Letting a mortgage foreclose - implications/thoughts?

[J_S_G]

Hi all,

So, these dropping house prices and a teency bit of job insecurity (work in finance!)... leaves me with an interesting question...

Background:
- House bought for £180k as a 1-2 bed bungalow in Feb 2006. 100% mortgage, plus a £30k loan bundled with it.
- £70-80k required to turn it into a 3-4 bed detached house (adding a floor & extending backwards). Estimated value then: £300k conservatively (a house on the next road that had done that went for £330k)
- Assuming a "real" sale value now with all that done to be £250k given current drop in house prices.
- Work has barely started on it due to planning issues. Have spent about £20k so far, but the house isn't in a "saleable" state as half of it's gutted.
- Would realistically take £10-15k more just to make it "nice" and sell it off, and wouldn't break £200k then. So if I'm going to sell it, having the extension work finished makes sense (approximate completion time: 4 months)
- Have £70k set aside in cash for the work (I over-budgetted - know what happens with these projects!)
- Have no other debts
- If I leave the current job for any reason (getting jittery!), I'd have to move a couple of hundred miles away regardless; this is unlikely to be my home 24 months from now any way I look at it.


Query:
Given my current concerns about house prices dropping and not wanting to invest in something that's losing value, I'm debating whether it's better to pocket the £70k I've now got for renovations and let the mortgage default, and go renting for a couple of years. Technically, I'd not really lose any money on the property then, and riding out what's likely to be a very rocky couple of years would be a lot easier (especially as a lot of my investments are tied up in the stock market...)

Just wondering if anybody's had to let a mortgage default before then tried getting another one and how impossible that was? Or any other thoughts on the insanity of this?? What would opinions be if I could, in a couple of years time, likely buy an (admittedly small) place in cash, not needing a mortgage then?

Cheers, all - horrible thought to be having, but it's starting to feel like the "safe" option!?!

[Mr E]

Erm, if you default, the bank will repossess and sell the house. By the sounds of it, they won't get a good price (it's not finished). They will then come after you for the rest of the money you borrowed.

If you've got 70K in assets, they will certainly take what they need to make the debt good.

[Silver993tt]

Mr E said:

Erm, if you default, the bank will repossess and sell the house. By the sounds of it, they won't get a good price (it's not finished). They will then come after you for the rest of the money you borrowed.

If you've got 70K in assets, they will certainly take what they need to make the debt good.

That's correct. You borrowed £130K and you need to pay/give back £130k. If your assetts are worth less then you will have to pay through future earnings until the debt is repaid.

I don't get the idea where people think they can just walk away from a debt just because it's a bank. In fact it's even harder since they have the best lawyers around.

[liner33]

Bad bad bad idea , you lose more than the £70k

whatever you house sells for at auction will be taken by the mortgage compnay and they will add a load of fees and chase you for the rest

Took a mate of mine 10 years of loan payments to pay for a house which sold for more than his original mortgage plus default on a mortgage and you will indeed be renting for a while as in the current climate few lenders would take you on anyhow

did i say its a bad idea ???

[J_S_G]

Thansk, all. Just wanted to make sure I wasn't missing a trick there! That's the one thing I wasn't sure on - whether they still hunted you down or not. (might work in banking, but nowhere near mortgages!)

Right, getting the house paid off and having a clear conscience it is. Guess the new car will have to wait for another year!

[Vesuvius 996]

J_S_G said:

Hi all,

So, these dropping house prices and a teency bit of job insecurity (work in finance!)... leaves me with an interesting question...

Background:
- House bought for £180k as a 1-2 bed bungalow in Feb 2006. 100% mortgage, plus a £30k loan bundled with it.
- £70-80k required to turn it into a 3-4 bed detached house (adding a floor & extending backwards). Estimated value then: £300k conservatively (a house on the next road that had done that went for £330k)
- Assuming a "real" sale value now with all that done to be £250k given current drop in house prices.
- Work has barely started on it due to planning issues. Have spent about £20k so far, but the house isn't in a "saleable" state as half of it's gutted.
- Would realistically take £10-15k more just to make it "nice" and sell it off, and wouldn't break £200k then. So if I'm going to sell it, having the extension work finished makes sense (approximate completion time: 4 months)
- Have £70k set aside in cash for the work (I over-budgetted - know what happens with these projects!)
- Have no other debts
- If I leave the current job for any reason (getting jittery!), I'd have to move a couple of hundred miles away regardless; this is unlikely to be my home 24 months from now any way I look at it.


