What should I do about my mortgage?

Shandi76 · Post by **Shandi76** » Tue Jul 03, 2012 10:20 am

I've had a big change in circumstances recently. My partner got a good job 500 miles away, and I have quit my job to go and join him. Actually, the timing worked out really well as they were offering generous voluntary severance packages at my work, so I am walking away with a tidy sum when I was potentially leaving anyway.
My main dilemma is what to do about my house. My mortgage provider refused consent to let on my residential mortgage, and said I need to transfer to a buy to let mortgage. This means the interest rate more than doubles (from a sweet 2.5% to somewhere between 5 - 6%) and I also have to pay an "arrangement fee" of £1K. However, because I don't have a job at the moment (I can't even interview for jobs until the agreement is signed and sealed, or my former employer can retract the severance package if I have a job offer) it is very difficult to find a new mortgage provider, and actually my current provider might refuse me a buy to let mortgage. I need to phone them again soon. I could have just not informed them and hoped they wouldn't find out, but I stupidly phoned to inquire (because when I did this 6 years ago with my previous property I got permission no problem and just paid a £100 fee) and now they have a note one my file.
My options are therefore:
a) Try to sell the house. Properties around here are not selling fast: I know places that have been on the market for 18+ months. They are also selling for 10% less than I paid, and I have done some work to the house so would be down over 20%. We are also only renting in the new city, so would have no RE assets if we did manage to sell.
b) Accept the buy to let "deal" from my current mortgage provider if they decide I am eligible, and get screwed on fees and interest rate. I may also have to add my partner to the mortgage and also the title deeds in order to become eligible for the mortgage, which seems unfair given that he has no stake in the house.
c) Pay a mortgage broker to find me the best buy to let deal available for me. I have managed to have a look at some of these online (I can access a website that is only for professional intermediaries so I can see some of the deals but can't buy them directly) and the best deals (just under 4%) have a £4K arrangement fee, which is a crazy amount on a mortgage that would be for, at most £60K. Keeping a mortgage could involve either borrowing the same amount, or paying it down to just over £25K (the minimum you are allowed to borrow for most mortgages here) by throwing all my liquid cash savings at it.
d) Pay off the mortgage completely. This one involves selling at least 25% of my shares, as well as using all my spare cash. The shares are down around 15% on what I paid for them. When reading Jacob's journal he said that shares were expensive and real estate was cheap, so it made more sense for him to make a real estate purchase in cash. I'm not so sure that is the case in the UK, as a lot of our property is still overpriced. But I do think the stock market is going to be in turmoil for several years yet, so I can't count on them rebounding any time soon. The price I paid for the house is already locked in (i.e. the price I paid for it 6 years ago) so the issue is not whether the price is good, but whether it makes more sense to keep liquidity, and whether that liquidity is worth the high interest rates and fees.

aussierogue · Post by **aussierogue** » Tue Jul 03, 2012 12:46 pm

theres good news there...
your partner has a new hopefully beter paid job, you are gettin a severence package, you have a few options and you have enough cashflow if necessary to pay off the mortgage and still have 75 pct of your shares left....
Without knowing the whole numbers my leaning atm is always toward extinguishing debt that is problematic and going nowhere (from an investment perspetcive).
Shares for the next 10 years are anyones guess
So i go for option D! Pay off debt....and move on...

Scott 2 · Post by **Scott 2** » Tue Jul 03, 2012 3:10 pm

Say you let the property anyway and keeping paying your exisitng mortgage. Can the bank do anything about it? Will they?

George the original one · Tue Jul 03, 2012 5:40 pm

My gut feeling is that, in your case, paying off the mortgage is the right option. It would depend on how long you intend to keep the property and whether the anticipated rent will be higher than other investments and whether you want to eventually return to live in this home.

Shandi76 · Post by **Shandi76** » Wed Jul 04, 2012 6:34 pm

Thanks for the advice, and for reading the wall of text

@aussierogue - Partner does have a better paying job (he was doing a PhD before) but is only making about 5K more than the job I am giving up, so we will be worse off until I get a new job.
@Scott 2 - Good question. I would be in breach of contract, meaning the bank can demand full and final settlement of the mortgage or foreclose on the house. Also, if there was any damage to the house the buildings insurance would be invalidated so it is rather risky to do long term. However, they are unlikely to foreclose but could demand payment of fees and higher interest rate rather than just letting me settle the mortgage balance.
@George too - Planning to keep the property forever, or until partner gets a permanent Professorship somewhere and we are looking to settle long term. We know that might take 5 - 10 years for him to get a permanent post at that level, so hopefully we would have enough savings by then to buy a place in cash. We may eventually return to the home, but our preferred final location is about 70 miles away, so we probably will not be returning unless we need to to minimise the possible capital gains tax bill if we do need to sell in future.
Still haven't decided. Been too busy packing and cleaning to phone the bank and find out just how much they would screw me over. And I can stay on current mortgage until I get tenants, which I don't have yet. Tried to talk to local branch about it but they said they can't deal with it and I need to phone the call centre

Shandi76 · Post by **Shandi76** » Tue Aug 28, 2012 10:53 am

Just an update to say that I didn't pay off the mortgage. I paid off a little over half of it, leaving me owing just under £30K.
Paying off so much got me a slightly cheaper interest rate and I also didn't have to pay any 'arrangement fee'. I'm tied into the deal for just over 3 years and there are fees if I pay it off early (3% within the next 15 months, or 2% after than but before the 39 months are up) but I am allowed to pay off up to 10% of the debt each year without incurring penalties. The interest rate is a kicker, but I decided this was the best course of action as I don't have a job yet and wanted to keep some liquidity. We also get mortgage interest relief on rental properties (we can subtract it from the rental income on tax returns) which effectively reduces the rate by 20%.
If/ when I get work then I can save like crazy so I can pay off the mortgage at the end of the deal period if it makes sense to do so.