900k of mortgage debt & really struggling

3

3rd Gen

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Hi all, below is a snapshot of our financial situation. We would really appreciate advice on what we should do given our circumstance. All we see ahead of us is struggling to pay I.O mortgages that will never be repaid.

(Me and Wife) PPR - BOS / Chartis - variable rate, Interest only for entire term 37 years (5 years into it) €2000 paid off principle figure of €485,000. Mortgage (IO) is €790 per month

(Me) Investment 1:
1 bed Apartment - KBC - annuity - tracker 1.1%-
Rent= €825
Mortgage = € 1145
Term 30 years remaining 25yrs
Amount outstanding: €255,000

(me) Investment 2
2 bed apartment in England, KBC, was 5yr I.O. but agreed to go to 6 (last yr) as i was not able to meet the monthly repayment. remaining term is 14 yrs. Tracker @ 1.45%. amount outstanding is approx £166,000 (or 215k euro)
Rent = £600
Mortgage = c.£265
Management fees/expenses = £125

When you factor in tax, nppr etc the investments are costing me a fortune. I am contributing approx €700 to investment 1 and about €100 to investment 2 per month.

Our income:

Combined our NET income is 57,400

Rough Total expenditure
Includes - Mortgages, cars, gas/elec, broadband, mobile phones,car tax, personal loan (15k), Child care (one child), TV license, Household charge, medical Ins, house ins : 48,000

this leaves us with approx €180 per week to spend on food and clothes for 3 people.

Now, going back to my original question how can we ever look to pay off or home mortgage and what advice can you give us -who should we talk to. Help needed..

To date we are not in any arrears...but....in July the Investment 2 mortgage will be up for review with the bank and also as I am self employed I will be very lucky to achieve the same salary I did as last year.


Many thanks

3rd Gen
 
Can't see how this is sustainable. Have you considered the possibility of cutting your losses on one or both of the investment properties? Did you ever have a reasonably viable business plan for these investment properties and if so what happened to throw it so off course?
 
PDH; - Your'e on an interest only agreement for another 32 years. This is somewhat cheaper than equivalent rent (assumption) and further assumption is that the property is either in negative equity or closeto it. Why are you worrying abount paying off this mortgage. You have a great deal. Why not sit on it and keep paying the interest.

Investment1 & 2: Given your lack of repayment capacity go to each Bank and give them a summary of your financial position. The RI from the properties will cover the interest plus a little capital. Offer to pay them the RI for 12 months. If your financial position does'nt improve next year extend the deal. I'm approving deals like this all the time. we're generally happy if we get the RI from the properties.

Don't present this as an appeal to the Bank. They really have little option but to accept it as alternative is to proceed for re-posession. We generally don't do that if we are at least getting interest cover on the facility.
 
ClubMan said:
Can't see how this is sustainable. Have you considered the possibility of cutting your losses on one or both of the investment properties? Did you ever have a reasonably viable business plan for these investment properties and if so what happened to throw it so off course?
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i have considered moving to the UK to declare bankruptcy (as a last resort).

I was earning between 70-85k for the guts of 6-7 years. The good old days...
 
44brendan said:
PDH; - Your'e on an interest only agreement for another 32 years. This is somewhat cheaper than equivalent rent (assumption) and further assumption is that the property is either in negative equity or closeto it. Why are you worrying abount paying off this mortgage. You have a great deal. Why not sit on it and keep paying the interest.

Investment1 & 2: Given your lack of repayment capacity go to each Bank and give them a summary of your financial position. The RI from the properties will cover the interest plus a little capital. Offer to pay them the RI for 12 months. If your financial position does'nt improve next year extend the deal. I'm approving deals like this all the time. we're generally happy if we get the RI from the properties.

Don't present this as an appeal to the Bank. They really have little option but to accept it as alternative is to proceed for re-posession. We generally don't do that if we are at least getting interest cover on the facility.
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We are in negative equity to the tune of about 180k on our PPR. Our worry is that we can only afford the IO and when the term is up the house is gone....we will be both 65 then and homeless....

On Investment 1&2 both mortgages are with KBC. Both are on trackers. if they agree to take the RI what happens at the end of the term and the outstanding amount?

Thanks for your advice..much appreciated.
 
For your rental propery in the UK with KBC, that only has 14 years remaining on the term so you could ask them for a term extension to make the repayments more managable? I have done this with my rental property with KBC, I extended the term by 5 years and they allowed me to keep my tracker. Now I add less to it each month and at least the capital is coming down.