Query:
Given my current concerns about house prices dropping and not wanting to invest in something that's losing value, I'm debating whether it's better to pocket the £70k I've now got for renovations and let the mortgage default, and go renting for a couple of years. Technically, I'd not really lose any money on the property then, and riding out what's likely to be a very rocky couple of years would be a lot easier (especially as a lot of my investments are tied up in the stock market...)

Just wondering if anybody's had to let a mortgage default before then tried getting another one and how impossible that was? Or any other thoughts on the insanity of this?? What would opinions be if I could, in a couple of years time, likely buy an (admittedly small) place in cash, not needing a mortgage then?

Cheers, all - horrible thought to be having, but it's starting to feel like the "safe" option!?!

I hope you're joking.

If you default, the bank will reposess your house, and sell it as it stands at auction, for whatever amount they can get, which given the current market and the fact that it's currently "not saleable" will be the square root of fook all.

They will then pursue you for the shortfall, plus all of their fees, their lawyers fees, the auctioneer fees, and interest.


So, if you default, they will probably bankrupt you to get back as much as they can. Best case scenario is that they take 90% of your disposable income for the next decade until the whole lot is paid off. If you don't pay, they bankrupt you. Get the idea?


You will not be walking away from this. If you default, they will flog your house at auction with no reserve and then pursue you for the shortfall.

You didn't SERIOUSLY think that you can just hand back the keys, did you?

[Mr E]

J_S_G said:

Right, getting the house paid off and having a clear conscience it is. Guess the new car will have to wait for another year!

Afraid so mate. Hope the rest of the build goes well. I guess at least you're not having trouble finding builders.

[J_S_G]

Vesuvius 996 said:

You didn't SERIOUSLY think that you can just hand back the keys, did you?

Nope. But I thought I'd ask incase insanity had taken over from rationality in another corner of our financial services industry... would rather ask the question, sound stupid, and find out for sure rather than going with half-facts & assumptions.

Hard graft it is!

[J_S_G]

Mr E said:

J_S_G said:

Right, getting the house paid off and having a clear conscience it is. Guess the new car will have to wait for another year!

Afraid so mate. Hope the rest of the build goes well. I guess at least you're not having trouble finding builders.

Yep, there sure is a selection of builders to choose from. The fact that my solicitors didn't do the surveys I paid them to whilst purchasing and a public sewer turned up in the back garden is a bit of a problem, though! At least there should be a big pay-out at the end of that court case...

Thanks again!

[paul001]

depends on whether or not you don't mind going bankrupt and hiding 70k away is a doddle. If going bankrupt is an option you don't mind, bearing in mind the length of time it takes to clear yourself of that and the fact it will be a long long time before you get another mortgage go that route. Hide all your current capital which you will need someone you can trust to help with that and then go for it. If you kept the 70k, went bankrupt, fast tracked your way out of it then when the market really bottoms out by a place with a 50% deposit on a self cert mortgage from the sub prime market which will cost a few % more than it would from a high street lender. Only you can do the maths but it can be done pretty easily.

[Vesuvius 996]

paul001 said:

Hide all your current capital which you will need someone you can trust to help with that and then go for it. If you kept the 70k, went bankrupt, fast tracked your way out of it.............

Wins the Soovy award for the advice most likely to land you in prison.

Well done, you tit!

[paul001]

Vesuvius 996 said:

paul001 said:

Hide all your current capital which you will need someone you can trust to help with that and then go for it. If you kept the 70k, went bankrupt, fast tracked your way out of it.............

Wins the Soovy award for the advice most likely to land you in prison.

Well done, you tit!

nope - not at all, very easy to do, totally impossible to ever trace. There's very very very easy ways of losing money.

[minimax]

J_S_G said:

Hi all,

So, these dropping house prices and a teency bit of job insecurity (work in finance!)... leaves me with an interesting question...

