UK Landlord Forum / Life

Hi all,

I'm a 'distressed' landlord, negative equity since 2007 credit crunch. The 2 bedroom apartment in Halifax has been managed by agents since then.

Tenant has just moved out and only a few enquiries via the agent to view the flat. Previous rent was 400. Agent says I should drop to 350.

Well...

That's current mortgage cost. Not including ground maintenance or agent fees.

Agent fees are charged to both me as the landlord, and the tenant too! (For advertising, for move-in, for renewals, etc.)

Normally the tenant would pay the council tax and utilities, of course.

I'm wondering if I should ditch the agent and rent the place as a private landlord.

I have no idea on what that makes me responsible for. I live 6 hours drive away.

Any tips on where to learn? And the big question, am I setting myself up for more pain by being a private landlord rather than sticking to the expense of an agent?

Ideally I would rent the rooms separately at 300 per month each. I think that would cover all main expenses (council tax, mortgage, grounds rent, utilities).

Thanks so much for ideas.

James

You have 1 property. I'm assuming you don't intend to make an new career out of this. Although I would recommend Landlords self-manage, I could not say that for you in your situation. Surely, all you want is a property that can try to cover itself as best as it can until you are in a position to sell? If so, just change Agents.

You are still responsible for everything, anyway. Getting into HMO territory - room by room letting (or is it just 2 rooms?) - is probably not for the faint-hearted. Your idea of a property that used to get £400 per month now getting you £300 x X per month could easily be a pipe-dream.

Halifax is a nice place, any nice property - reasonably priced - should go like a hot-cake. Is it looking tired and dated? Time for a refresh? You often have to put money into these things to get them earning for you.

If your heart's not in it, get it on the market... cut your losses.

It's the only mortgage / property I have got, yes.

No I don't want a career out of it

Mortgage is about £350 p/m (interest-only on 90k and finishes in ~10 years).

Value doesn't seem to have risen in the past 10 years, hovering around 65k I believe.

So ~25k negative equity.

I pay monthly ground maintenance too.

If I rent through an agency at £350 (they take ~10%) so I'm left with a scratch over 300.

mortgage (at current interest rate) plus ground maintenance = ~450 p/m

So I'm paying about £150 p/m into it. More if we consider extras such as the washing machine replacement recently. And agency fees for renewals or new tenants.

I think the apartment (2-bed) is quite tidy, I've repainted once, washing machine and fridge are nice. It's ground floor of a 3-story small block in a cul-de-sac.

You are headed for disaster.
You are not even making the payments on an interest only mortgage and your capital isn't increasing?
Sell now and get out - you are only increasing your losses every day.

Best of luck

Quote from: theangrylandlord on March 05, 2017, 02:18:15 PM
You are headed for disaster.
You are not even making the payments on an interest only mortgage and your capital isn't increasing?
Sell now and get out - you are only increasing your losses every day.

Best of luck

Well, if I stay in the UK then a bankruptcy apparently means that all of my discretionary income (above cost of living) would go to the lender as debt payments for 3 years. If that's the case, I might be better to just make early capital repayments for the next few years until I can sell it.

I'll speak to a debt charity. Any further real-world insights much appreciated.

Sorry James. I couldn't infer from your previous posting's that your alternative was bankruptcy.
So for some real world advice..

There are other arrangements ... that lenders can consider (depends if you are in full time employment) whereby they put a charge on your pay packet (not everything above cost of living) so that allows you to sell but they effectively convert the remainder of the loan to a restrictive personal loan.  It's not common and has onerous terms but they prefer this than a bankruptcy.  Have you spoken to your lender (maybe you have your posts seem quite switched on).  (They might also have a cheaper deal that could switch over to)

As to the other questions:
HMO is a lot of trouble and more cost.  The bit that hurts here is you live 6 hours away so managing an HMO isn't simple (even if you lived round the corner) and you will incur more costs in terms of licensing and safety and modifications etc.
One way to avoid the HMO issue is to consider what your council considers an HMO (in theory it should be three families sharing but these days councils seem to make up their own rules so best to check) and then rent to only 2 families.  It will increase income but avoid HMO legalities.

