Unable to find tenants or pay mortgage – advice requested please

by Readers Question

12:26 PM, 18th February 2014
About 7 years ago

Unable to find tenants or pay mortgage – advice requested please

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Unable to find tenants or pay mortgage – advice requested please

I have two properties in the North East of England both in serious negative equity, and on interest only mortgages. The vehicle that was in place to pay these off (within the next 4 years) has collapsed and I have no way now of paying the mortgages off.

One is rented with tenants who have just started paying less than is due about 2 months ago. The other has proved difficult to rent and has been empty for 6 months. I now cannot pay the mortgages on either, and am facing repossession.

What should I do? The mortgage company has told me that they cannot offer anything other than someone to give me advice on how to rearrange my own personal finances so that I can keep paying something. I’ve already examined this myself and there is no flexibility here.

I can’t sell them myself as the negative equity is so high I wouldn’t be able to pay the balance off. I have no other assets. I am assuming repossession will happen, is it best to contact the mortgage company and tell them this is the only option? Or what?

I realise I will end up owing them even more after they have gone through the repossession route, but I don’t see any other option. I won’t be able to pay that off either.

Please help

JaneHelpquestion


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Comments

Neil Patterson

12:44 PM, 18th February 2014
About 7 years ago

Hi Jane,

A problem shared may not seem so bad.

I have a few question that might shed light or help lead to solutions. When debt counseling the first things to look at are can you decrease your expenses and can you increase your income.

-What was the repayment vehicle and does it have a value you can use now to keep up interest only repayments eg can it be sold?
-Have you spoken to your tenants to find out why they are paying less and do they realise they are causing a problem for you now but also themselves later?
-Have you considered a section 8 and replacing the tenants?
-A property will always be rentable if it is in habitable condition. Have you tried reducing the price, are you using an agents to find the tenant?
-Do you own your main residence. Can you let that out or move a lodger in or release equity from it, could you downsize?
-Do you have other loans and could you consolidate them onto one loan or consider an IVA?

There could be a solution in the above questions some where. You could get advice from an insolvency practitioner as declaring bankruptcy I assure you is not the end of the world and the lender may be reluctant to repossess preferring to take what they can per month.

The four year term left is not an immediate issue as you obviously have more time dependent problems.

Colin Childs

13:04 PM, 18th February 2014
About 7 years ago

Do you own your home?

Suggest you call the National Debt Helpline for advice. Calls are free and your can email online as well.

Mandy Thomson

15:38 PM, 18th February 2014
About 7 years ago

It isn't available everywhere, but have you considered private sector leasing? This a scheme where a private landlord leases a property to a social landlord for a number of years and they manage everything during the term. They also guarantee rent, even during voids and undertake to repair any damage beyond their definition of wear & tear.

Graeme

15:45 PM, 18th February 2014
About 7 years ago

Jane,
Where do you live? Are you nearby or far away from your rented houses?
Do you own your own home or live in a rented property yourself.?
If you live in a rented house, is it an option to give this property up and move into your house that has been vacant for 6 months? You must tell the lender, of course, but the money that you are paying in rent yourself would pay the mortgage on your own property instead, saving it from repossession.
The tenants in the other property that are now paying less need to shape up or ship out.!! If necessary, you serve a section 8 on them, get them out and change tenants.
I wish you well.

Robert Mellors

15:54 PM, 18th February 2014
About 7 years ago

Have you tried a guaranteed rent scheme, e.g. Northwood, as they may be able to let the property even if you cannot, so if the rent they offer you is enough to pay the mortgage then that could be a solution for you (and they would have the problem of collecting the rent from the tenants).

Some Councils and/or Housing Associations (including my own housing association, but I'm not in that area of the UK), may also do Private Sector Leasing Schemes, whereby they lease the property from you for 5 years at a time and then they use the property for housing homeless families.

Alternatively, is the property suitable for using as a HMO and would there be a demand for rooms in that area? This may be a way of increasing the income from the properties, and lowering the risks of non-payment, but it does involve a lot more management time and effort, so it's not suitable for some landlords.

Beware of bankruptcy and IVAs as these may not be suitable, so get some independent advice before considering these options. National Debtline, the Citizens Advice Bureau, and Payplan, are all very good and offer free independent and impartial advice, however, none of them (or any other organisations to my knowledge), specialise in advising landlords who have debt problems, so their experience and advice may be more generic.

