Advice on money please, I’m in a mess

[rainawf]

Please can I get some advice, I will be contacting a professional on Monday but just need to ask some outside advice whilst waiting.

when I was in my 20’s my parents had a rental that they wanted to sell they sold it to me for tax related reasons. I didn’t ask for it but being a naive 22 year old I didn’t think. I then got married and myself and husband couldn’t get a first time buyers mortgage due to me having a property already so already this decision affected me.

now fast forward to my 40’s the rental property has about £35k mortgage still left to pay but it’s okay as the rent covers it (I don’t see a profit ever it goes directly to mortgage). I’m in a bit of a tight spot and need about £15k to clear my debts and another £15k to last me till I find a job. Plus things are broken in my home which need fixing, Also our car is at breaking point right now. There’s no benefits as husband works and I do work but part time and not paid well but I have qualifications that will get me a good job but right now I can’t due to childcare.

my mum suggested I take a re-mortgage out in the rental property so if I take 80k I will give £35 to clear the mortgage and leave me with £45k which will be used to clear my debts, help with other things etc. she made it sound good till I worked out I’ll be giving back over my lifetime near £180k. The mortgage will be now slightly higher but the rent is increasing so it will cover the new mortgage payment.

I don’t know what to do and cannot discuss with DH as he will go crazy and I don’t really trust my mums business sense.

what should I do? I could find out the figure for £60k which will leave me with £25k

Assume the mortgage on the rental is ‘buy to let’? If so, could you just pay interest only whilst you get back on your feet? You’d then be making a bit of income for a while to pay off the other debts.

Agree. I would suggest selling it for what you can get for it. It might be tough with a tenant in situ though. Chat about it with a reputable estate agent.

I’m confused- surely your 35k mortgage is on a lower percentage of interest- but you want to clear it for a bigger percentage of interest loan?

It sounds like you have several issues here. As others have indicated, you don't want to take out a new mortgage and repay the old one. You want to extend the existing one. This should leave the existing amount at its existing interest rate and term.

Secondly though, it's likely that this will be a buy to let mortgage which has a higher interest rate than a standard mortgage.

Also, you have to account for the tax payable on the rental income.

Personally, I would go and see an accountant who will advise you properly.

Personally I would never remortgage for more unless it was to fund home improvements that would improve the value of the property.
When you say broken things at your current home, what do you mean? Big things like rewiring, or roof, or smaller things...new shower, fridge etc.
Buying a car with a debt that might last longer than you own the car seems like a bad idea.
If the rent I going up and you didn't make the remortgage could you draw down some profits to help you out?
I think you need to have a discussion with your husband about your financial situation, rental aside. Where has the 15k debt come from, why do you need another 15k till you can get a job job (is your husband not supporting you) how do you plan together to get the jobs around the home sorted and buy a new car. If these things are not desperate I would put them off anyway until you can actually afford them without debt.

Yes it’s a bad idea. Sell it. Your real issue is your parents screwing you over.

Sell the property asap. As long as you don’t make a loss, you will have a decent amount of ££ to hopefully fund the things you’ve mentioned. Can you take any more hours at your current role to up your income?

Will the bank lend you it if the rent is only covering the current mortgage? How would you meet the increased payments?

also you wouldn’t be ‘clearing’ any mortgage just extending the borrowing against the rental property from 35k to 85k or whatever the numbers are

Firstly, you’re not clearing the mortgage.

You’re adding £45k to the mortgage, perhaps at a higher rate and maybe changing the duration to longer.

so you’re taking long-term debt for what?

1. to pay off short-term debt of £15k
2. To “tide you over” £15k
3. own property repairs

it’s never advisable to take long term debt for short term stuff.

That aside, the key question is whether the rental payments will definitely cover the new repayments. Can you manage the new mortgage if you have a break in the rental? How long for, 1 month, 2 months, 6 months?

you should have a reserve in place to cover that eventuality, and given you are borrowing £30k for existing debt and “tide you over”, it doesn’t sound like you have that.

Overall, doesn’t sound like a sensible idea.

(And it’s not clear your bank would lend it anyway - but that’s another issue)

I'd sell it. You could clear your debts and have a nest egg, or pay off a chunk of the mortgage on your home.

This isn't just your problem though, the car and the things that need fixing in your home are shared problems. And I think the debt should be a shared problem too, unless you secretly blew £15k on designer shoes and handbags or something. What does your husband think?

And I'm a bit mystified as to how you're not seeing a profit on a property that you've owned for 20-ish years, given how much rents have shot up in that time.

I think you need to take a good look at all your finances, something's not adding up here.

I think OP / Mum is using the wrong language. The way they've phrased / explained it effectively is to get a new mortgage for £85k. Move the £35k which leaves £50k for debts / spending.