As to agent you need to ask what have they done? Have they managed issues that you could not? Have they a set of reliable cheap tradesman that you could not find on check-a-trade?  Etc  etc.  Like any service you have to decide has it been good value for money?  Note if you ditch them then you will have to do more paperwork which (hopefully) they have been doing.

You ask about responsibility... save a few minor exceptions in very specific circumstances you are already responsible for everything ... the agent is not.  If they mess up you are liable.  Most of an agents work is paperwork, viewings and liasing with tenants and landlords (apols to any agents out there I'm sure that's an oversimplification).  Much of can be done by the landlord it's a question of convenience mostly.

The key will be the tenant vetting and viewings (another reason to avoid the HMO unless you can pop down there every weekend).  If you could reduce the agent to finder service only that might be a start so Long as you are comfortable to do the rest of the work.

Sorry for your plight.
Best of luck.

I had not fully acknowledged that you live 6 hours away from the property.

What you are thinking about in terms of self-management would, effectively, become no management. So, I cannot recommend it on that basis alone. The amount you would save is also minuscule.

Your situation is now even worse than I envisaged, because I had assumed (incorrectly) that you were on a repayment mortgage and even if you were making up some shortfall you had the benefit of paying down the debt and owning the asset over the long term... now I read that you're on an interest only mortgage. I was surprised to hear that.

Please get out of this situation however you can. It cannot be good for your mental well-being. You're speaking to us, now, which is the start - as you say in a later post - time to get some more professional advice, I feel. I am offering advice on more of a gut-feel - this is pretty bad.

Also... what is your interest rate on this mortgage? Can you look to re-mortgage because £450 per month sounds like a lot on a mortgage that totals £65,000 to me. I note ground rent / service charge implications... but what are they? Am I crazy to think the interest rate must be over 5%?

I took out £60,000 BTL mortgage - repayment and fixed for 5 years (which you pay for) and only over 20 years, not 25, and the payments weren't anything like that.

I'm surprised that after nearly a decade the property is still that deep underwater. Unless you can reduce the £90k mortgage or increase the £65k value, you're stuck with your current mortgage provider and their Standard Variable Got-you-by-the-balls Rate. I take it you haven't got any other equity floating around that you could use to knock a bit off the balance.

How sure are you of that value? I'm not familiar with Halifax but I'd have thought a decent, tidy property would have recovered more of its pre-crash price than that. It might be worth getting a professional opinion.

Ideally you'll want to be clear of the last crash before the next one arrives!

Good points.

A £90,000 mortgage on a property worth £65,000. I misread.

Quote from: Hippogriff on March 06, 2017, 08:51:09 AM
Also... what is your interest rate on this mortgage? Can you look to re-mortgage because £450 per month sounds like a lot on a mortgage that totals £65,000 to me. I note ground rent / service charge implications... but what are they? Am I crazy to think the interest rate must be over 5%?

I took out £60,000 BTL mortgage - repayment and fixed for 5 years (which you pay for) and only over 20 years, not 25, and the payments weren't anything like that.

The interest rate is currently 4.49% and the monthly payment is precisely 339.65 p/m as of today.

Grounds maintenance is about £1200 per year so £100 per month, hence £440 payments. Plus council tax of ~£100 per month.

Just done a valuation check using https://www.propertypriceadvice.co.uk and it says average estimate £45k.

I don't think I can re-mortgage given the amount of negative equity. Who would give a 90k mortgage on a property valued at ~50k? 

I have no savings to make a downpayment.

I'm having a couple of property agents go and do a sales valuation this week.

Really appreciate all of your questions and ideas.

Quote from: Simon Pambin on March 06, 2017, 01:45:31 PM
I'm surprised that after nearly a decade the property is still that deep underwater. Unless you can reduce the £90k mortgage or increase the £65k value, you're stuck with your current mortgage provider and their Standard Variable Got-you-by-the-balls Rate. I take it you haven't got any other equity floating around that you could use to knock a bit off the balance.

