Key Post BoI want me to give up tracker on RIP to extend interest only

Latino

Registered User
I have a mortgage of €432,000 with Bank of Ireland on buy to let which I bought 5 years ago, so now it's worth around €200,000.

The interest rate on the tracker is 1.7%.
It has always been let and I have had no difficulty paying the interest out of the rent, so I have not been in arrears.

But the 5 year interest only period is up and now the bank wants me to switch to full capital and interest which I can't afford.

Bizarrely, they have offered me the following deal in a big long letter.

There is a two page covering letter
There is then an Appendix: Important information concerning mortgage arrears
Then there are 7 pages entitled "Agreement to amend Mortgage Loan Offer letter
Then there are two pages of regulatory notices
Then there are two pages for signing

But the gist of the offer is

"Conversion from Tracker Rate to New Interest Rate Type
Tracker to BTL Variable
This form converts the interest we charge on the loan from a tracker rate which is 1.7% at present to a BTL Variable rate. The BTL Variable Rate will apply for the remaining term of the Loan. At present the BTL Variable Rate is 2.7% per annum. "

In the covering letter it says "To accept the agreement please sign and return within 5 weeks... We cannot hold the offer open after that date"


What should I do? This seems like a crazy deal from my point of view, but the language of the letter makes it seem as if they are doing me a favour.
 
This is an interesting case study.

The bank is trying to get you off your tracker. Your tracker is very valuable to you, so you should politely refuse this offer.

The BTL Variable Rate will apply for the remaining term of the Loan. At present the BTL Variable Rate is 2.7% per annum. "
This is disgracefully misleading. The current buy to let rate for your LTV is 5.8% You can be quite sure that the rate on your mortgage would rise to this over time. An additional 4% on €432,000 would cost you €17,000 a year in interest.

What are they offering in exchange for this? If they were writing off 20% of the capital on the loan, it might be worth considering.

As it is a Residential Investment Property, you do not qualify for the Mortgage Arrears Resolution Process.

There is no obligation on the lender to extend your interest only or to do any other deal for you.

They do not have the right to remove you from your tracker for being in arrears.

So, let's assume you can't reach an agreement with the lender, what are their options?

You will fall into arrears and so you will be in breach of your contract.

Most mortgages provide the lender with the facility to charge additional interest on the arrears. So they could charge you additional interest on the arrears portion only. This should be a lot cheaper than paying a higher rate on the entire mortgage.

If you remain in arrears, they could instigate repossession proceedings against you.

They could also appoint a Receiver to the property.

Do you have other assets which you could sell in order to pay down the arrears?

What is the story on your family home? Is that also in serious negative equity? If so, there is even less point in the bank repossessing as they can't collect the shortfall.

What is your income? Some people compartmentalise their residential investments and say that they can only pay the repayments out of the rent. However, the loan is to you and therefore if you have other income from which to pay the capital, you should do so.

What is your profession? At some stage, the bank might seek to repossess and get a judgment against you. Would that create difficulties in your job?

Summary
Write back declining their offer. Ask for the interest-only period to be extended.
If they refuse, pay the interest and as much as you can. Show that you are trying to pay this loan.
Wait until you see what they do next. If they charge you additional interest, you can live with that.
 

Latino

Registered User
"What are they offering in exchange for this?"

They will switch me to interest-only for 12 months and then full interest and capital over the remaining term.

"Do you have other assets which you could sell in order to pay down the arrears?

What is the story on your family home? Is that also in serious negative equity? If so, there is even less point in the bank repossessing as they can't collect the shortfall. "

I have no other assets other than my family home. I bought that around 15 years ago, so there probably is around €100,000 equity on it. I am paying that mortgage in full. It's also with Bank of Ireland

What is your profession? At some stage, the bank might seek to repossess and get a judgment against you. Would that create difficulties in your job?
I can afford to live reasonably and pay off my home loan and pay the interest on this and maybe pay some capital.

I work for a mult-national and my job is very safe although my bonuses have reduced in recent years. A repossession would be embarrassing, but would not affect my earnings.
 

orka

Frequent Poster
Even if it involves starting to make some capital repayments, you should avoid a switch to a variable rate. As Brendan pointed out above, the current BoI BTL rates will probably be over 5% so no idea where their 2.7% is coming from. The table below shows the different repayment amounts at varying repayment periods and interest rates. Interest only at a normal variable rate will probably be higher than full capital and interest at your tracker rate!

|1.7%|2.7%|3.7%|4.7%|5.7%
Int. only|612|972|1,332|1,692|2,052
20 yr repay|2,122|2,325|2,536|2,757|2,985
25 yr repay|1,766|1,975|2,195|2,426|2,667
30 yr repay|1,530|1,745|1,973|2,215|2,468

That said, you are paying quite a low amount (600-ish a month?) on a 432K outstanding - how much rent are you getting and how much could you afford to increase your repayments by? The bank will be losing more money than they are contractually obliged to if you continue on tracker-interest only on the full amount so I think you need to make some gesture towards repaying capital.
 

Mrs Vimes

Frequent Poster
"What are they offering in exchange for this?"