OP - when you use "remortgage" you just use the figure that's on top of existing debt - not total. So if you want to release £50k you say you are remortgaging for £50k not £85k

Either way I agree that you're better off getting rid of the flat for whatever price it will sell at

I don’t see a profit ever it goes directly to mortgage

You’re profiting by retaining an asset using the labour of another person. Just because you’re not seeing extra money in the bank, someone goes to work every day and you profit by their income securing your nest egg.

We are currently looking for another rental and are considering a property with a tenant in situ as it's easier for us knowing there's a long-term tenant who has looked after the property and paid rent on time, etc. We know a few landlords who have had to evict due to late payments and other issues, and it's a nightmare of a process, so a good tenant already in the property is probably quite attractive to landlords.

You’ll also have CGT to pay when you sell if you make a profit on it. It’ll sell if it’s priced correctly - just cut your losses, clear the mortgage and use whatever is leftover (must be at least 60-70k given suggested remortgage figures) to sort yourself out

OP

• what is the value of your rental property ie: it's selling price

• what % of that is the £35k current mortgage
• what is the value of your current debts? You've suggested £45k
• you should speak to a mortgage broker to find out the cost of borrowing £45k against the value of your property. The mortgage will then be (35+45) £80k.
• does the rent cover your mortgage payment and the cost of running the property? BTL mortgage rates are generally higher than domestic rates.

If not, sell it. Put down a deposit on your own home. It seems crazy to rent yourself.

Sorry if I'm missing something but why didn't you move into the house when you got married?

I think that keeping the rental is a good decision- eventually it will be fully paid off and the income will be really helpful for your retirement. So although you aren’t seeing a day to day profit it is significantly increasing your overall wealth.

Im not sure that remortgaging to 80k would be a great decision. When I look at the things which you need, they all feel day-to-day so spending 45k of equity on them feels like a lot.

Could you take on a bit of extra work from your part time work? Or you or husband incase hours? and reduce spending a bit to fund things through until you get a full time job?

Could you wait until you have the full time job to do the new car and work in the house?

In your position I would remortgage for 15k more, use it to pay off the debt, and work very hard not to get back into that position again. I’d balance the rent increase with the mortgage costs with the aim of trying to increase the term as little as possible, which will reduce the overall cost of this as an option.

I'd probably sell

Every house will sell if the price is right

Taking on additional long term debt to clear short term debt doesn't sound like a good plan

And I think it's unfair to put blame on your parents

You're not going to get good advice here, it's just going to muddy the waters. Speak to a financial advisor and go from there.

Given your folks royally screwed you over at 22, why would you take your advice now on what to do with it?

Sell it.

And sit with dh and work through joint finances to tackle the debt.

This is all very confused.
The rental property has a relatively low yield already if after 20+ years the rent isn’t enough to have cleared the mortgage and there is still £35k outstanding

Are you proposing to add £45k to the mortgage to make a total of £80k or add £80k to the £35k?
What is the property worth?

I would be very cautious about remortgaging unless the sums really add up.
What will the LTV be?
What is level of the rent compared to the mortgage?

• most BTL lenders now want LTV max 60% and rental coverage of 120% the mortgage payment

I don’t understand how owing this property is benefiting you financially (and I say that as a landlord).

Not sure why PPs are suggesting you sell the rental as if it's some kind of noose around your neck. It's cost neutral to you and one day will be an asset you fully own which will continue to bring in an income.

That aside, releasing equity by remortgaging is unlikely to be the most cost-efficient way to get your hands on the cash you need now. As you've already worked out, you'll end up paying back more than double what you actually borrow over the term of the loan. If you have decent credit, an unsecured personal loan would probably be a better option, provided you could make the monthly payments.

Sold to you in your 20s, you’re now in your 40s, so what - at least 12 years of huge growth in rental rates? And despite only having £35K mortgage, the rent only covers the mortgage?

£35K over 10 years at 6% is a repayment of £390.

Just an example, but I pick 10 years as you’ve had it over 10 already, and if it’s longer the payment would be even less.

Can you take a step back and work out why you’re not making any money on this property?

It's a terrible idea.

You need a more holistic look at your finances.

Where has the debt come from?

It sounds like your expenses currently exceed your income. I would first try to fix this. Then I would consider the interest rate of the current mortgage, effective interest rate of the £15k debt, and the interest rate of a new mortgage. If interest rate of a new mortgage is higher than the others I wouldn't do it. You also need to consider tax implications. I would not take out additional loans to cover expenses (this should initially be a conversation with husband) or fix stuff on existing house (unless it was something that will become more expensive the longer you leave it, like a leak). Once I had a new job I would 1. pay down debt and 2. fix stuff on the new house.

I think it would help knowing the value of the rental property. If it's worth 100k, then yes 85k against it probably not a good idea. If its worth a million on the other hand, I can see why your mum would suggest it.