The Lemon Fool

My son purchased a property in 2004 at the princely sum of £81k. The property has a valuation of £67k. He wants to move on with his life as he now works away and does not fancy becoming a landlord and renting out his property.
During that period he has not reduced the outstanding debt and has been on a repayment mortgage with RBS and still owes the sum of £81k to that banks.

So I think his options are that he sells and comes to an arrangement with the bank for the outstanding amount, or does he go on the hunt for an unsecured loan. He is worried that it will affect his credit rating and may affect him in the future.

Any advice please?

During that period he has not reduced the outstanding debt and has been on a repayment mortgage with RBS and still owes the sum of £81k to that banks.

Was he really on a repayment mortgage or is it in fact an interest only mortgage? Just asking because it seems really odd to be on a repayment mortgage for so long without the debt going down - unless, of course, some payments have been missed. I can remember that when I was on a repayment mortgage there was one year - I think it was at the height of the financial crisis) when I owed slightly more at the end of the year than I had at the start. Obviously wasn't very happy about that! I contacted the Building Society (or maybe it was a Bank by then) and the person who replied admitted to being as baffled as I was (which rather endeared me to the man concerned!) but he'd investigate and he came back to me with an explanation which I understood at the time but interest rates rising and the Building Society/Bank having a policy of only adjusting re-payment rates every couple of months (or whatever) rather than every month and this had led to the discrepancy I was querying. I didn't like it but at least I got an honest reply and I could understand the reply and it was the only year this happened in a 20 year mortgage. But I can't quite see how you could be on a repayment mortgage and the debt not go down for many years?

If it is an 'interest only' mortgage this article today in the Guardian might be of interest:

https://www.theguardian.com/money/2018/ ... isis-bites

though perhaps mainly aimed at people coming up to retirement with interest only mortgages some of the information might perhaps be of use to anyone of any age group stuck with a mortgage which they seem to have no chance of repaying or of even progressing towards paying?

So the property has lost 17.3% of its value in 14 years? Would it be rude to enquire where/how that happened? (It's not impossible, of course: when I was a student in Brum, my friends and I considered buying a house that was worth very little indeed because its value had been trashed by "planning blight", and we worked out that the mortgage instalments would have been less than the local student rent.**)

Or did the bank perhaps allow your son to mortgage for more money than the property was worth? That used to happen, although I think not recently. Or has it suffered some major (but uninsured) structural issue, like subsidence?

Alas, it's too late now to wag the finger about how interest-only borrowers were warned about the need to have a plan for capital repayment. He's taken a gamble and it hasn't paid off. (Which still surprises me.) But yes, a £14,000 default on the £81,000 will normally hurt his credit score. As you say, there are agencies that will negotiate a write-down and an agreement with the bank. (Such as https://www.negativeequityuk.com/news/w ... dit-rating.) But they're going to be charging (probably hefty) long term fees for the service. Might be his best option, if the £14K can't be found from within the family. (Can it?)

BJ

(**) We didn't buy the cheap house in Brum. Our mistake. The planning-blight road didn't get built, the house wasn't demolished, and five years later it would have been worth eight times what we'd have paid for it. Sigh.

Thanks Bungee - nope unfortunately he just bought at the top end of the market and it is in a northern town - a bit of a sink estate if truth be told.
I cannot fund the whole of the 14k shortfall and the ex will certainly baulk at even discussing such a thing. Well we will have to see what we can do.
regards
Swiss

SwissPaul wrote: Well we will have to see what we can do.

You need to check the paperwork. If it is a repayment mortgage, the amount of the mortgage gets chipped away month by month and 14 years out of 25 should have made considerable inroads in the amount outstanding.

SwissPaul wrote:During that period he has not reduced the outstanding debt and has been on a repayment mortgage with RBS and still owes the sum of £81k to that banks.
Any advice please?

Have to agree with Alaric.

Can your son recheck his statements as it would seem something is seriously amiss here?

It seems a major error has arisen somewhere if fourteen years of a repayment mortgage has not resulted in any reduction in the balance.

A quick example from an online calculator:

Purchase price £81000
Mortgage £81000
Interest rate 5%
Monthly repayments ~£473
Amount outstanding after 14 years ~£48000

http://www.calculator.net/mortgage-calc ... &x=67&y=15

So where has the £33k (the difference between the £81k and £48k) gone?

staffordian wrote:So where has the £33k (the difference between the £81k and £48k) gone?