They will switch me to interest-only for 12 months and then full interest and capital over the remaining term.

Are you seriously considering paying at least €4,300 extra interest per annum for the next 20 or so years and being at the whim of the bank's variable rate just to delay capital repayments for ONE YEAR?

As Brendan mentioned, what guarantee are you getting that the variable rate won't skyrocket as soon as you sign?

I haven't done any sums for your case but I reckon you'd be better off paying the capital element by credit card for the one year than taking that deal and losing your tracker.

Basically I don't think a one year extension of the interest only is going to help unless you are going to come into an awful lot of money in a year.

You have an income and a house with equity so the bank will get their money one way or the other eventually.
 

Gato

Frequent Poster
In similar situation with bank of Ireland. Three residential investment properties in great locations - strong rents. Came off int only. Bank wouldn't agree int only extension. Increased repayments to max we could afford - all interest plus one third of capital demanded. All three loans on trackers .75 per cent margin Bank still not happy. Threatened to appoint receiver. We buckled and reluctantly agreed to sell two of three prop. Cooperated fully and worked hard to prepare properties to get max price. Now dealing with last prop and rump debt. Bank now want cap and int on last loan but will not entertain tracker. They also want interest at svr on rump. Cost of all this leaves us in worse off for having disposed of property. Feeling sick.
 

Negotiator

Frequent Poster
In similar situation with bank of Ireland. Three residential investment properties in great locations - strong rents. Came off int only. Bank wouldn't agree int only extension. Increased repayments to max we could afford - all interest plus one third of capital demanded. All three loans on trackers .75 per cent margin Bank still not happy. Threatened to appoint receiver. We buckled and reluctantly agreed to sell two of three prop. Cooperated fully and worked hard to prepare properties to get max price. Now dealing with last prop and rump debt. Bank now want cap and int on last loan but will not entertain tracker. They also want interest at svr on rump. Cost of all this leaves us in worse off for having disposed of property. Feeling sick.
I'm sorry to hear about your predicament Gato but I'm afraid this doesn't surprise me at all. The banks will throw you to the wolves and won't bat an eyelid. Give them an inch and they'll take a mile, there is no reasoning with them at the best of times. I would just set up a standing order with the interest portion of the loan (at the tracker rate) and let them take a long walk off a short pier. If they are getting the interest on the property it is very unlikely they will send in rent receivers for the foreseeable future! In the meantime the new insolvency bill should hopefully provide you with a longer term solution. Unless there is a substantial writedown on your mortgage do NOT switch to a SVR from a tracker!
 

Gato

Frequent Poster
We are still trying to deal with shortfall from sale of two prop or rump debt. Have no idea what banks next move will be. Judgement and sheriff. Nothing to get but very very stressful. Band adamant no debt deals. Feel powerless. Price we have paid so far in loosing assets we worked hard for over 12 years very high not to mention states losses of significant tax on rental income. Yet bank managed to gain by disposing of two sizeable trackers. Hard to see moral hazard from where I'm standing
 

WizardDr

Frequent Poster
Clarity?

Hold on - I think what I read here is that the Bank will extend the interest only period but they are seeking an additional 1% (1.7% to 2.7%) and that this is not the 'general' BTL Variable rate.

I think what is needed here is the Bank to a agree to a new tracker i.e. 1.7% to 2.7%. What the Bank have done is made sure it isn't a tracker.

Is that not where the focus of this should be?

Or have I missed something?
 

PadKiss

Frequent Poster
Gato and all need to get political reaction and action here. The rate offered is a discounted variable and when i ask recently on behalf of a client how long it was for the answer still amazes me 'i cant tell you' i was told they have no way of telling you it will depend on the bank. So in effect the client would essentially sign a blank form for the bank to do what they like. How the regulator is allowing this is beyond me and it is fundamentally wrong. Good luck Padraic
 

PE2013

Frequent Poster
I think what is needed here is the Bank to a agree to a new tracker i.e. 1.7% to 2.7%. What the Bank have done is made sure it isn't a tracker.
If 2.7% is doable with capital repayments, then I think that would be reasonable for both sides. The bank gets an extra 1% per annum and the borrower gets certainty for the term of the loan. What would the financials be on that, taking into account rent.
 

WizardDr

Frequent Poster
@PE2013

I agree with you and what @PadKiss says seems correct 'we cant tell you' so that element is pig in a poke.

Should we not get our leader (Mr B Burgess) and Charles Weston to review this.

I think the Bank should be able to raise the rate - but I think a tracker at the elevated rate is fair to everybody and that's where a campaign should be addressed.

I think this putting on a discount variable and 'we dont know when it ends but it may be when we feel like it' is incredible and wonder how the CB stands around and apparently either does not know this goes on (because the CB have not met customers) or are giving Banks apparent consent by silence ('we will do this until the CB stops us).

Brendan / Charles - we need help here !
 

