Huge Negative equity on 2 properties - Advice please

Need advice on our situation, have been on arrangements with PTSB since 2009, mortgage break, interest only arrangements for 6 month periods. Getting to the stage we are so stressed and worried and would appreciate advice on what to do next.

Personal and income details:
Myself - umemployed previously worked as Recruitment Manager
Income history: took redundancy in 2010 after 3rd child, haven't been working since
Husband:self employed - approx €400 p/w - some weeks no work

number of children: 3
Amount of child benefit received: €390
Amount of Mortgage Interest Supplement received: none
Home loan: €404,000
Lender: PTSB
Amount outstanding:€390,000
Value of home: €210,000
Interest rate: 1.3% tracker
Monthly repayment - €355 interest only
Amount in arrears - €3000

Summary of discussions and agreements with the bank -
Arrangements with PTSB since 2009, every 6 months they review interest only payment. Met them last week and filled out Standard Financial Statement for them to consider us for a long term option, will have to wait up to 6 weeks for a decision.

Investment property -
Lender: PTSB
Amount outstanding:€310,000
Value of home: €170,000
Interest rate: 1.3% tracker
Monthly repayment - €324 interest only
Amount in arrears - none
Monthly rent received - €950

Other loans and creditors -
Credit Card - €4000

Other savings and investments - none


How important is retaining the family home to you?

Up until recently I could not have imagined losing our family home I would have done anything to keep it, but recently the stress/worry has kicked in again and when I look at the negative equity and the amount we would be paying for this house I think is this all worth it- but I really love my home and where I live.

Any other relevant information -
I am thinking about trying to get back to work I need to check the childcare costs & options e.g Au Pair

We have been seriously thinking about the bankruptcy route preferably in Northern Ireland as this is where I am originally from.

Any advice greatly appreciated.

Hi Canada

Your mortgages are not contributing to your financial problems at the moment. Without them, your situation would be a lot worse.

Your problems are caused by your choice to "take redundancy" and a consequent low income.

Your investment property is cashflow positive

This is a great investment and you should not want to give it up

Where would you get accommodation for your family for €355 per month?

You have a cheap tracker on your home as well. You are paying €355 interest. If you surrender your home, how much would it cost you to rent somewhere else?

Be careful what you wish for...
If ptsb offer you a long-term solution it may well not be in your interest. It could be some sort of split mortgage on condition that you give up your tracker. But do you seriously think that your repayments will be less than €355 per month

Did you get a redundancy payment?
If you did and you reduced your home mortgage arrears with it, you might use it to persuade ptsb to do some deal. But what deal do you want?

Hi Brendan

Thanks for your response, sorry my mistake just to clarify I was made redundant from my previous job...hence the loss in my income. The small redundancy payment was used to pay off a loan to a family member who needed it back.

I understand that the low income is our major factor but our worries are really based on long term - how much and how long will we be paying these mortgages for.

Our current arrangement with the bank is due for review at the end of August which is why we met them last week. They requested that we fill out the SFS & have told us that as we have been on interest only arrangements for 4 years that a long term option is what they would be looking at.

What do I want? - Even if I get a job and in time my husband can also earn more money we will never be earning the wages that we did when we took out these mortgages (my husband had 7 people working for him and I was working In Dublin city centre with only childcare costs for 1 child)...I am looking advice on whether I should possibly go bankrupt and start again a fresh start...with a mortgage we can afford without all this debt hanging over us for the rest of our lives...

Hi Canada

Sorry, but this makes little sense

The deal you have at the moment is great.

• you get to keep the house you want to live in
• you get to keep it for much less than you would pay for something similar
• You have a rental property which is contributing to your cash-flow, not taking away from it.

There is no quick solution. There is no easy solution.



Your objective should be to hope that price rises will, over a long time, bring you out of negative equity.


You may never be able to pay off the capital on your mortgage.



In my view, you would be better off being repossessed in 2023 than being repossessed in 2013.


And good things can happen in the meantime which might allow you to keep your house long term.



Having said all that, some of the lenders are making very strange offers. So wait until you see what they offer and report back. If you get 5 years' interest only, grab it with both hands.



