Northern Rock.... True Story

[Bosh]

This highlighted to me, why NR are where they are today and how people that I thought were clued up!! Obviouslly were not.

Asked one of my staff, Department Manager and a friend of some 20 years. why he was becoming more and more moody and distant over the last few months, just a passing conversation really. Being a proud, stubborn sort we finally came to the answer.

" Got a Mortgage with Northern Rock"

Family man, wife and kid left Council maisonette 2 years ago to buy a 2 bed terrace in his local area, found it hard to get a mortgage anywhere so he went to NR. The place they wanted was valued at 167k. NR said no problem to a 95% mortgage. He did not have any deposit so NR `Kindly` offered to add a loan to the mortgage of another 30k to cover deposit, fees and tidy up those nasty little credit card bills he had collected over the years.

Anyway the place was virtually derelict, so he needed money to do it up and over the last two years NR `Kindly` allowed him to bolt on another 20k loan.

Now he owes approx 217k, House valued at 190k. (todays falling market price)

Mortgage/loan payments monthly come in at £1500.

Made him sit down yesterday and list ingoings/outgoings and he is short by £200 per month... so Credit card helps to cover this!!! None of this includes, going out, luxuries, holidays etc.

On my advice he has looked at the rental market and was absolutely choked to see that an identical house, refurbed opposite is being rented for £700 per month

He seems frozen to the spot and is desperate for help, he just wants to hand the keys back.

This is going to sound contradictory, he is fantastic at his job, makes the company very good money and we have agreed to help him through this but on a personal level I feel let down by him as I have warned him and others of what is coming and I fear that he is one of many of our staff that will hit shitstreet very soon.

We do berate and pour scorn on these irresponsible people but NR are the most irresponsible.

There are a lot of these people out there, normal people who were offered `The Dream`... Most of the uk population have no idea about finances.

Apart from calling him an ar5e, if anyone has any advice on how we could help him deal with this I would really appreciate it. He is lucky we can help him but we are reluctant to flog a dead horse with good money.

He wants out and he will rent. If he just hands the keys over, what happens next ?

I think he should try and sell and get what he can now and we will help him with the balance. It`s going to cost 4.5k for early repayment. Wonder if they will do a deal in todays market?

Thanks

Bosh

[Tomas]

And reality uncomfortably dawns for some. Sad to hear.

This is what awaits many of our friends and family and it will effect you/us because we care for and love these people.

House price inflation has been incredibly divisive. I have had to parry, bribe, ignore my wife to stop piling on the pressure to buy a house in these last few years, especially when my son came along. Some heated arguments and an undercurrent that corrodes. I hope one day she will thank me for realising the danger I kept us from as some of our friends will I fear regret the decision they made in the last 1/2/3 years.

Many will have succumbed out of ignorance and naivety and they will reap the unforgiving whirlwind.

Who knew? - they will say. Who knew they were gambling there long-term financial stability in the housing market that was revealed to be a casino. Much misery will follow that will open us up to stress and strain of those around us.

If I was to give you my viewpoint on your friend I would look at investigating if it was worth selling the house at a discount, get rid, rent the identical but cheaper property and spend time paying off the shortfall from the debt. They may still come out on top when they re-enter the market in 5 years.

As for your contribution if you are so willing - provide them with deposit for rental and start-up costs - say £3k?

Edited April 3, 2008 by Tomas

[waitingandsaving]

I don't know enough about exactly how things work when you hand your keys over as to be able to give any sensible advice at all...

However!

Be very very very careful in giving advice to friends (or colleagues), and helping them out financially.

Firstly look at the basics if he decided to sell up and rent over the road. Even if he sold at the £190k estimate, he would still owe at least £27k. If he had a spare £600/month (£1500 mortgage currently going out less £700 rent less the extra £200 a month he's putting on cards) it will take him the best part of 4 years to pay off the debt - and that's if it was interest free. So four years later, he might be feeling a bit resentful to you for suggesting to get shot of the house if he's spent all that time paying the residual debt of a house he doesn't have anymore...