How sure are you of that value? I'm not familiar with Halifax but I'd have thought a decent, tidy property would have recovered more of its pre-crash price than that. It might be worth getting a professional opinion.

Ideally you'll want to be clear of the last crash before the next one arrives!

Just done a valuation check using https://www.propertypriceadvice.co.uk and it says average estimate £45k. I'm having a couple of local property agents visit to give new sales valuations this week.

I may have to get a higher paying job in London City to start making early capital repayments to bring down the mortgage size. Perhaps that's the best option to get out of this financial hole. I work 50% of the time paying taxes as it is. Why not work another day or two per week for this mortgage debt. At least I'll have Friday's income to spend

But yes I'm surprised (dismayed) that the property did not go back up in value. It was a new build when I bought it off plan in 2005. On a cul-de-sac. The properties have not sold since then, so everyone there is in the same boat. But I have no property portfolio to profit from. That's my only mortgage.

Quote from: theangrylandlord on March 06, 2017, 01:10:31 AM
Sorry James. I couldn't infer from your previous posting's that your alternative was bankruptcy.
So for some real world advice..

There are other arrangements ... that lenders can consider (depends if you are in full time employment) whereby they put a charge on your pay packet (not everything above cost of living) so that allows you to sell but they effectively convert the remainder of the loan to a restrictive personal loan.  It's not common and has onerous terms but they prefer this than a bankruptcy.  Have you spoken to your lender (maybe you have your posts seem quite switched on).  (They might also have a cheaper deal that could switch over to)

As to the other questions:
HMO is a lot of trouble and more cost.  The bit that hurts here is you live 6 hours away so managing an HMO isn't simple (even if you lived round the corner) and you will incur more costs in terms of licensing and safety and modifications etc.
One way to avoid the HMO issue is to consider what your council considers an HMO (in theory it should be three families sharing but these days councils seem to make up their own rules so best to check) and then rent to only 2 families.  It will increase income but avoid HMO legalities.

As to agent you need to ask what have they done? Have they managed issues that you could not? Have they a set of reliable cheap tradesman that you could not find on check-a-trade?  Etc  etc.  Like any service you have to decide has it been good value for money?  Note if you ditch them then you will have to do more paperwork which (hopefully) they have been doing.

You ask about responsibility... save a few minor exceptions in very specific circumstances you are already responsible for everything ... the agent is not.  If they mess up you are liable.  Most of an agents work is paperwork, viewings and liasing with tenants and landlords (apols to any agents out there I'm sure that's an oversimplification).  Much of can be done by the landlord it's a question of convenience mostly.

The key will be the tenant vetting and viewings (another reason to avoid the HMO unless you can pop down there every weekend).  If you could reduce the agent to finder service only that might be a start so Long as you are comfortable to do the rest of the work.

Sorry for your plight.
Best of luck.

It's a 2 bed flat so not sure suitable for '2 families'. I was just thinking 2 single tenants. Does that avoid HMO legalities?

I currently work remotely part-time via laptop so I can actually go to the property and stay there until the place gets rented as I don't need to be at any set day job location where I live in London.

The current agent I think is not efficient at all. The washing machine broke down and they called me to ask if I want them to arrange for repairs. Rather than it being a free quote which I would always get myself, the repair company charged £50 call out charge. And they wanted £400 for a replacement washing machine (drum was irreparable).

I found a good washing machine second hand and installed for £100 myself.

So no, I don't think the agent does a good job.

Quote from: jamesjooce on March 05, 2017, 03:10:07 PM

Quote from: theangrylandlord on March 05, 2017, 02:18:15 PM
You are headed for disaster.
You are not even making the payments on an interest only mortgage and your capital isn't increasing?
Sell now and get out - you are only increasing your losses every day.

Best of luck

Well, if I stay in the UK then a bankruptcy apparently means that all of my discretionary income (above cost of living) would go to the lender as debt payments for 3 years. If that's the case, I might be better to just make early capital repayments for the next few years until I can sell it.