Repossession is perhaps the last resort, but even if it does come to that then it may not be necessary to also go bankrupt, but this depends on many factors so this would need to be looked at if the lender is actually repossessing.

As Neil said (above), a property will always be rentable if it is habitable, but in order to actually rent it out you may need to change the way you are doing things, e.g. if it is with an agent and not letting then take it away from the agent and advertise it yourself, or remove other barriers that are stopping people renting it from you. There are lots of possibilities.

I'm a trained and licenced debt counsellor, and I have been a private landlord since 1997, and running an independent housing association since 2004, and I've had properties in negative equity, and properties that were hard to let, so I've got experience of having to change my letting strategies to deal with the hard to let properties.

17:32 PM, 18th February 2014
About 7 years ago

Hi Jane,

I am sorry to hear of your plight.

Repossession is the absolute last resort and there is a long way to go before you should accept this.

However, you MUST take IMMEDIATE action.

The first thing to do is sort out the tenants who are late paying.

You must bring them back on track by communicating with them and perhaps setting up a payment plan with them for arrears.

For the second property, as Robert suggested, you could get in touch with Northwood for their Guaranteed Rent service. This transfers the financial risk of the property from you to them.

Leaving it empty is a very bad move for any landlord as not only are you paying the mortgage, but you become liable for Council Tax and utilities and empty properties become targets for criminal damage and even asset theft.

You can find out more about their Guaranteed Rent service and also find your nearest Northwood office here

http://blog.northwooduk.com/2014/02/guaranteed-rent-explained-in-2-minutes/

I think that if you take definitive action, you can solve this problem and move on in a more positive manner.

House prices are rising, so it would be far better to hang in there and reduce your negative equity, than give up now and let the whole thing go down the pan. If that happened, the bank would come after you for the shortfall.

Like I said, this can be salvaged provided you take IMMEDIATE ACTION to get these properties back on track.

Good luck!

Colin Childs

17:53 PM, 18th February 2014
About 7 years ago

" The vehicle that was in place to pay these off (within the next 4 years) has collapsed and I have no way now of paying the mortgages off."

Meant to comment on this earlier. I'm surprised the investment vehicle has collapsed given the benign state of all the various markets at the moment. Unless your plan was to sell the properties at a profit. Something which I suspect may impact many more in the future as well.

Julie Dawson

18:52 PM, 18th February 2014
About 7 years ago

I live in washington if you don't live local and need any help to tenant find let me know ??? Also if the agents aren't working try Gumtree, if people don't want to pay letting fees this is a good alternative, i did 4 viewings on a property on Sunday and took an application today ... it could help.

Mandy Thomson

9:34 AM, 19th February 2014
About 7 years ago

Sorry, that should have read "provided it's NOT beyond their definition of wear and tear"! It was a hurried message on my iphone while I was travelling.

Mandy Thomson

10:19 AM, 19th February 2014
About 7 years ago

I hope you've now found a possible route out of this trouble. If none of these options are viable, there might be another thing to try - rent to buy. I appreciate that this might not address your negative equity issue, but at the very least it gives you five year's breathing space, with a guaranteed rent each month during that period.

This isn't an area I'm familiar with, but this is my understanding of how these schemes work in principle:
A buy to rent agent sources a referenced tenant/buyer.
The seller agrees to rent to the tenant/buyer through the agent and in return the tenant/buyer has the option to purchase after 5 years - but the tenant/buyer, not the seller, retains any equity accrued during the 5 years.
The tenant/buyer pays rent and a bit more toward the deposit to buy each month, with the agent guaranteeing rental payments to the seller
The tenant/buyer is responsible for the upkeep and management of the property
If, for whatever reason, the tenant/buyer doesn't buy within 5 years, they still have the option to buy within a further 5 years, still at a reduction, but now taking the new (hopefully increased) value into account
The tenant/buyer can sell the property within 10 years and they benefit from the accrued equity, although with their share reducing after 5 years, with the balance (presumably after deduction of the agent's fee) going to the original landlord/owner
If the tenant/buyer doesn't purchase within10 years, they lose their deposit

The scheme is attractive to tenant/buyers as they don't need such a large deposit upfront, or to be able to get a mortgage straight away, but they still have the option of getting on the property ladder.

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