With regards going into a RI agreement with them - I was told by KBC that they will only do this generally on a 12 month arrangement, then they will re-access in 12 months. So basically it is an option, but really all you are doing is threading water with it because the term is decreasing and the amount outstanding will then by divided up over the remaining term whenever you come off your agreement with them. So at that stage the repayments will be even higher per month.

How much negative equity is in the apartment in the UK? Is it possible at all to sell it?
 
Stand back & think about this. Currently your financial position is such that you are unable to afford any capital reductions on the mortgage. Given your deal with the lender, you have the option of paying no capital for the next 32 years. I.e. in 32 years time you will owe 450K on the property in today's money. Given the cheap mortgage available I would not want to pay anything off the principle. As time progresses the economy & your own income will improve. Rather than paying off the mortgage you gradually put surplus funds into a pension investment. Yield, will be betttter than mortgage interest. The value of the property will also increase over time. That will give you plenty of options by then. Don't believe me, go to an independent financial advisor on this.

Trackers are the norm for investment mortgages. Standard variable rates apply to Hl's. In the case of my own Bank we apply no extra interest increase where a client has financial difficulties, as that is only likely to increase our potential loss. Interrest rate is not the issue now for you.

Sometimes these problems can seem bigger than they are. KBC are generally a pragmatic Bank and are not looking for quick exit strategies. As I proposed earlier, write to theme & give an honest summary of your financial position & make the offer of paying them the rental income. They should accept. They would be foolish not to. There is no need to beggar yourself & your family trying to maintain the higher repayments.
 
44brendan said:
Stand back & think about this. Currently your financial position is such that you are unable to afford any capital reductions on the mortgage. Given your deal with the lender, you have the option of paying no capital for the next 32 years. I.e. in 32 years time you will owe 450K on the property in today's money. Given the cheap mortgage available I would not want to pay anything off the principle. As time progresses the economy & your own income will improve. Rather than paying off the mortgage you gradually put surplus funds into a pension investment. Yield, will be betttter than mortgage interest. The value of the property will also increase over time. That will give you plenty of options by then. Don't believe me, go to an independent financial advisor on this.
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Not to argue with you, but 15k a year is needed to pay off the outstanding 480k. For every year that passes where we dont pay anything off the increase is obviously dramatic and becomes more and more impossible to pay off. Lets fast forward for a minute and we are 64 and our mortgage term is to conclude next month. If we still have (lets say) 250k outstanding on the mortgage what will happen to us? I have no pension, my wife will have somthing small and we could find ourselves homeless or having to rent in our retirement age, which will be impossible....

I appreciate your views but is this not a classic case of kicking the can so far down the road that by the time you come to it again it is too late to make serious changes...at least we have youth on our side at the moment.
 
A lot going on there.

Focus on one issue at a time. I think the UK property is the one to deal with first.

Question 1
Are you in negative equity? If not, sell as quickly as possible. If yes, have you any hope of making up the difference if you sell it?

You will be in serious trouble if you have to make capital repayments on that property.

Question 2

How are you subsidising the UK property if rent is £600pm and mortgage is £265pm?
 
DerKaiser said:
A lot going on there.

Focus on one issue at a time. I think the UK property is the one to deal with first.

Question 1
Are you in negative equity? If not, sell as quickly as possible. If yes, have you any hope of making up the difference if you sell it?

You will be in serious trouble if you have to make capital repayments on that property.

Question 2

How are you subsidising the UK property if rent is £600pm and mortgage is £265pm?
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Negative equity is about 30-50k. Have personal loan of 15k so don't think I'll get a sort term loan nor do I think I could afford on. Yes, there is no way I can afford capital repayments. It's about £1300.

The rent is £600, mortgage is 265. Management fee is 50, ins, ground rent, maintenance etc is about another 100. I then have to pay tax on that income. So breaking about even
 
3rd Gen said:
Negative equity is about 30-50k. Have personal loan of 15k so don't think I'll get a sort term loan nor do I think I could afford on. Yes, there is no way I can afford capital repayments. It's about £1300.

The rent is £600, mortgage is 265. Management fee is 50, ins, ground rent, maintenance etc is about another 100. I then have to pay tax on that income. So breaking about even
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Looking at it in the cold light of day you have 900k of debt on assets worth about 550k.

In the short term you probably should try to go interest only on all 3 loans. This would stave off capital repayments on investment property 2 and reduce the monthly mortgage by €700 on investment property 1, leaving you a reasonable disposable income.


This leaves you with three problems in descending order:
  1. Should the banks look for capital repayments
  2. If interest rates increase
  3. How you are eventually going to pay off the debt
I do genuinely think 3 is the least of your worries for now as a lot can happen in the next 20 to 30 years. You may have a couple of years before 2 happens. Negotiating interest only is your big challenge now. If successful, it might buy you a few years to improve your income or cut out expenditures (e.g. childcare costs will be lower when you child starts school).