I'll speak to a debt charity. Any further real-world insights much appreciated.

The debt charity says secured loans are not included on bankruptcies, so I would have to sell it first or voluntarily surrender the keys back to lender and then get a bankruptcy on the subsequent unsecured debt.

Or, I have to pay down the negative equity myself with all of my discretionary income for maybe 10 years at which point the mortgage becomes due and I can sell at market value at that point.

Sooo unlucky. Credit crunch. Bad area. Boom.

Hi James.

1. I don't mean remortgage.  You can go to lenders and switch rates these days.  No valuation required.  You can only go to your current lender but the majority do it.  Would you mind sharing who your lender is?  I assume you have come of any tie in period as your rate is astonishingly high.

2. Remember living in the house until it is rented is one thing but maintaining it when someone else is means a 6 hour journey maybe on the cards.
Whilst I would not normally recommend DIY across such a distance in your specific circumstances it may be worth it.

3. You could live in one flat while the other is rented?  Would that lower your overall outgoings (if you don't need to be anywhere)?  In any case 2 singles is not an HMO unless your council has a special rule.

1. Santander is the lender. I can call them to 'switch rates'. On what basis would they do that? Point out the lower re-mortgage rates with other lenders? Won't they know I have negative equity and would be looking at big deposit to do a re-mortgage so they know I'm trapped with them?

2. Yes I think DIY may be best for now. The previous tenant was paying 400 p/m. The agency hasn't found anyone for that price in the past 4 weeks and suggested dropping rent to 350. My gumtree ad for almost £400 had 3 people interested to view it within 24 hours. All those extra agency fees put people off! I'll do a trip up there this week for those viewings and hope someone takes it and then I'll cancel with the agency.

3. You mean live in one of those rooms in the flat. The flat is up north. I'm in London and already paying rent where I live. So i can visit the flat to stay until it's rented, but not ideal to live there myself.

I spoke with a sales agent today and his desk research found similar properties in area for 70k-ish which haven't sold. So 60k to be competitive. At 400 rent p/m it might need to be 55k to make buy-to-let investor yield worthwhile.

90k mortgage - 55k value = £35k negative equity.

Prices remain near all time bottom since 2007.

1. You ask on what basis they would switch rates?  The basis is that it is a service to all their customers (the idea is to keep folks that have come off their tie in).  It is very very common

Look go to Santander.co.uk
Under the mortgages picture click "find out more"
Under change your mortgage deal click "find out more"
Go from there I can't see more as I don't have your mortgage details
I hope though you have a BTL mortgage...otherwise you will need to have forethought as to how to answer whether you live there or not etc
If the website doesn't work for you there is a number to call....

Believe it or not banks don't like their borrowers going bankrupt and will try to help if they can (I know that is hard to believe) so I would still talk to them if the rate switch doesn't work for you.

They may or may not know about your negative equity but that is irrelevant ... they are already 90K in the hole.  (Of course they won't lend you more than 90K!)

If you want to get advice on mortgages come back...

Best of luck

I'm still erring towards you getting out of this gig - at almost any cost.

You're servicing what appears to be an expensive mortgage for no benefit at the end of its term, i.e. it's not a repayment mortgage. You're scrabbling around for savings that appear to be in the 10% range - I don't know if that's what you need here (especially not when combined with the added hassle of self management from 6 hours away... it only takes a few required visits for you to start thinking that's a really bad idea).

That said, I can't help but think your appraisal of value is pessimistic... I thought all properties had gone back up, recovered somewhat, since 2007 / 2008. And, it is confirmed that I've changed mortgages with the same Lender to one with a lower interest rate for no fee or any cost at all to me - my payments just go down. So, do try that, and quick - it could be your biggest win and even if you do decide to get out, it'll benefit you in the time it takes for that to happen.

