Buy to Let - 5yr extension on expired mortgage term, confusing LOV

Discussion in 'Mortgage arrears & negative equity case studies' started by MsWhitaker, Feb 9, 2017.

  1. MsWhitaker

    MsWhitaker New Member

    Posts:
    2
    70yr old widower, owns PPR outright - Value of home:200k+

    Income: Old age pension, with additional deceased spouses pension €5k per annum.
    Self-employed income sporadic.
    Income history:Serious fall off in work since recession.
    Wants to retire for health reasons. No overdraft – No Credit Cards
    Term loan - monthly repayments €250 approx. till 2019

    Investment property 1
    Lender:Ulster Bank - Amount outstanding:approx. €25k (ends in 2020) – no arrears.
    Value of home:160k. Monthly repayment - €700, rent received €700

    Investment property 2
    Lender:KBC - Amount outstanding: €210k
    (original mortgage 2008-2012 - €200k 5 year interest only)
    Current value of property:170k approx
    In 2013 at end of term the bank was fully engaged with and SFS’s submitted as to financial circumstances and inability to repay the original 200k. Renegotiated with bank for 6 & 12-month extensions and in Sept 2014 bank deemed the mortgage in question was unsustainable and they were going to pursue voluntary sale or surrender.

    Wife was ill at this time (passed away 2015) and so there was a “moratorium” on the account for 24 months, back dated to June of 2014 (signed Nov/Dec 2014) reducing the repayments from €895 to €700 in consideration of the circumstances and ability to pay.

    During this a subsequent LOV sent out by the bank of its own volition, reduced repayments to just under €500 (presumed due to consideration of wifes terminal health situation, which bank were aware of). This was signed but a subsequent LOV revised payments increased to €900! This was disputed (due to inability to pay) and a formal complaint lodged and repayments were agreed to be continued at €700 per month (tenant at that stage was paying €650 p/m). Have been dealing since with the executor relations. Small life insurance policy only covered funeral expenses.

    New SFS lodged in Nov 16 requesting a 12m extension to this arrangement. Early Dec bank again deemed mortgage unsustainable but paperwork never materialised, although in contact with bank. Mid Jan, received email to say the bank had reconsidered and would give a 3 month extension! Next day documentation to say that the mortgage was unsustainable!! A phone call to our contact in the bank said to disregard the letter for the time being?? Appealed the 3m extension (on advice from FLAC in respect of all paperwork received) looking for an extended period of 5yrs - (as ideally the market will have risen enough by that stage to clear the negative equity).

    Last week the bank agreed to 5yr extension. The first LOV arrived with the 5yr term indicating repayments nearly €4k! Contacted the bank - who will issue a “comfort letter” stating no liability for these repayments, as the fault lies within their internal systems... but it must be signed and returned to the bank so they can reissue another LOV with the agreed repayments of €1000 p/m as the current tenant (Nov 2016) is paying rent of €1000.

    Bank will not entertain interest rate negotiation! All agreed repayments with bank up to date although the 10k overrun is from capitalised “arrears” from renegotiating periods and bank delays on documentation.

    Interest rate: 5.15% - APR 8.43% - on a Flexi Reslet Annuity mortgage

    Question: why such a difference in interest and APR, as the difference on the the banks website for new customers is less than one percentage point (perhaps this will change with new LOV??, but why cant they issue this in advance?)
    (Due to previous complaint?) every letter ends with the right to contact Financial Ombudsman? Any advice on this situation is welcomed. Many thanks
     
  2. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    30,732
    You need to look at the bigger issue here.

    This loan is unsustainable and very risky. He should sell both properties and eliminate his borrowings.

    The alternative is to sell Property 2 and move the shortfall to Property 1, although this will be difficult as they are different lenders.

    KBC will probably agree to refinance the UB mortgage.

    Yet another alternative is to reschedule the UB mortgage to interest only - around €1,000 a year. He would then have €7,000 extra to contribute towards the KBC mortgage.

    Brendan
     
  3. MsWhitaker

    MsWhitaker New Member

    Posts:
    2
    Hi Brendan, and thanks for the reply, this is a great site I so wish I found it earlier...

    Both investment properties are adjoining and his original plan was to apply for planning and put a number of units on combined site for a for retirement nest egg. The recession really hurt him, as his business is in a construction related sector and the work literally was like a tap that was turned off, so income was severely curtailed. There are a number of provisional plans drawn up, and looking at meeting planners over the next few months. However there is no real money left to cover the costs of building which would make this a feasible reality. He has family in the construction sector that we could partner with to perhaps make this work, but I really don't know if its worth it, with the costs of construction where they are at present. There was about €30k put into Property 2 to bring it up to standard back in 2008 and there are taxes owed on both property's as an accountant advised him at one stage that they would be scrapped, then wife's illness etc, so that will need to be settled on sale.

    He is of the generation that believes that you hang onto the land at all costs! and that the properties aren't really costing him anything
    I just want him to have a stress free and easy retirement, although he was always up for a challenge and has worked so hard his entire life.

    KBC have been so messy to deal with, but were always fully engaged with them, and we got the extension (which was such a relief for him). The messy paperwork, is stressful, as in one way you don't really know what you are signing. There are at least 3 different people weighing in on the account in the last month, for different reasons, so both communication and paperwork is very time consuming.

    Have you any idea why the APR would be so high, or is this negotiable with the banks? It is generally less than a percentage point (quoted so for new loans on their website)...
    Would it be worth transferring the loan to UB for a better rate? Although was thinking his age will go against this. Unfortunately I'm not in a position to take on a mortgage, as self employed, new business and single parent (despite the fact that I pay the mortgage on property 1)
    The UB reschedule sounds like an idea, though hadn't thought of that. Fresh eyes are great
    Thanks again