(And that's before adding in any fees/early repayment penalty etc!)

You know his job prospects - is he in line for a promotion? Could, in a few months time he be looking at getting the extra £200/month shortfall in his wage packet? In which case he could be better off hanging in there, and potentially having something to show for it. It's a tough call, but sometimes it can be better to hang in there than voluntarily hand the keys back - if you get made bankrupt then presumably your debt is cleared, whereas he'll still have the residual debt to pay back (and going on previous threads, if you owe them some money, they'll make sure they get it if they can - and why wouldn't they?)

And if you did help him out, he moved into rented, and he started splurging on nice holidays, flash TVs etc, how would you feel? You might think "yes, he deserves it", or you might be sat there thinking "how dare he, after I've helped him out, and now he's wasting money on stuff he doesn't need, when I've helped him out"...

What if he didn't "learn his lesson" and he was in financial schtuk again a few years down the line? Would you help him out, or would you draw the line?

And don't forget how it could affect your relationship with him, he may feel he owes you, and feel extra obligation to you... You may feel resentful of his actions etc - especially if you already admit to feeling a bit let down by him for not heeding your advice earlier. And also what about any other employees who need bailing out?

My response might be a bit extreme, but it's a delicate balance between doing right, helping a friend, and keeping a friend!

[Wad]

This is a sad story and not uncommon in the North East I fear. Wages just have not gone up much in that area - which I know well as my wife is from there. Now house prices are falling and jobs are pretty hard to come by except minimum wage. Sure there is lots of public sector jobs but even there recruitment and wage rises are on hold.

Me and my wife were talking about house prices last night and we talked about each of our family members and were happy to conclude that none our direct family has any debt outstanding that we know of. Indeed, because of our collective family experiences of the 1970s when both our sets of parents nearly went bankrupt (i.e when we were all children) none of my siblings or my wife's siblings own a house or have debt of any kind. Our parents have houses fully paid for and neither have credit cards or loans of any kind - and neither set have ever given any of us any money apart form a few hundred quid as presents etc.

However, all of our middle class friends are stretched to the limit with credit cards and mortages - all have good jobs but ends are not meeting and debt is accumulating. All of them had nice middle class lives as children and no real experience of hardship. It says it all really.

Being close to bankruptcy in the 1970s and experiencing the gut wrenching fear written on our parents faces that as a child has been a salutory and valuable lesson for our two families. Indeed, it is one of the reaosn me and my wife get on well - we have aspirations and have a comfortable life but it gets paid for in cash.

Edited April 3, 2008 by Wad

[Bosh]

If I was to give you my viewpoint on your friend I would look at investigating if it was worth selling the house at a discount, get rid, rent the identical but cheaper property and spend time paying off the shortfall from the debt. They may still come out on top when they re-enter the market in 5 years.

As for your contribution if you are so willing - provide them with deposit for rental and start-up costs - say £3k?

Cheers Tomas,

This will be effectively the road we will go down, we will help set him up in a rental but as he has proved to be (Head in the sand) when it comes to matters of personal finance, we will walk him through the out procedure.

Bosh

[Bosh]

1 hand the keys back.then bank will probably chase him for the shortfall.Explore doing an IVA first,ie pay back 40% of debt.if they say no,then threaten bankruptcy.

This is interesting and we will explore this

2 bankruptcy.The simplest option.If his debts are insurmountable and it sounds like they are he should explore this route.I'm not advocating it as a quick fix solution as it has long term repercussions for his credit rating.However,it sounds like in three years time he wil be even deeper in,and his tale does seem to have an air of inevitability about it..Whilst I dont condone borrowing irresponsibly I also don't condone lending to people who cannot afford the debt.He will be able to keep his job.You could then retn the place opposite for him

We will avoid bankruptcy, you are quite correct in three years time, unchecked he would have no option.

