the rent book.
When he split with the ex, he agreed to take on all the debt, so he's loathe to go back on that but if NRAM will not give him permission to rent he probably won't have a choice
He has already had the council tax reduction for the flat being empty, as he's been living at home over a year. It has now gone up to full price again as its an empty property.

As for bankruptcy, doesn't the mortgage still end up having to be paid and isn't part of the bankruptcy?

I think with bankruptcy, the debt is written off over anything they can recover now, including the mortgage. Child maintenance still has to be paid though.

It might be worth having a word with www.stepchange.org - they are a charity and give free debt advice, they may be able to suggest other options.

With regards to renting out the property, it might be worth telling the mortgage companies that he wants to rent out in the short term, but will be returning to the property to live in the long term - that might mean they allow him to remain on a normal residential mortgage rather than a buy-to-let.

Good morning,

It is a little surprising that there is still negative equity around as prices have risen quite a lot since the market's nadir in 2007/8. That does not help your son with this particular property though.

There seem to be two options (both mentioned above):

1. Let the property. This would need the agreement of the mortgage company that has a charge on the property, and they would normally charge a premium of about 1% over the lending rate. This would have to be a short term arrangement because I don't think anyone would agree to a buy to let mortgage on a house in negative equity. The mortgage company with the charge might well agree to a short term letting arrangement if the alternative would be foreclosure (where they will certainly lose money). Depending on the area a £45,000 might generate something like £3,000/year, which would probably cover the mortgage, also the tenant would pay the council tax.

2. Foreclosure: in the UK this does not write off the debt. The mortgage company with the charge would repossess the property, sell it for whatever it could get and the difference would still be a debt to your son and his ex-wife (who will be jointly responsible). At this point your son (and perhaps his ex-wife) might choose to declare themselves bankrupt, but whilst the debts might be written off, they might both find life difficult (for example not being able to rent a house in their own names or get a hire-purchase agreement for a car). This needs thinking about carefully by your son (and his ex-wife) as bankruptcy is not a trivial matter (and rightly so).

I can't help thinking it would be worth exploring an agreement with the secured lender first, they will probably say they will not budge to start with, but if it becomes evident that they are likely to lose some or all of their money they will probably relent. Whatever happens I suspect your son is in for a tough few years.

The government is advertising the Money Advice Service to help out in situations like this, there is a link below. It is a free service so there would be nothing to lose by asking for advice.

https://www.moneyadviceservice.org.uk/en

I wish your son good fortune in resolving this issue.

Best wishes,

O

Good point made by othen about life after bankruptcy - it really should be a last resort.