Quote from: theangrylandlord on March 08, 2017, 02:08:39 AM
1. You ask on what basis they would switch rates?  The basis is that it is a service to all their customers (the idea is to keep folks that have come off their tie in).  It is very very common

Look go to Santander.co.uk
Under the mortgages picture click "find out more"
Under change your mortgage deal click "find out more"
Go from there I can't see more as I don't have your mortgage details
I hope though you have a BTL mortgage...otherwise you will need to have forethought as to how to answer whether you live there or not etc
If the website doesn't work for you there is a number to call....

Believe it or not banks don't like their borrowers going bankrupt and will try to help if they can (I know that is hard to believe) so I would still talk to them if the rate switch doesn't work for you.

They may or may not know about your negative equity but that is irrelevant ... they are already 90K in the hole.  (Of course they won't lend you more than 90K!)

If you want to get advice on mortgages come back...

Best of luck

I tried that on Santander website earlier this week and it didn't accept my mortgage account number. Maybe I don't have a mortgage 

I'm visiting the flat today so will pop in to the local Santander and grovel.... err speak to them, about 'switching rates'.

Not sure how much detail I should explain about financial difficulty, the lack of property value rising since credit crunch, or the possibility of bankruptcy if I can't find a good solution....

thanks so much again.

I took on a housing benefit tenant at £420 pcm (payable as £197 every 2 weeks) and met the tenant at the housing benefit office to complete the tenancy agreement and register my bank account details.

The tenant is a single mother middle aged with a 2-year old daughter and there's a nursery and primary school really near the flat.

Hopefully it will be a long-term tenant and then I'll need to figure out how to exit once the rental yield is good enough for an experienced BTL investor to take over.

As it stands I'm accepting that I'll need to put in 10 or 20 grand to cover the mortgage shortfall due to negative equity... unless Brexit helps stimulate northern UK property market any time soon.

Quote from: Hippogriff on March 08, 2017, 09:09:11 AM
I'm still erring towards you getting out of this gig - at almost any cost.

You're servicing what appears to be an expensive mortgage for no benefit at the end of its term, i.e. it's not a repayment mortgage. You're scrabbling around for savings that appear to be in the 10% range - I don't know if that's what you need here (especially not when combined with the added hassle of self management from 6 hours away... it only takes a few required visits for you to start thinking that's a really bad idea).

That said, I can't help but think your appraisal of value is pessimistic... I thought all properties had gone back up, recovered somewhat, since 2007 / 2008. And, it is confirmed that I've changed mortgages with the same Lender to one with a lower interest rate for no fee or any cost at all to me - my payments just go down. So, do try that, and quick - it could be your biggest win and even if you do decide to get out, it'll benefit you in the time it takes for that to happen.

I'm guessing you could change mortgage rates because of good credit and no negative equity.

Valuation of my flat is ~60k because there's a similar flat on the same development that hasn't sold for £70k for over a year.

I have 90k mortgage.

New housing benefit tenant paying £420 pcm.

I fired the estate agent so no fees.

So:

4.49% current mortgage rate = £340 pcm
service charge and ground rent = ~1300 pa
total of that = 450 pcm

Which means at current rates I'm paying about £30 into it. That's besides any maintenance costs. Easily manageable providing interest rates don't go up a lot.

I think I should work on paying early capital repayments to bring down the 30k negative equity if Santander will allow me to do that.

I agree that you should pay the debt down to, hopefully, get something out of it.

I'm still stunned that you are on an interest only mortgage and you've ended up putting £30 a month into it.

As you describe this you're still sinking, just not as rapidly as before... you're not getting anything out of this venture. You're not even treading water. Why would you do this?

With a repayment mortgage my own approach is to ensure that I am £200 in 'profit' each month. Otherwise I'd not do it. Happy to admit I always go for the 40% deposit mortgages and try to get the best deal, but £200 over and above each month is enough to consider overpaying and / or benefit from it - and the asset is being paid off (also they're 20 year terms because of my age).

I know interest only was the fashion for many - and their empires grew and grew because of it - but if I'm reading what you're describing correctly - I thinking (hoping) there has to be another way?