Brendan

In my view, you would be better off being repossessed in 2023 than being repossessed in 2013.

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Quote of the day! But so true-hopefully a reasonable long term offer will be made here.

Brendan, one thing to bear in mind is PTSB are/were looking to have all BTL switch to cap plus interest to keep the tracker rate. I know it was not said, but if they were successful, it would put a whole different perspective on matters for the OP and many others.

This post illustrates perfectly the psychology of negative equity. Everyone, bar the OP can see how advantageous the position she is in. Cheap rent, cheap investment, yet she feels poor due to NE.
You talk about going bankrupt, and then getting a mortgage you can afford
- you have a mortgage you can afford
- you won't get a mortgage with a bankruptcy lodged against you for a long time

The problem with negative equity is that the OP can see that in the long run they will have to keep making payments to the bank for the rest of their working lives, then sell the property and end up with nothing to show for it.
Cutting the losses now, going bankrupt will give the OP the rest of their lives to get into a better financial position rather than being a debt slave to the bank.

Negative equire is a state of mind. If you never intend to move house, it doesn't make a difference. And you are servicing the debt you agreed to.

None of us want to be slaves to the banks. But hey we agreed to purchase property and thats the decision you make Khards.

khards said:

The problem with negative equity is that the OP can see that in the long run they will have to keep making payments to the bank for the rest of their working lives, then sell the property and end up with nothing to show for it.
Cutting the losses now, going bankrupt will give the OP the rest of their lives to get into a better financial position rather than being a debt slave to the bank.

Click to expand...

Even leaving aside the moral aspect to this, this would only work if bankruptcy somehow wiped the slate completely clean so that access to credit wasn't a problem. But the OP won't be able to get another mortgage for a very long time, if ever - so whether on rent or on a negative equity mortgage, they WILL be paying for their accommodation with 'nothing to show for it'.

OP, as others have pointed out, in terms of simple cashflows, you are far better staying where you are and keeping the investment property. At the moment, you have monthly income of c. 3,080 (400 pw + 390 pm child benefit + 950 pm rent). Your interest only repayments are 679 pm, leaving you 2,401. Allowing for some expenses related to the investment property, you should still have over 2,000 to live on.

After bankruptcy, you would have an income of 2,130 out of which you would have to pay rent of presumably at least 700? So you would be left with 1,430 per month to live on - less if your rent is higher.

So keeping the properties and paying interest only leaves you significantly better off. I don't know why you would be considering bankruptcy - just look at the numbers and ask yourself would you be happier with no negative equity but 600-1,000 worse off per month? With a young family, I would suggest that short-term cashflow is way more important than worrying about negative equity.

I think the issue is really lack of income as opposed to too much debt burden. I think the focus should be to weigh up child minding options and try to get an income to match the time available.

I have moved the discussion about the "moral" aspects to this thread

http://www.askaboutmoney.com/showthread.php?t=180672

Luternau said:

Brendan, one thing to bear in mind is PTSB are/were looking to have all BTL switch to cap plus interest to keep the tracker rate. I know it was not said, but if they were successful, it would put a whole different perspective on matters for the OP and many others.

Click to expand...

Agree fully. But at the moment he seems to be on interest only.
He has a very profitable investment at the moment.
If rents fall and interest rates rise or if the bank insists on capital repayments, then he has to review the situation.

the Key Point, which most others seem to agree with, is that his mortgages are not the source of his problem at the moment and if he goes bankrupt, he will be in a far worse position.

It may be that he is forced into some form of insolvency in time, but there is no need to inflict it on himself at this stage.

Brendan

Since posting the above the bank has come back with an offer of a 6 month trial period for a split mortgage, they are looking for €655 per month for 6 mths and if we can make these payments they will offer a long term split mortgage. If our circumstances change for the better or worse we need to inform them. The amount in the main mortgage acct will be 48.6% approx €190k and the warehouse acct will be 51.4% approx €201k also term of mortgage extended by 23 months.

Thoughts on this and general opinion of a split mortgage??

Canada50, please see that you have got excellent advice from Brendan Burgess. I feel from reading all of the above that you don't realise his perspective on your situation fully. Take your time and read over it again. Let it all sink in.