Gato

Frequent Poster
I agree banks are not charities and should not have to bear the burden of my inability to pay the capital portion of my loan under terms of agreement but think unfair for them to use this crisis (of which they were major contributors) to their advantage - seeking to cover poor lending decisions at our expense. What I feel is fair in my situation is the bank charges me svr on the portion of the loan that was due to be repaid ie the capital but leave the balance at the original tracker rate. Maybe someone out there could do the Maths more accurately than me but I believe this would be a really fair way to deal with this huge problem. More btl loans would be sustainable and the market wouldn't be dumped with additional property. In this scenario the banks are compensated fairly but do not profit as a result go the crisis.
 

Gerard123

Frequent Poster
Really feel sorry for you that things gave turned out the way they have and can see the impact it is having on you.
But a sense of perspective is needed. Can't simply blame the banks and say it was their poor lending decisions only as if you haven't fault. I agree they were major contributors and made poor lending decisions.

At same time you borrowed huge amounts to buy three investment properties some or all on interest only. While genuinely very sorry, they didn't put a gun to your head and make you take the money. I know you didn't say this in fairness and appear to have tried to do our best to resolve the issue.


Best thing is to try to cut the best deal possible and extract yourself as cleanly as you can and move on. Not worth your health to allow it get you down. do the best you can and try to take stand back view to help to reduce the stress.
 

Luternau

Frequent Poster
What I feel is fair in my situation is the bank charges me svr on the portion of the loan that was due to be repaid ie the capital but leave the balance at the original tracker rate.
I dont fully understand your proposal. Can you eloborate?

I think the banks, no matter which ones, should not be allowed to get away with this. Would I be correct in saying that they stress tested at interest only for 10 months rent and perhaps at an increase of 1-2% on the higher ECB at that time? What ever came out of that, led them to advance the funds.

It is unlikely the bank stress tested a reversion to cap plus interest after 5yrs. Had they done this, they would in all probalility, have refused to advance funds, and they or the borrower would not be where they are today.

Now, that they cant access money at a rate that makes these loans viable-they are attemptign to impose an accelerated repayment schedule that in most cases will just lead to default.

A reasonable solution would, as already suggested, be an agreement to alter the tracker rate to get the loans back performing at interest only-which lets be honest, was the spirit of the agreement that both entered into. What hope of common sense prevailing?

A sort of related question as receivers were mentioned;
A long time ago, I started a thread about the implications of a bank appointing a rent receiver, but got no replies. I beleive BOI is the most active in appointing them.
is the borrower still liable to file a tax return declaring the rent as income -even though they are not getting it?

i would love someone to explain this.
 

Gato

Frequent Poster
Thanks Luternau. What I mean is that there is a problem for two parties - bank and borrower. Borrower cannot pay cap and int and bank will agree interest only if you give up your tracker. In most cases the borrower has no choice but to accept this or sell the property at a loss. This wont work. The additional cost of servicing the loan will eventually be close to 3% premium (difference between tracker rate and SVR). If the borrower could afford this difference surely they would be better off paying it off the capital portion of their loan and not in additional margin for the banks.

It would be interesting to work out what it would cost the bank to continue to provide interest only to the borrower. I believe (rightly or wrongly) that this is the Opportunity Cost associated with the bank not receiving its capital back on time. This means the bank looses out on lending this money to someone else at the SVR. My solution is to compensate the bank for this loss which I believe would be affordable and fair and would halt the carnage of some buy to let repossessions and crystalizing losses which are unlikely to be recovered in the short term.

a very crude calculation follows:

e.g. 300K borrowed at int only for 25 years

Tracker rate 1% over ecb

Five years interest only paid. Remaining term 20 years

Bank at rough loss of 15K capital per year

Borrower pays full SVR on 15K (cumulative) over a five or ten year period to give rents and property prices a chance to recover

Another interesting calculation would be to determine how much a bank profits by moving a customer off a tracker ?
 

breakonthru

Frequent Poster
I had a similar 'ask' from PTSB some 12 months ago now. Pay cap and int and continue on tracker or pay int only, leave tracker and go onto a reduced SVR that would then be upped by the bank when they so wished. I wrote to them explaining situation and that I couldn't pay any more than int only at the low tracker %. I didn't sign anything and quickly fell into arrears. €60,000 or so of arrears later then came back two months ago and 'offered' recap of arrears and another three years of int only at the same low tracker rate. This I happily signed..
 

outcast

Registered User
August 2014 update on very similar case
Bank of Ireland buy to let loan 2007 on tracker rate.
Initially two years interest only and then due to move to Interest + principal
Can has been kicked down the road between 2009 and 2013 with one year extension of interest + some principal (and tracker rate retained).

Current balance c400k and 15 years of original term remaining. Property value c€290k.
Since January, BofI has sought new arrangement - two options: either full repayment of interest and Principal (an unaffordable €2,700 per month) or extend term and reduce monthly payment to an affordable amount.
The catch - lose the tracker if you extend the term.
I refused to sign away tracker; have been paying as much as possible each month so arrears building up.
There will be no debt right off for signing away the tracker.
The new rate will be a "discounted variable rate" - my current tracker rate plus 1%.
There is no guarantee on the future movement of this rate.

I am very reluctant to sign away a good tracker but options appear limited. Any views?
 
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