Mark Hollands, a director of independent mortgage broker, London Money, answers the question:-
Jason Kehoe asks:-
I jointly own a property with my cousin who has since buying it got pregnant, moved out and refused to make a mortgage payment since 2009.
The property is leasehold and is in £20,000 pounds of negative equity and made up of a 100% loan consisting of a secured amount totaling 145,000 pounds and an unsecured amount of 15,000 pounds. My cousin has offered me 10,000 pounds to remove her name from the mortgage. I would appreciate guidance on the following please:
It is unlikely with my current personal debt that I would get accepted for sole ownership. If I obtained a guarantor what would their responsibilities entail?
Would I be best off using the 10,000 pounds to pay off personal debt or the unsecured part of the mortgage to assist in my application?
If I chose to sell the property would I be able to repay the 145,000 pounds secured amount and keep the 15,000 pounds as an unsecured loan payable over a quicker term?
Since we are both deemed as severely liable how would it be decided who is responsible for the negative equity if sold?
"Firstly, let's address your question about the Guarantor. Guarantors are required to guarantee 100% of the mortgage and commit to making the monthly mortgage payment should something go wrong. Therefore the lender will expect the Guarantor to be a very close family member as the implications for them are serious in the event that you cannot make the mortgage payments yourself.
"In terms of the best use of the £10,000, this would depend on whether there are any penalties on either of the debts for paying them off, or down. Generally speaking, if you are looking to repay debt then reducing the one with the highest interest rate would be considered prudent.
"Whether or not you attempt to sell the property will depend on what the T&C's of the mortgage contract say but by virtue of the loan not being secured on the property it should be possible to continue with the unsecured loan. That said, by selling the property you will crystallise the £20k of negative equity you say the property is in.
"Regarding the negative equity position, you are jointly and severely liable for the debt. As far as a lender is concerned, both parties are equally liable for the full amount borrowed. Your cousin cannot simply absolve herself by giving you £10k.
"The issues in this situation are difficult and could affect you both for many years to come. You should speak with your mortgage company as a matter of urgency so that they understand the situation you are in and can seek to find a solution. Transparency with the lender is key and you should contact it as soon as you can."
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