Coping with mortgages in downturn

Question: I bought a second two-bed apartment in Dubai as an investment with a plan to rent it out so I could generate some extra income, pay off the mortgage and eventually sell the property off at a profit. However the rental income has fallen to such a low point that I am renting it out at a loss on my mortgage payments, and I have to pay the mortgage on my first property too. I am unable to sell the apartment because the sale price has also fallen below what I paid for it. Please help — I'm trapped!

Answer: Dubai's property market has been affected badly by the global economic recession with rental incomes falling by 40 per cent or more in some parts of the emirate since the beginning of the year. Property values have also dropped significantly from 2008 prices, putting some unfortunate investors into negative equity.

At the moment the debt you've incurred in buying the property isn't being offset by the rent you can secure for it. So you are now having to pay an extra sum each month to cover the costs — putting you even further in debt.

Resolving this situation is going to take time and patience, but it can be done. First of you must try to remove yourself emotionally from the situation.

The only question you need to answer initially is for how long can you afford to subsidise the mortgage payments on your second apartment. Could you possibly be in for a promotion at work that would boost your income, or can you reduce your outgoings to ease the financial strain?

Unless you are confident of a windfall in the near future, you have little alternative but to focus on resolving your finances by looking to cut your outgoings. This means having a critical look at the way you are spending your money or deferring some plans.

Are there any expensive activities or items you can live without for a few months until you get yourself back on track? For example, a second car, an annual holiday, or long-term membership to a sports club.

Secondly you should talk to an independent financial adviser who will be able help you get yourself back on track.

Payment terms

You could talk to your mortgage provider about changing the payment terms on one or both mortgages.

You may be able to move to an interest only mortgage, if you are not already on one, or extend the total period of the loans which could reduce the monthly payments.

You may even need to consider changing providers to achieve this. In the short term you will incur costs, but in the long run, your financial, as well as your emotional well-being, will benefit.

When renegotiating your mortgage payments it is a good idea to check that you have the appropriate life insurance and critical illness in place to cover both mortgages in case of a death, disability or illness that prevents you from working.

The last thing you want to do is burden your loved ones with the financial problems that you are currently facing.

Looking to the future, it's worth remembering that you own a valuable asset in your property in Dubai. Unlocking the value of the property once the sale price rises will enable you to resolve your debt situation and regain your sense of freedom.

The author is Chartered Insurer and Commercial Director at Nexus Insurance. Views expressed here are the author's own and do not necessarily reflect the view of Gulf News. If you have any questions, please email to advice@gulfnews.com