He could have taken out additional borrowing. Either that or he was on an interest only mortgage in the first place. Whatever the explanation I don't think it will turn out to be a mistake by the bank.

StepOne wrote:

staffordian wrote:So where has the £33k (the difference between the £81k and £48k) gone?

He could have taken out additional borrowing. Either that or he was on an interest only mortgage in the first place. Whatever the explanation I don't think it will turn out to be a mistake by the bank.

I agree with you, but was just trying to illustrate that it seems the OP only has half the story. A check of statements should reveal the answer, which I suspect has to be one of your suggestions, but given the apparent fall in property values, further advances seem unlkely.

Sorry folks - my fault it was an interest only mortgage

Ok folks - update.
Property is on the market after son going to see bank and explaining case. Bank said we understand and if you can continue to pay your monthly payments then we will charge you 0% interest.

If after a period of time you want to ask for a surrender value on your outstanding loan, then we may be willing to take as low as 50% of the outstanding debt.

Happy days for him!

I don't understand why they would do that. He has a job. Why do they not convert the equity shortfall into an unsecured loan?

It's 14k, why would they give that away? It will surely impact his credit rating.

What bank is it? I'm selling my shares.

SwissPaul wrote:Ok folks - update.
Property is on the market after son going to see bank and explaining case. Bank said we understand and if you can continue to pay your monthly payments then we will charge you 0% interest.

If after a period of time you want to ask for a surrender value on your outstanding loan, then we may be willing to take as low as 50% of the outstanding debt.

Happy days for him!

How can they charge 0% interest on an interest-only mortgage? So, he's not paying anything? That doesn't work with the news that they said he needs to continue his monthly payments?

Mel

melonfool wrote:

SwissPaul wrote:Ok folks - update.
Property is on the market after son going to see bank and explaining case. Bank said we understand and if you can continue to pay your monthly payments then we will charge you 0% interest.

If after a period of time you want to ask for a surrender value on your outstanding loan, then we may be willing to take as low as 50% of the outstanding debt.

Happy days for him!

How can they charge 0% interest on an interest-only mortgage? So, he's not paying anything? That doesn't work with the news that they said he needs to continue his monthly payments?

Mel

It would be better to hear from the OP, but guessing, they have made him an offer whereby he maintain payments at previous level, those payments reducing his principal because temporarily they are freezing interest. When the house is sold they write off up to 50% of the outstanding debt. It's a pretty generous offer, but there may be other factors like a bad credit record or outstanding credit card debts on which they are happy to earn 18%pa??

I too would be interested to see the details clarified and the bank named.

GS

[GS apologies for not getting back to you.House is on the market.
As soon as I have further news then I will update you. Banks view was its an unusual case as normally they are the first to initiate a contact after payments have been missed.
In relation to the wave of interest they have said keep your current payments going (approx 400 per month) and they are happy with that, They obviously will take all the proceeds from the sale of the house.
Bank is north of the border and has a royal name

Hi All,
well the house went below the asking price and the bank is content with it. He is approx 12k under water and the bank has arranged a repayment based on his current outgoings and dropped the repayment from 450 to 150 per month!

They have said they will review his payments in 12 months time and have alluded to taking a surrender in a year or two of 50% of outstanding debt.

All is good now and thans for the help assistance .

regards

Swiss

Hold on, don't we taxpayers own RBS? I ruddy object!

Kant - agree with your sentiments, but it shows how banks are run.

On another - ex sis in law - has not worked for 15 years, smokes, obese lives in her 2 bedroom house. She is bored all day just sitting on her bum. Racks up £15k worth of debt - I dont know how - but her and the shopping channels and catalogues love each other.

Charity comes along and offers her way to wipe out her debt for £300, so yep she does it. Not sure if its IVA or some other process.

No doubt if it was you or I, the banks would be on us. by the way did I mention she is on £1k a month (that includes 250 a month rent) .

rumour has it she is starting to rack up her debts again - I weep.

SwissPaul wrote:Kant - agree with your sentiments, but it shows how banks are run

It's not just banks though as far as I understand, Insurance companies have been bassing their calculations used in property equity release deals on property prices continuing to increase .