What options with negative equity?

[Bupcake]

DH owned a house before we met, but it was in negative equity. I can't remember the exact figures, but he bought it for about £170k and it's now worth under £100k. He has an interest-only mortgage, which costs us £600 per month.

I own (outright) the house we live in. It's probably worth roughly £100k.

We would like to move at some point to somewhere slightly bigger. However, DH insists that nothing can be done with his house because of the negative equity. He refuses to discuss it (he's normally very good with financial matters, so I think he's embarrassed about this). I'd like to go and talk to the bank and see what our options are, but he won't do that. He says we just have to wait until it's back up to it's original value, and then sell it.

DH says we have 2 options if we want to move:

1. We sell our current house (the one I own), and use that to buy somewhere else at roughly the same value. We would still have the mortgage each month for his house. Then, when his house reaches the value he paid for it, we sell it to pay off the mortgage.

1. We keep both current houses, and take out a mortgage on a new house. We'd look at renting out one or both houses to bring in money to cover part of the mortgage. Our current house would be an investment for the future. However, I can't see any way we'd get a mortgage to buy somewhere the size of our current house (given that DH already has £600 going out each month).

I wonder though whether we might have a third option of selling both current houses, and using the combined money to buy somewhere bigger? DH doesn't think the bank will allow this, but I think it's at least worth discussing with them. Obviously we'd still have the mortgage on the interest from his original house, but at least we'd have a house with enough room.

DH feels he was 'stung' by the housing market collapse, and wants to try to claw back some of what he lost. I feel we should sell his house and move on. DH earns about £2.4k per month; I'm a SAHP at the moment, but may go back to work part time when the kids are at school. We're not big spenders, and are able to save between £500-£1000 each month after bills, mortgages and expenses. We could probably rein ourselves in a bit more if we had to.

Does anyone have any advice? What kinds of options do we have here? Is DH being sensible, or would my idea work?

Not all lenders will give permission to let but many will. You won't know unless you ask. Many will add 1-2% to the interest rate though so the payments may go up slightly.

Always perplexes me when married couples are still talking about assets, income and liabilities in terms of mine and yours. Once you are married they are all joint. Therefore I really think you need your DH to realise this and start being open with you.

I am not a bankruptcy expert but I don't think one part of a married couple can file independently.

He needs to approach the lender for consent to let in order to rent the property out. I think most lenders allow this at the moment, although they mad add a surcharge as pp said. We have a slightly similar situation in that my DH bought his house at the top of the peak (with a 100% mortgage!) that almost immediately went in to negative equity. Wasn't a problem initially as we were happily living there, but became one when we wanted to move. We got consent to let from the mortgage provider and pay a 1% surcharge over the SVR for this as we have less than 25% equity. After a couple of years renting it out the property is no longer in negative equity but we have no current plans to sell. However what complicates your situation is the interest only mortgage, and the fact that your DH is burying his head in the sand. He needs to wise up and face facts - ignoring this issue is not going to make it disappear!

howabout married people can become bankrupt without their partners. People are individuals financially. Though some of their assets may be in joint names ie house, and a sale could be forced to realise the bankrupts ones assets.

And bankruptcy would usually be seen as a final option when there are literally no other options.

Learn something new every day Tigger, but I would still not be happy with a dh with a massive unsecured debt I knew nothing about. I have a friend who recently divorced. She thought they jointly owned a house with a decent chunk of equity. Turns out SBXH had credit card debts sufficient to wipe out the equity.

Also really weird how we maintain the fiction of individual financial independence right up until the benefit system kicks in.

For permission to let a lot of lenders will request that the market rent is 125% of the mortgage cost, or that you have a certain amount of equity in the property. Each one will have their own criteria, but they are all getting stricter. I think it's something to do with if the property is repossessed then they can't evict the tenants if they are within a lease, so this could take over a year.

I'm not saying it's a definite no go, as explained, the lender will have their own criteria but I wouldn't rely on it being granted.

Why would you lose your own home if he was made bankrupt? Just make sure all you finances are separate. I would definitely consider it as an option. 70k is a lot to re pay. Is it realistically achievable?