For your company,it sets a dangerous precedent to help one person out.Especially if more follow and expect the same treatment

This I can appreciate, we are so fortunate, my boss who lives in Geneva allows me to look after key personel, we have helped key/long service staff in the past with sizeable debt normally through credit cards. Normally give Interest free loans and minimal monthly payment terms, any debt over 20k we normally take a charge on the property ( Not able to do this time).

The main condition involves secrecy and they are aware that if this is told to other staff members then the assistance is withdrawn.

We have not come unstuck before and for the three people we have helped before, they have all paid back the debt and are still working here. This is not something we offer at the drop of a hat, we consider the facts and ensure that they know that this is the one and only time we can help them get straight.

These are long service personel, many who have been servicing debt since before they joined us.

That`s why I love working here and have done for 17 years....

Cheers Bosh

[bobthe~]

Cheers Tomas,

This will be effectively the road we will go down, we will help set him up in a rental but as he has proved to be (Head in the sand) when it comes to matters of personal finance, we will walk him through the out procedure.

Bosh

It is very sad how people get carried away.

IIRC the problem in the last crash was that when peeps were in NE, they weren't allowed to sell up without paying up the difference.

Best of luck. I would think that once this weight is lifted, he will be a much happier bunny.

And that could reflect in his work, so everyone wins.

[Bosh]

And if you did help him out, he moved into rented, and he started splurging on nice holidays, flash TVs etc, how would you feel? You might think "yes, he deserves it", or you might be sat there thinking "how dare he, after I've helped him out, and now he's wasting money on stuff he doesn't need, when I've helped him out"...

What if he didn't "learn his lesson" and he was in financial schtuk again a few years down the line? Would you help him out, or would you draw the line?

And don't forget how it could affect your relationship with him, he may feel he owes you, and feel extra obligation to you... You may feel resentful of his actions etc - especially if you already admit to feeling a bit let down by him for not heeding your advice earlier. And also what about any other employees who need bailing out?

Cheers WAS,,,,

The relationship issue is one that bothers us all, obviously I/We will make the call subject to many conversations. When I first joined my boss helped me out of a sticky situation and I did feel owing and I told him so. He put in writing that if I left for any reason he would not call the debt in, He wants people to be able to call him a c@~t (His words) if they felt like it. ( Never have called him one though)

I pass these sentiments on to the staff. I know it would appear I am brown nosing but he will not be seeing these posts

You will be surprised how soon debt is paid off when no interest is on top.

Obviously my boss in Geneva has made a shed load of money and we continue to help him make more, he appreciates this. We pay good wages and in our industry good staff are like hens teeth.

I suppose there will always be an element of dis-comfort but I am sure they will take this as opposed to bankruptcy

Bosh

[Bosh]

It is very sad how people get carried away.

IIRC the problem in the last crash was that when peeps were in NE, they weren't allowed to sell up without paying up the difference.

Best of luck. I would think that once this weight is lifted, he will be a much happier bunny.

And that could reflect in his work, so everyone wins.

Cheers Bob, You have just got to want to get up and come to work. ( Hangover excluded)

For the record, The decision to Rent is his, He has thought this Through, chatted to the wife etc and we are only offering to help explore his options after the decision and we will assist him.

Grey Shark quoted the other day, " I don`t do advice" Like many on here we make suggestions.

Bosh

[waitingandsaving]

Cheers WAS,,,,

The relationship issue is one that bothers us all, obviously I/We will make the call subject to many conversations. When I first joined my boss helped me out of a sticky situation and I did feel owing and I told him so. He put in writing that if I left for any reason he would not call the debt in, He wants people to be able to call him a c@~t (His words) if they felt like it. ( Never have called him one though)

I pass these sentiments on to the staff. I know it would appear I am brown nosing but he will not be seeing these posts

You will be surprised how soon debt is paid off when no interest is on top.

Obviously my boss in Geneva has made a shed load of money and we continue to help him make more, he appreciates this. We pay good wages and in our industry good staff are like hens teeth.