Generally speaking, LHA Tenants stay for longer than professionals... so maybe you'll have someone who is long-term here and you can start to raise the rent by a modest amount each year... I'm talking £10 to £15 in early 2018, then similar as time goes on... eventually you will be winning-out. Never so much as to shock the Tenants into moving on. The long game can work.

Scratching my head as to how you're going to manage it effectively, though (and I'm not saying the Agent was managing it effectively). Best of luck.

Quote from: Hippogriff on March 14, 2017, 11:53:09 AM

I'm still stunned that you are on an interest only mortgage and you've ended up putting £30 a month into it.

As you describe this you're still sinking, just not as rapidly as before... you're not getting anything out of this venture. You're not even treading water. Why would you do this?

I bought at the top of the market in 2005.

The sales valuation was 105k. Mortgage was 90k. Automatic positive equity.

At the time of buying I was sold interest only mortgage by the mortgage advisor.

The intention at the time was to sell it after a year or two.

Credit crunch brought the value way down and for whatever reasons it hasn't recovered.

90k mortgage. 60k valuation.

I don't have 30k to just drop into it to sell it off.

So I'm stuck with it for now.

Yowzers: that's got to hurt! Even properties that took a big hit in the crash have mostly recovered now. (unless they've caught on fire or something, and I presume you'd have mentioned that!) After all, the fundamentals of the market haven't changed that much overall: demand still exceeds supply and interest rates for borrowers are still relatively low - lower than they were in 2005.

What were rents like in the area back then, or were you buying it as a place to live in at the time?

Quote from: jamesjooce on March 14, 2017, 08:45:24 PMI bought at the top of the market in 2005.

The sales valuation was 105k. Mortgage was 90k. Automatic positive equity.

At the time of buying I was sold interest only mortgage by the mortgage advisor.

The intention at the time was to sell it after a year or two.

Credit crunch brought the value way down and for whatever reasons it hasn't recovered.

90k mortgage. 60k valuation.

I don't have 30k to just drop into it to sell it off.

So I'm stuck with it for now.

I might be speaking like I'm crazy here... but I'll still go with it, consider me thinking out loud.

At the moment, you have an asset you aren't paying the debt down on - so the interest you're paying doesn't change and the mortgage payments you're making don't decrease the total - and you're not shifting the share of ownership in your direction - away from the Lender. And you're putting in £30 extra per month in an attempt to try and tread water.

You can't afford the money to pay extra in the mortgage. You can't afford money to change to a repayment mortgage. You can't really sell it for a loss so you can clear the mortgage.

Have you seriously considered defaulting? What happens in that kind of scenario? Have you looked into it? Does anyone here know?

It would impact you negatively and massively, of course... but the alternative doesn't seem too palatable to me, either? In life I always go for the certain outcome, rather than the uncertain one. What you are doing today is throwing money into a big pit, hoping something will come along and fill it up. I'm still puzzled why many other properties - across the country - have [mostly] recovered their value, but this hasn't. I am also not clear whether you have had a formal valuation conducted - you do mention - "Valuation of my flat is ~60k because there's a similar flat on the same development that hasn't sold for £70k for over a year." - but that is not a formal valuation.

The trouble with defaulting is that it still leaves the debt. Unlike in some parts of the world where you can just hand back the keys and walk away, in this country you'd still owe the full outstanding value of the mortgage, less what the bank gets for the property in a fire sale, net of expenses, so £90k - £50k (optimistically) leaves £40k to be paid pronto or it's CCJ and, realistically, CVA/bankruptcy time. That makes it very hard to put a roof over your head because no bank will lend to you and people like us tend not to let property to people like that.

If I found myself in this position, (aside from having stiff words with the greasy oik who sold me the property in the first place!) I'd be scrimping and saving to try and pay down the capital a bit. If you can knock off ten grand, it starts to wash its face. Another ten grand and that's thirty quid a month coming in instead of going out. Another ten grand and there's a worthwhile income, plus you're in positive equity so you can negotiate a better interest rate or just sell up. Needless to say it would have been good to start this process ten years ago but, with ten years left to run on the mortgage, you'll need to start doing something or you're back at paragraph one.