Not to mention the money he's throwing at it each month just now. At least with bankruptcy once it's been discharged the slate will be clean and he can "start again", so to speak.

We do consider both houses "ours", but in this thread I'm referring to them as " his" and "mine" to make it clearer. Also, each of them only has one name on the deeds - but my understanding is that that makes no difference.

Can I ask another couple of dumb questions?

Let's say we could get £170k tomorrow and pay off his mortgage in full. Would we still have interest payments to make? I assume not, because we would no longer have the mortgage, right? But there might be a fee to repay early?

More realistically, let's say we can come up with 20k right now, from savings etc. Can we hand that to the bank to reduce the mortgage by 20k? And would that reduce the interest payments? So then if we still paid £600 per month, we would be chipping away at the overall amount owed (albeit very slowly!)? And the interest would keep reducing so we'd gradually be paying off more and more of the actual mortgage amount? Again, I assume there'd be some fees etc to pay to the bank, but is that basically how it would work?

DH's Financial Advisor had said that he thinks we should keep DH's house for now as-is, and wait for prices to rise again. What I'm reading here though suggests that we'd be much better to tackle the mortgage head-on now, and get it paid off asap. I'm not convinced the house will ever be worth what DH paid for it. It's tiny, not a brilliant location, and prices there are not going up by much. But DH insists that the Financial Advisor is correct and we just need to wait it out.

Another option I've considered: we could sell my house for £100k, right? And use that to buy somewhere a bit cheaper, say for £80k? Then use the 20k to put towards the mortgage payment?

OP yes of course bankruptcy would affect your chances of getting a mortgage in the future but you don't have any hope at the moment or as long as his property is in negative equity that you can't clear. At least with BR there would be light at the end of the tunnel so to speak, but at the moment, or until you can afford to clear the 70k, there isn't any re a new mortgage.

But if he declared bankruptcy, surely they'd want to take all our assets as a couple? Although it's only my name on the deeds of the house we live in, it's still our house, surely? I'd have thought that bankruptcy would mean they'd take all your assets and savings?

We'd then have to get a mortgage in my name. Problem is, I have a mental health condition which means I could struggle to hold down a full time job. Realistically, I'll have to go part time when I'm back to work. And although I could earn a lot if I worked full time, the same companies (IT sector) are not usually interested in hiring anyone part time.

I guess one point to bear in mind is that DH and i will both eventually inherit shares in our parents' homes. But that's hopefully a long way off, and of course they might have to be sold in the meantime to pay for care or whatever.

Yes chances are it will go up to what he paid for it, but let's say that takes ten years. That's 120 X £600 down the drain on the interest only mortgage which is £72,000.

If you won't consider surrender (and you'd be mortgage ready again in less than this) then your only sensible option is to sell your other place, move into the house (sorry I don't see how you can't physically fit in it), switch to a repayment mortgage and throw EVERYTHiNG you can, and I mean everything, at repaying it until you're in a position to sell.

You aren't guaranteed shares in your parents homes. What happens if they have to go into residential care and they need sold to find this?

No, you can have separate finances when you're married. Just because your his wife doesn't mean they can take your assets.

You can't rely on inheritance, they might need it to pay for care (or leave all their money to a tortoise like someone I once knew!)

We really can't move into his house. There isn't enough room to fit in 4 beds (even if we had bunk beds for the DCs once the younger one is out of the cot - the ceilings are pretty low and I don't think bunk beds would fit). There's just not enough floor space. The second bedroom wouldn't even have room for a wardrobe once we got a bed in. Downstairs is all one room; there's not room for a dining table to seat 4 as well as the living room furniture.

I know we can't rely on inheritance, as I said. But it's one possible light at the end of the tunnel.

I'm actually wondering whether bankruptcy could be an option? It feels wrong, though, when we can technically afford the payments.

Oh sorry OP I missed the fact you had DC....

I would look into separating your finances and your DH surrendering the property then filing for bankruptcy. It's an option anyway, but it sounds like he would need some convincing! Good luck with whatever happens.