I suppose there will always be an element of dis-comfort but I am sure they will take this as opposed to bankruptcy

Bosh

It sounds like you work for a unique company! A company that can do that for it's employees (especially no strings attached!) is one to be rewarded and cherished.

If you've been there (or something similar) yourself then you've seen both sides of it - that's a good thing, and it's nice to be able to do likewise for another member of staff.

And like you say, if it's interest-free, it makes a big difference!

Good luck with guiding him through - whatever decision he makes

[Rod Hulls Roof]

If you want to do the man a real favour, pay for an appointment for him with an Insolvency Practitioner (IP). A lot of the worry of these situations are the unknowns, and once these are quantified people can start to pick themselves up.

I only have an outline knowledge of insolvency matters, but I suspect they will tell him to either:

1. Struggle on.

2. Try an IVA - but as 75% of known creditors by value have to agree the proposal, with NR being the main creditor (and they are turning down IVAs almost without consideration at the moment), I wouldn't hold out too much hope.

3. Bankruptcy - but if they regard him as a "culpable" bankrupt (and as he borrowed additional money whilst he was semi insolvent by the sound of it this is a possibility) they could put a BRO in place which would last anything from 2 - 15 years. Please also note the TIB can now obtain what is effectively an earnings attachment for up to three years WITHOUT a court order.

[Bosh]

http://www.insolvency.gov.uk/otherinformat...tics/insolv.htm

theres a thread on the main forum

also see www.iva.co.uk

northern rock accepted 15p in the pound on that case,was unsecured mind

Thanks TR, I have passed these links through to Him, He has already perked up with the knowledge that he is not the only idiot in the village ( His words ).

As RHR pointed out NR may not accept an IVA from him today but the information you chaps are supplying is priceless.

Thanks

Bosh

[toonboy]

what is a BRO? 2-15 years? is this what happens if you max your cards on holidays deliberately and then go bankrupt?

[Bosh]

I've not read all the replies. I would only say this though.

We know a similar couple, not quite as silly as your friend, but together they don't know a good deal from a bad deal and this is her with an MBA! (Don't go there she got the qualification from the NHS, need I say more. )

Anyway, the point I'm trying to make is this. If they don't know by now how to manage their money, how on earth can you expect them suddenly to develop an insight over night?

You might personally be storing up huge problems for yourself further down the line.

Not to mention compromising yourself if the company you work for takes a down turn.

It’s obviously good to see you trying to help out a friend, but at the end of the day, be careful you don't end with a proverbial albatross around your neck.

Good Luck to you & your friend.

Hear what you are saying BT, Hope your keeping well.

I would in most scenarios bang out the same advice you are giving here, I know by helping him I am doing the right thing, I have weighed up the probablities and feel confident in certain approaches. He is a good guy, a pretty tough chap but not as tough as he think he was!!! If that makes sense.

Classic case of the wife wanting to own a drum, he advised against it, plenty of rows, she won, he was weak and within months both knew they had cocked up.

Funny really as he is such a rational person at work, actually makes the company lots of money and is as reliable as you can get.

He will get this one chance with conditions attached and then he is on his own.

If it goes Pete Tong, then as you say, it was always going Pete Tong.

I am confident this is a one off but only time will tell.

Cheers Bosh

[ARIMA]

Take him to the sponging-house.

[CviewUK]

Information on BRO's can be found here:

http://www.insolvency.gov.uk/guidanceleaflets/bro/bro.htm

[Zadkiel]

Cheers WAS,,,,

You will be surprised how soon debt is paid off when no interest is on top.

Bosh, it is great that you are helping out a valued employee - I hope it goes well and he is back on his financial feet soon.

Don't want to be a wet blanket but be aware that HMRC would expect, for a interest free (or below market rate) loan, there to be a BIK (Benefit In Kind) and this would lead to the employee having to pay tax on the difference at his usual tax rate 20%/40%. Have a word with the Company accountant. There are ways of doing it 'below the radar'.