Background:
- House bought for £180k as a 1-2 bed bungalow in Feb 2006. 100% mortgage, plus a £30k loan bundled with it.
- £70-80k required to turn it into a 3-4 bed detached house (adding a floor & extending backwards). Estimated value then: £300k conservatively (a house on the next road that had done that went for £330k)
- Assuming a "real" sale value now with all that done to be £250k given current drop in house prices.
- Work has barely started on it due to planning issues. Have spent about £20k so far, but the house isn't in a "saleable" state as half of it's gutted.
- Would realistically take £10-15k more just to make it "nice" and sell it off, and wouldn't break £200k then. So if I'm going to sell it, having the extension work finished makes sense (approximate completion time: 4 months)
- Have £70k set aside in cash for the work (I over-budgetted - know what happens with these projects!)
- Have no other debts
- If I leave the current job for any reason (getting jittery!), I'd have to move a couple of hundred miles away regardless; this is unlikely to be my home 24 months from now any way I look at it.


Query:
Given my current concerns about house prices dropping and not wanting to invest in something that's losing value, I'm debating whether it's better to pocket the £70k I've now got for renovations and let the mortgage default, and go renting for a couple of years. Technically, I'd not really lose any money on the property then, and riding out what's likely to be a very rocky couple of years would be a lot easier (especially as a lot of my investments are tied up in the stock market...)

Just wondering if anybody's had to let a mortgage default before then tried getting another one and how impossible that was? Or any other thoughts on the insanity of this?? What would opinions be if I could, in a couple of years time, likely buy an (admittedly small) place in cash, not needing a mortgage then?

Cheers, all - horrible thought to be having, but it's starting to feel like the "safe" option!?!

best option fellow is to manfully struggle on (tm)

if you default you will be rueing it for years, and you certainly can't work in financial services for the year you will be bankrupt, just look at me for that proof, 14 months on and only just properly straightened out ..with you almost certainly looking to work for a corporate, no one will touch your CV

things will straighten themselves out, throw the money in, sit tight and fingers crossed

are you free to go milfhunting at the knutsford wine bar next weekend? i'll be in the area

Edited by minimax on Wednesday 17th September 19:07

[fieldl]

Oh and if they do bankrupt you, forget working in finance in most shapes and forms as most organisations will not employees ex bankruptee's.

[Mr E]

paul001 said:

There's very very very easy ways of losing money.

Trading over the last few days seemed a very easy way to lose a lot of cash.

[crofty1984]

J_S_G said:

Vesuvius 996 said:

You didn't SERIOUSLY think that you can just hand back the keys, did you?

Nope. But I thought I'd ask incase insanity had taken over from rationality in another corner of our financial services industry... would rather ask the question, sound stupid, and find out for sure rather than going with half-facts & assumptions.

Hard graft it is!

I know people have been doing it in the states, because there's a legislative loophole that means the only way a bank can come back at you if you default is to take your house. So if someone has a 200k loan on a house that's currently worth 130k tha've just been walking away.

As you've guessed from the replies here. This is NOT the case here. The best you could hope for in your walking away scenario is that when the bank send round Mr Pricklecock to shaft you for the next x many years, there might be some cuddling afterwards.

[J_S_G]

paul001 said:

Vesuvius 996 said:

paul001 said:

Hide all your current capital which you will need someone you can trust to help with that and then go for it. If you kept the 70k, went bankrupt, fast tracked your way out of it.............

Wins the Soovy award for the advice most likely to land you in prison.

Well done, you tit!

nope - not at all, very easy to do, totally impossible to ever trace. There's very very very easy ways of losing money.

Very easy to lose money... the gap down the back of my sofa is positively Brobdingnagian in proportions. But bankruptcy isn't really an option working working for a bank and all!

Only really an option to go down that route if I was scarpering out of the country. And immigration permits start being "fun" then... It is nice to dream of doing a runner with a big sack marked "swag", mind.

[fieldl]

Mr E said:

paul001 said:

There's very very very easy ways of losing money.

Trading over the last few days seemed a very easy way to lose a lot of cash.

Only if you bought the wrong stock. In fact over the fast few days some people have made a few quid.

[J_S_G]

minimax said:

are you free to go milfhunting at the knutsford wine bar next weekend? i'll be in the area

Got the next couple of weekends booked up preparing for the rally across Europe/Asia - leave for that in a couple of weeks. But will be down in the City before then, no doubt.

And, yup, bankruptcy would be a particularly sticky one for me to try and unpick given everything else. Not something I'll be doing out of choice! Although, let's see what happens to the bank in a few months...

[J_S_G]

crofty1984 said:

The best you could hope for in your walking away scenario is that when the bank send round Mr Pricklecock to shaft you for the next x many years, there might be some cuddling afterwards.

That dastardly Mister Pricklecock... he gets everywhere...