Interest only negative equity outcomes

[Archie1989]

I am completely freaking out about my interest only mortgage term finishing in 6 years. My property is in negative equity. I bought it before the crash, in 2007, in an attempt to get on the property ladder. It’s now a buy to let and is like a bit of a shackle stopping me from buying a property to live in myself. It’s in the city I went to uni in, and I no longer live there because of work.

When I bought it, I really thought I was doing the right thing. It seemed a sensible investment to a little inheritance. I was 23 and in my first full time permanent job less than 6 months. I was definitely naive, but genuinely thought it was a sensible way to invest this money.

I’ve contacted a company that seeks to specialise in negative equity on interest only mortgages.

Does anyone have any advice? Or just positive outcomes from a similar situation?

Well, what do you want to do with the property?

Either way you will probably have to come up with the amount by which you're in negative equity, either to repay the bank if you sell for less or to be able to get a new mortgage. Would you be able to do this over 6 years?

I'd be very wary about specialists as they're often poor value for money so make sure you compare the rates they offer with standard rates and don't lock yourself into anything too expensive.

How long ago is it since you lived there and how much rental income are you getting compared with the interest only mortgage? How much negative equity is there in the property?

Do you have any savings that you could put into the property so you could remortgage onto a standard BTL repayment mortgage?

I know that many places have seen little or no capital growth since 2007, but it seems strange that, in times of record low interest rates, your rental income isn't giving you a good surplus above the IO mortgage to give you money to put towards the mortgage or build up savings to allow you to buy elsewhere.

Is this a mortgage prisoner situation? They seem to be making progress with this, so is there anything useful in the link below?

www.moneysavingexpert.com/news/2020/12/martin-lewis-mortgage-prisoners-treasury-committee/

@BarbaraofSeville thank you! That’s useful.

The rental income is less than the mortgage payments, so I am losing money with every month. To clarify, the property is in Aberdeen. Prices absolutely rocketed there and then dropped dramatically. The rental price halved over a two year period because of the crash in the oil industry.

It’s a small flat, but in the Scottish system, paying over the value is the norm.

How much are you in negative equity by? Is it possible that you will be able to get that money together if you live very frugally for the next six years?

@TakeTheCuntOutOfScunthorpe I don’t think so. I think it could be up to £50k the way the housing market has gone there, and looking at similar properties. I am working all the hours I can, but I think it’s impossible

I have always been advised by people to hold on, because Aberdeen will bounce back...but it’s not.

For £50k negative equity, and no assets other than the flat, which isn't really an asset anyway, I'd seriously consider bankruptcy.

You need specialist advice but if you went bankrupt now, you'd lose the flat, which would be auctioned off, you might have to pay an income payments order for up to 3 years, depending on what surplus you have, but you wouldn't be required to 'work all hours' just standard full time work, plus it would be wiped from your credit record in 6 years time, at which time you will have had a few years to save a deposit and should qualify for a normal mortgage for a new place.

Have a look at the bankruptcy section of the Moneysavingexpert forum, or seek advice from Stepchange.

Can you take the hit at the moment and ride this out? The value/rental is going to have taken a hit in an area very dependant on an industry that's taking an absolute kicking at the moment but when we return to normal, chances are the value/rental will recover.

Don't kneejerk as the "specialists" will know you're in a certain situation and may take advantage of this.

I'm not going to ask for figures

For me, if I had invested in something that was costing me a fortune each month, I'd rather take the hit and sell up than carry on making a loss. Is the property likely to sell?

I’ve just got off the phone from a company called Negative Equity UK. They said because the lender is NRAM, the debt was bought for less from Northrern Rock when they collapsed. Because of that, they think a decent settlement can be agreed.

The reviews online for the company are actually very good. There is an initial fee though, which leaves me a bit nervous

I'd get on the moneysavingexpert form. You'll get good advice on there

Hmm, property in Aberdeen is tricky - even post-Covid it may not return to the crazy prices because of the global drop in oil prices. I think you'd be well worth talking to an independent financial advisor to get an impartial professional viewpoint. What would the the financial side of switching to a interest and repayment mortgage be like? Is there anything you can do to improve the value (rental or mortgage value) of the flat? Mortages are very cheap right now so definitely looking around to see if you could get cheaper borrowing - if the rental income covered the cost of a repayment mortgage you would be better off keeping it long term.

looking back at your original post - is it really worth less than in 2007? Have you looked at Zoopla for local sold prices?

"if the rental income covered the cost of a repayment mortgage you would be better off keeping it long term."

Sorry if I misunderstood but I thought the rental income couldn't even match the IO mortgage?

OP if the initial fee for tailored advice is large, I would avoid it. Is advice all they do?

@LunaHeather they apparently do all of the negotiations, but I will read the small print just to make sure.

The rental income doesn’t cover the interest. It used to, but Aberdeen has seen huge crashes in property price and rental price

I hope it all works out for you OP.

Hope you sort it out.

Why didn’t you sell during the boom? I guess it’s easier to say that with hindsight.

@Doomsdayiscoming

Hope you sort it out.

Why didn’t you sell during the boom? I guess it’s easier to say that with hindsight.

Yes...piss easy to say that with hindsight. 🙄

Well, I think taking the initial mortgage out was maybe a good idea, whilst they lived in it.

And I guess people have become accustomed to never ending house price increases year on year. But ultimately houses sometimes (shock horror) can be risky investments.

Aberdeen was always going to be a boom or bust town with a transient population linked to one industry. Renting out on an interest only mortgage was the epitome of property risk.

I’d cut your losses before everyone else does.

Have you talked to the mortgage company? I helped a friend with this situation a couple of years ago, negative equity of about £45k. The mortgage company had a negative equity team who dealt with these situations. Worth a try before paying a third party. In my friend's case it came down to affordable monthly payments, which are very small. This was a second property. They couldn't force her to sell her house, she didn't have to go bankrupt. You can also speak to the National Debt Line (make sure you get the charity website, not a debt management company) for advice.