[Bosh]

Bosh, it is great that you are helping out a valued employee - I hope it goes well and he is back on his financial feet soon.

Don't want to be a wet blanket but be aware that HMRC would expect, for a interest free (or below market rate) loan, there to be a BIK (Benefit In Kind) and this would lead to the employee having to pay tax on the difference at his usual tax rate 20%/40%. Have a word with the Company accountant. There are ways of doing it 'below the radar'.

I know!!! You can`t fart without someone wanting to tax the smell....

Thanks, got a great team here and will do what needs to be done

[Mr Yogi]

what is a BRO? 2-15 years? is this what happens if you max your cards on holidays deliberately and then go bankrupt?

A Bankruptcy Restrictions Order can be made by the court if the Official Receiver has evidence of dishonesty or fraud in the conduct of the bankrupt. It means that the bankruptcy will last more than the normal 12 months.

They are however, very rare.

It would be very unlikely that Bosh's friend would be subject to one - after all he has not acted fraudulently, he's just got out of his depth.

I can't help thinking that getting set up in a nice rented house, sending the keys back to NR, and then going bankrupt would be the best option.

If Bosh wanted to help his friend out he could reduce his salary for the 12 months of his bankruptcy so that he would not be liable to an Income Payment Arrangement whereby any surplus income after essential outgoings is taken by the OR and distributed between the creditors. These arrangements last for 3 years.

Then, after 12 months, put his salary back up and give him a bonus equivalent to the pay he has missed out on.

Sly, but legal!

[Bosh]

A Bankruptcy Restrictions Order can be made by the court if the Official Receiver has evidence of dishonesty or fraud in the conduct of the bankrupt. It means that the bankruptcy will last more than the normal 12 months.

They are however, very rare.

It would be very unlikely that Bosh's friend would be subject to one - after all he has not acted fraudulently, he's just got out of his depth.

I can't help thinking that getting set up in a nice rented house, sending the keys back to NR, and then going bankrupt would be the best option.

If Bosh wanted to help his friend out he could reduce his salary for the 12 months of his bankruptcy so that he would not be liable to an Income Payment Arrangement whereby any surplus income after essential outgoings is taken by the OR and distributed between the creditors. These arrangements last for 3 years.

Then, after 12 months, put his salary back up and give him a bonus equivalent to the pay he has missed out on.

Sly, but legal!

Mr Yogi,

This avenue is looking more and more likely, unfortunately it seems all too easy to cry bankrupt and walk away from your problems, I believe this is the way he wants to play it, He is out of his depth and will only ever get deeper.

We are working on ways of assisting him in this decision.

We have made it quite clear this is his idea but any succesful buisness will always have ways to deal with situations like this.

Like I said he is a nice chap who was brow beaten by the wife and Northern Rock were just waiting for suckers to walk in the door.

Cheers Bosh

He will learn from this

[Si1]

Like I said he is a nice chap who was brow beaten by the wife and Northern Rock were just waiting for suckers to walk in the door.

tangential from my perspective, but when I got together with my gf about 2 and a half years ago, got to the moving in together stage, I said, absolutely NO to buying a place. Got pressure from HER parents, MY parents, and general family, however.

She was prepared to sit down and talk it over to me, I explained my reasons, she decided I made sense, and agreed we should not buy as the prices were too high, and instead we put the equivalent effort into finding a good rental, which is still fantastic and very secure. Her nesting instinct is sated as we have such a nice rented property currently, decent landlord, and additionally we can afford to live and save. I'm glad I was right tho, as I am so grateful she stood my my opinion and would not want to let her/us down with my decision!

[Bosh]

tangential from my perspective, but when I got together with my gf about 2 and a half years ago, got to the moving in together stage, I said, absolutely NO to buying a place. Got pressure from HER parents, MY parents, and general family, however.