I'll take a look at the options, Lottie. We've never got round to combining our finances (I'm self-employed, or was before the DCs were born, so I have my own business account etc), so out disorganisation might actually go in our favour.

If we could get rid of his house and keep mine, then we could think about saving up a deposit etc for somewhere else. If we couldn't get a mortgage again, at least we'd still have a home, and with savings we could maybe move somewhere bigger eventually. At least we wouldn't have debt to pass on to the DC!

I'm trying to figure out how I can maximise my income as well. If it wasn't for my health issues, it would actually make sense for me to go back to work and DH to be part time. But being realistic, I don't think I'll work full time for the foreseeable future. I do have good qualifications (PhD in Maths), but can't find anyone yet who wants to give me a part time job!

If you got hold of £170k tomorrow and paid off the mortgage yes you'd be free of payments, assuming the £170k covered costs.

If you took £20k to the bank and specifically told them (this is important!) it was to pay off some of the capital outstanding then yes, your interest repayments would be a bit less. However if you kept replaying the same amount, as you are on an interest only mortgage, the extra payments would be regarded by the bank as being towards future INTEREST payments. It wouldn't come off the amount outstanding. You actually need to change your mortgage for it to become a repayment one.

One thing occurs - did he take out the mortgage via the financial advisor? In which case the FA is probably getting a small amount of commission each month, so it wouldn't be in his interest to suggest your dp does anything else than keep on paying throwing money down the drain

If you sell yours, and want to buy somewhere else, you won't be able to get a mortgage UNLESS you pay off the existing mortgage on his place. You're not working so you can't get a mortgage. He is working but no lender will give him a mortgage as he already has one. Selling your house and buying somewhere else outright, as long as you don't need a mortgage, is of course fine, if you can find somewhere cheaper, larger and in an area where you want to live, near work, schools etc.

Thanks titchy, that clarifies it a bit. Not sure about the FA bit, but I'll check. DH tends to do everything via him, so it's a probability!

There are some really nice houses online for about the value of our house - bigger, more outside space etc, but further out into the country (about 20 miles away). I'd love to move there, but DH would have to change jobs... Not a big problem, as he's aa primary teacher, and we could wait a few years until something came up, but he is won't move further away from his parents than he is now (about 10 minutes)! It's very frustrating! I'm hoping that if I can show him how serious the situation is, he might reconsider. He has found a house for sale 2 streets away from his parents and wants us to buy it - it's a few thousand more than our house (which were could afford, using savings), but it's no bigger and I hate the area! Sorry, little rant there!

If you sold your house and used enough of the proceeds to give you a 40% equity stake in his house you would then be able to get a btl mortgage at a decent rate on his place. So by your earlier figures of 100k proceeds you would need 35k for the negative equity and 40k for the rental equity. This would leave a 60k mortgage on his place which is less than half the current amount and so rental income of 400 would likely cover interest of 300 or less.

You should also still be able to apply for a residential mortgage and would have a deposit of 25k which sounds okish for your market.

We looked at upsizing and renting out rather than selling our existing house last year and so I think this all works.

Mind you sounds like you should maybe consider renting somewhere for a while till you can reconcile your differences on where you want to live. DH and I are from different ends of the country so I have also been over this ground.

Thanks, howabout. That's helpful. Currently I'm thinking of best option is to stay put for the next few years, and use savings to pay off as much of his mortgage as possible. Then hopefully our house would have increased in value and we could sell to get money to do as you suggest. We're in a city, so prices here would likely rise faster than elsewhere, and we could look at buying in a cheaper area.

DH just seems to see everything in terms of how he can move as close to his parents as possible.

OP, I've read through this and there's been lots of good advice but the one thing that stands out a mile for me is the fact you have no idea about your husbands finances

I appreciate some couples do keep their finances separate but they wouldn't then class, in your situation, both homes as jointly owned and make plans based potentially on using both properties.

Until you get you DH to tell you exactly what he owes on his house you can't even begin to make plans.

It's really quite strange that he won't tell you this.