I think you should also assess how much of your monthly disposable income you need to live off (excluding mortgage repayments). Let's say this is €2k, each month when you are paid you should immediately transfer this to a separate account, maybe in your wifes name. Be clear with the banks that you refuse to contemplate touching this money for anything other than living expenses, and the banks can figure out how they get their money back from what's left over.
 
Highly unlikely that KBC will agree to interest only on the 2 RIP loans. Best option is that they will agree to accept the net rental income per month. However, no harm in asking!


In my view OP is overly concerned about the non repayments on the PDH loan. He currently has a great deal with BoS on the facility and is concrened about what is likely to happen in 32 years time. The Bank cannot look for capital payments on this facility and this gives the poster various options over the next 32 years to deal with the facility. Negative equity on this property should not be a concern, unless the OP wants to sell/move house.
 
Thanks so much for all the advice.

Our concerns are as follows:

1. little or no disposable income from week to week.
2. Ability to pay off our mortgage(s)
3. Risk of accruing massive arrears if my job continues to decline..business has been on a downward spiral for the last 2-3 year and does not look good going forward.
4. Further austerity is coming in future budgets, increase in costs of living etc..

i dont have a crystal ball but if you asked me what the future holds in our current position i would say that we will be in arrears on the 2 investment properties shortly and that we will never be able to pay off our PDH loan.

I have been reading about bankruptcy in the UK. If I went over for a year on my own and was declared bankrupt would we get to keep the PDH??
 
You are ignoring my advice! Would you not consider getting a 2nd opinion on it!! In my opinion you don't need to take the dramatic step of applying for bankruptcy. However, if you are proposing to take this extreme text I suggest you look at Steve Thatchers posts on the issue & perhaps consider contacting him!
 
44brendan said:
You are ignoring my advice! Would you not consider getting a 2nd opinion on it!! In my opinion you don't need to take the dramatic step of applying for bankruptcy. However, if you are proposing to take this extreme text I suggest you look at Steve Thatchers posts on the issue & perhaps consider contacting him!
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Hi Brendan

I am not ignoring your advice!

I genuinely appreciate your comments and they are being considered.

we need to consider all options and only as a last resort will I/we seek Bankruptcy. We love our family home, out neighbours and community so its the last thing we want to give up.

can you advise what will happen 'if' in 31 years and 11 months time when we are 'potentially' facing an outstanding mortgage of, lets say, 250k??

I would rather, while we have youth and one baby (under 6 months) to start again now then face our retirement years broke with potentially no home. I agree that our mortgage on the PDH is cheaper than rent (we do live in a nice Dublin suburb on the North side).
 
3rd Gen said:
can you advise what will happen 'if' in 31 years and 11 months time when we are 'potentially' facing an outstanding mortgage of, lets say, 250k??
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Unless we go through an unprecedented 32 years of no inflation, sticking with interest only repayments wouldn't actually leave you in that bad a position.

You have €550k of property and €900k of debt. The debt will remain at €900k as long as you pay interest only, whereas you only need inflation of 1.5% p.a. over the 32 years for your properties to be worth at least as much as the outstanding loans.

Sure you'd be be back to square 1, and need to find a way of paying the rent/outstanding mortgage at that point, but it has to be the least of your worries now when compared to securing a minimum standard of living for your young family.

I genuinely believe you can afford interest only repayments on all properties for now and that's the only logical outcome. If interest rates go up you may need social welfare supplements for mortgage interest. If KBC insist on capital repayments you may be forced into bankruptcy, but I really can't see that happening if you can service interest only.
 
Well put Der Kaiser!
3rd Gen, I'm in the business of giving financial advice (acknowledging that this does not necessarily mean that I'm always right!). You need to focus on the 2 RIP mortgages & postpone any concerns about what will happen in 32 years time.
As I mentioned earlier you have a strong negotiating position with KBC and if you approach them as proposed you should receive a favourable response. make sure that you put your offer in writing and attach a summary of your financial position.
 
Thanks guys for your advice.

Going to go and send a letter to KBC along with a statement of affairs. i will let you all know the outcome seeing that this thread has had so many 'views'.

I discussed the family home with my wife and seeing that we love it so much we have decided to stay put and see where we are in a few years. The interest only payment is affordable on her salary (at the moment).

Back to you in a few weeks.
 
Good stuff. Make sure you enclose an income/outgoings summary to KBC to underline your inability to cover more than the net rent.
Best of luck.
 
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