She was prepared to sit down and talk it over to me, I explained my reasons, she decided I made sense, and agreed we should not buy as the prices were too high, and instead we put the equivalent effort into finding a good rental, which is still fantastic and very secure. Her nesting instinct is sated as we have such a nice rented property currently, decent landlord, and additionally we can afford to live and save. I'm glad I was right tho, as I am so grateful she stood my my opinion and would not want to let her/us down with my decision!

Well done, I did the same with the wife and we STR, she, especially with the daily news is more than happy with my suggestion and our joint decision...

It was a strange conversation I had with my colleague, he always presumed he wore the trousers in his relationship

He says they realised after two months what a co-ck up they had made, they were originally in Council accomodation (2 beds), had big problems having children so saved for IVF, fortunately worked and had one child.

I think for nesting reasons she was adamant they were not going to live in a council flat anymore. What was dissapointing was they could only afford??? a 2bed terrace in the same area, so did not gain too much.

I think the emotions of IVF and childbirth left them both not thinking rationally or able to take advice..

I am more than happy to help them as I do think this scenario, although going to be proven very common in the coming months was a hugen one off mistake by them.

[Si1]

Well done, I did the same with the wife and we STR, she, especially with the daily news is more than happy with my suggestion and our joint decision...

It was a strange conversation I had with my colleague, he always presumed he wore the trousers in his relationship

He says they realised after two months what a co-ck up they had made, they were originally in Council accomodation (2 beds), had big problems having children so saved for IVF, fortunately worked and had one child.

I think for nesting reasons she was adamant they were not going to live in a council flat anymore. What was dissapointing was they could only afford??? a 2bed terrace in the same area, so did not gain too much.

I think the emotions of IVF and childbirth left them both not thinking rationally or able to take advice..

I am more than happy to help them as I do think this scenario, although going to be proven very common in the coming months was a hugen one off mistake by them.

I have to say, sprogging may have put a different emotional slant on things from anyone's perception...! I think I would have found it hard to persuade my gf in that situation.

[Greenenvy]

Just a thought- could this chap or his wife not take on a weekend job- even in McDonalds- to keep their heads above water? Not very good for their relationship or his productivity at work, but it could get them over some short-term problems for a couple of years. Maybe by then there might be slightly better financing terms available, the boss might be able to afford a small pay rise also. By all means they could try to sell, but don't hand the keys back quite yet. Then, when they do sell, they might have the consolation of not having to work weekends to make them feel better about having to rent and still owing money to NR (the loan.)

They might be able to sell the family silver, live on porridge and beans on toast etc.

They were mad to buy, but what do they propose to do with any interest-free loan?

I suppose, as a taxpayer, I have a vested interest in them repaying NR in full!

[Bosh]

Just a thought- could this chap or his wife not take on a weekend job- even in McDonalds- to keep their heads above water? Not very good for their relationship or his productivity at work, but it could get them over some short-term problems for a couple of years. Maybe by then there might be slightly better financing terms available, the boss might be able to afford a small pay rise also. By all means they could try to sell, but don't hand the keys back quite yet. Then, when they do sell, they might have the consolation of not having to work weekends to make them feel better about having to rent and still owing money to NR (the loan.)

They might be able to sell the family silver, live on porridge and beans on toast etc.

They were mad to buy, but what do they propose to do with any interest-free loan?

I suppose, as a taxpayer, I have a vested interest in them repaying NR in full!

She works part time in a petrol station, He has also started delivering the Thomson Local in his area before he does a 10 hour shift with us.

NR Preyed on ignorant people like them. being ignorant does not make you a horrible person, They made a huge mistake and are suffering for it.

It is up to him how he deals with this problem but we will support him through any processes he chooses. We are not just going to hand over a huge wad of cash to him, we will however make sure he continues to have a roof over his head even if that means we take on the rental and he pays the company direct.

The government and the bosses of NR have made us all VI`s by default in Northern Rock. We are all losers in this

He tried to work his way out of this problem before he came to us, they were orginally council tennants and they do not have any silver to sell.

I will keep everyone updated as to where this goes, a case study........