Husband died - buy to let mortgage options *complicated!*

[kingston_dan]

Hi,

 

I have found myself in a bit of a difficult situation. I will try the simple description and hope there is some advice!

 

My 31 year old friend died about a month ago and i was named as the execuator on his will which leaves everything to his wife (who has a 1 year old baby). Most of his assets are straight forward to deal with but he owned two properties which are going to cause some problems!

 

Both properties are on interest only buy-to-let mortgages but him his wife and baby lived in one of the properties and the other is let out to tennants.

 

The property that is lived in is worth about £170k and the remaining mortgage is £100k. The property that is let out is worth about £125k and the remaining mortgage is about £90k but provides about £400 profit each month (at current interest rates!).

 

The wife really wants to stay living in the current house. I think at best by selling the other property and the other assets we could raise about £50k but that would still leave £50k outstanding on the mortgage. I don't want to contact the mortgage company at the moment because they may demand the debt be paid and it is easy for the wife to make the repayments at the moment.

 

What should i do? Any help would be appreciated

[caro]

How very sad. My condolences.

 

I don't know if I can help but maybe some more detail will help.

 

1. Who are the mortgages with?

 

2. How long is left on them?

 

3. Was there no life insurance to cover the mortgages?

 

4. Were they always interest only?

 

5. If the 2nd property was sold could the young lady afford a repayment mortgage to pay off the balance on her home?

[kingston_dan]

Hi,

Thanks for reading!

1. The mortgages are with birmingham midshire (the one she lives in) and J.P. Morgan (The one which is rented out). As far as i know Birmingham midshire do not offer residential mortgages.

2. There is about 20 years left on them both

3. He had no life insurance - a typical i am 30 and nothing bad will happen but it did.

4. Yes, they were both taken out as buy-to-let interest only mortgages. Obviously they shouldn't have been living in the house with that type of mortgage.

5. His wife could quite easily afford a repayment mortgage but has no income history for the last 18 months because of having the baby. I think there would only be about £50k mortgage required (roughly 30% value of the house) but i can't see a bank wanting to lend to somebody with no income history.

[king12345]

Sorry to hear such a sad story.

If your friend can comfortably make the mortgage payments now, I wouldn't do anything to change the situation.

Once she'll be in a better situation to get credit then she could sell one of the properties and take a £50K repayment mortgage on her home.

But personally I wouldn't sell a property producing income; after all it pays for itself.

[caro]

I'm not trained in financial affairs but I'm gobsmacked that there are 2 interest only mortgages. Maybe I'm naive.

 

Have you taken into account that there would be tax to pay on any profit from the sale of the second house?

 

I assume that the lady WANTS to sell.

 

Also she must be getting some income from somewhere and there would be a lot of equity, so maybe worth exploring a new mortgage.

[kingston_dan]

Well there is actually 3 interest only mortgages! There is another one on a 1 bed flat which he also let out but it is currently vacant. I do not think there is any equity in the third property so i was just going to put it in the auction to get rid of it as quickly as possible. I didn't mention the third property to try and keep it more simple. I also have to find more details on the third property because i believe this one was originally purchased via right to buy so there is a chance there is some kind of insurance on it.

 

When the dust settles i presume she will be entitled to some benefits but her current income is only the profit from the rented property and a load of cash under the mattress which would be enough to keep her going and all the bills paid for about 2 years.

 

I think i like the suggestion to keep quiet on the residential property until an income can be established and pay off as much as the capital as possible before trying to get a residential repayment mortgage in her own name.

[king12345]

She needs to rent the third flat to keep money coming in.

Whit that sort of assets she shouldn't be worried about money.

I wouldn't get rid of any of the properties.

They are her income and if sold the money will just disappear very quickly.

Millions of people are struggling to get on the house ladder and she's already on the third step.

Why would she go backwards.

Hold on to the properties for as long as possible without falling into mortgage arrears and if one day she'll be desperate she can sell one and get a greater equity out of it.

After all, whatever people say, property prices will only go up or worst case scenario (unlikely) stay stable.

She's in a difficult mental situation now understandably, but selling everything is definitely not the answer IMO.

If she can cope financially she should keep the properties.

[caro]

If the third property was bought under a right to buy scheme, depending on how long ago it was bought, and the terms and conditions of the sale, you may find that she has to pay back a portion of the sale proceeds to whoever it was purchased from. I'm also worried about the cash under the mattress. I assume this is undeclared and as this will have to go through probate you can't avoid HMRC being involved. As you say this is complicated. Frankly I'd be inclined to get legal advice before doing anything.