Welcome to the trust deed forum Hardtimes.

If you are minded to start a trust deed you may wish to consider whether keeping your home is a priority.

If you want to stay in the property there should be no issue provided that you keep up with your mortgage payments. By setting up the trust deed in the right way, when there is negative equity, there will be no equity to pay over as part of a trust deed.

If the negative equity concerns you, and you'd rather not keep the property for this reason, you could look to sell the property (or even hand the keys back to the lender). Any shortfall debt created would be another creditor in your trust deed. I'd suggest confirming that a trust deed will be available to you in advance of doing this would be important.

For many people staying in their home is an understandable priority. Assuming that you wish to stay in your home, and that you enter a trust deed, you expect your existing mortgage product to expire in the middle of next year.

A trust deed is probably in many ways irrelevant to the situation. You are highly unlikely to be able to move to a new mortgage lender whether or not you start a trust deed because it's extremely unlikely that you'll find a new mortgage lender that is prepared to advance you a sum in excess of the value of your home. It would appear that you are stuck with your current lender.

Your current lender has a couple of options when the existing product expires. They could move you onto their standard variable rate (SVR). Many people find that this actually cuts their mortgage payment in the current lending environment, though of course that can and will change at some point in the future. They could also offer you replacement mortgage products. This might mean, for example, that you'll have the option to move to a fixed rate for a fixed period so that you know where you stand.

I doubt that a trust deed will influence the decision made by a mortgage lender in this scenario (they are not increasing or reducing their risk as the sum of money is already lent... though you could argue they are increasing their exposure to a shortfall if they jack the cost up so high that their clients cannot afford the repayments any longer). It's simply a commercial decision for them as to whether they offer replacement products to their clients whose existing deals are expiring. Often they'll be able to tell you three months or so in advance whether they'll offer you a replacement product or not.

Sorry for such a long answer, but I hope it's helpful. Please let us know if you have any other questions while you weigh everything up.

Hi there TDA,

Thank you so much for responding. It's all very helpful. It's a frightening prospect to come off the property ladder, but I do have the option of moving back in with my parents (also a daunting prospect). I guess I would need to find out whether the negative equity would or could be included in the trust deed.

What slightly complicates matters is that I bought the property on a shared equity scheme, so they have a vested interest in the property and will not allow me to sell it if they deem it to be affecting their stake detrimentally.

When you say "simply hand the keys to the lender", excuse my ignorance but what does this involve. Do I essentially call them and state that I can no longer afford the property and they would just evict me and sell the property on? How would this affect the shared portion?

Sorry, I know this is a lot of questions!

Hi Hardtime

It is a common question, especially in the current climate.

Looking at your earlier post, when the agreed mortgage deal finishes, the bank will move you to the normal variable rate. This does not involve you reapplying for a new mortgage or anything, it simply moves to the default rate.

Re the negative equity, it is regarded as a contingent debt (sorry techie head on) It means that if you were to sign a Trust deed and the property was repossessed and sold 6 months, a year or whatever then any shortfall becomes a claim in the Trust Deed.

In effect, the choice is yours, but there is no exposure to you if you decide to give up the house.

Mark

Hi Hardtimes.

"Handing the keys back to the lender" is a pretty drastic step to take but some people consider it to be appropriate to their circumstances. Basically it involves stopping paying the mortgage, moving out, and communicating with the lender so that it goes back into their possession smoothly rather than it being any kind of forced repossession.

Some people consider this when a mortgage lender will not allow them to sell a property that is in negative equity. I suppose it could be looked upon in a similar way where a "shared owner" stands in the way of a sale to protect their own interests.

Alternatively you may consider that the property is suitable for your needs and that the value is likely to increase in the long-term while you continue to live there. If that's the case, maybe you'd just choose to stay there and keep paying the mortgage.

It might be difficult to get back on the housing ladder in the future. A trust deed would cause credit rating issues. Voluntarily giving possession of a property back to a mortgage lender may put other mortgage lenders off lending to you in the future. Also, irrespective of these things, it's hard for anyone to get on the property ladder now due to the very high deposits that need to be saved up first.

It's not really a case of whether any shortfall could be included in the trust deed. Any debt that you have on the date that you sign a trust deed has to be included in it. The question is really whether a trust deed would be available to you based upon your circumstances (with a higher debt total than you currently have due to the shortfall created).

Thanks guys,

So Mark, what you're saying is that if my homes does get repossessed, even if I've already signed and entered into a Trust Deed agreement, the debt from the shortfall would be added to the existing debt? Pressumably payments would be adjusted to a higher rate based on this?

TDA - I currently have just under 18k worth of debt. If I was to sell the property, the shortfall is likely to be around 20k (35% of which would need to be written off by the shared owner), leaving me with an added debt of approximately 13k. In total my debts would be 31k IF I were to get rid of my home. Would this make me ineligble for a Trust Deed?

Hi Hardtimes.

The relationship between how much you owe, and how much you can afford to pay into a trust deed each month, is important in terms of it being available to you.

Without having access to all of your income, expenditure and debt details I wouldn't really be able to speculate on the effect that this extra debt would have for you.

Your trust deed payment would not necessarily be increased if you gave up your home after signing a trust deed. What would happen is that your circumstances would have changed meaning that a review would need to be done. If your costs/expenses had gone down your trust deed payment would increase. A trust deed payment is based upon affordability rather than how much you owe.

There is another factor to consider about giving up your home after signing a trust deed. Your Trustee may not be very happy about it, and in some circumstances it could result in the end of the trust deed or even your sequestration. The Trustee has a duty to balance your interests with those of your creditors. By creating a new large debt the effect is that the other creditors (who agreed to the trust deed becoming protected on the basis of what was promised to them at the start) are likely to receive a smaller dividend. The Trustee might not think that's fair.

If you are considering giving up the property after siging a trust deed I'd get advance clearance for this from the trust deed firm before you sign.

Thank you again,

With regards to affordability - what is considered a "reasonable" sum to be left with at the end of the month after paying Trust Deed payment and all other outgoings including food etc. How is it all worked out when it's decided what payment you can afford to make each month?

I will discuss the issued relating to the property in my meeting with RSM Tenon I guess. Totally understandable that any Trustee would be likely to think that it would be unfair adding to the debt whilst part way through the agreement. I have a couple of different options regarding the property, I just need to sit down and work out what would be best in terms of the trust deed. I really don't fancy being sequestered 🙁

Best wishes,

Hi Hardtimes.

Any trust deed provider will work through with you any money that you need to live reasonably.

This will include mortgage, council tax, utility bills, travel, food, clothing and so on. Modest allowances for other things may also be made to make sure you'll be OK for the term of the trust deed.

The total of these expenses will be subtracted from your total income to calculate how much you can afford to pay to the trust deed.

Is the payment you make adjusted should your mortgage amount increase or reduce? Say for example I went onto a variable rate come the end of my fixed rate next year, and that rate was much higher meaning I was struggling again financially. Are those situations taken into account?

Hi hardtimes

The payment can certainly change, however the case will likely be extended if the contribution is reduced.

Mark

It's certainly worth asking about this at your meeting tomorrow Hardtimes.