Case study Income €150k; 3 mortgages of €1.1 m; moving off interest only

S

sydneygirl

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Hi All, here's our situation, I've worried sick in the past but now i think I'm past that, I think we're still in a strong postion that we could hopefully tell the banks what we can afford to pay, do the banks really want to repossess our 3 houses? Practically everyone I know in the same boat, high earners, 2 incomes and just about managing to keep all the balls in the air!

Personal and income details

Income self: Self Employed (joint income 160K + and rising

Income history: Getting better and better for both of us, no shortage of work

Income partner/spouse: Own Business, doing very well and in a booming industry

number of children 2, primary
Amount of Mortgage 3 mortgages, 1.1 million
Mortgage 1 Home - 653K no capital paid only interest for 5yrs, capital due this Feb (Tracker €850 p.m. due to go up to about 2.2K in Feb when capital is due) Might be worth 400-450K)
Mortgage 2 - Apt - amount o/s - 305K worth 200K approx or less (tracker €1200 p.m , Rent in €1100) - can raise rent soon to €1200. Management fee 1600 p.y & Property tax, interest paid on rental income etc
Mortgage 3 - Rental House - amount o/s 148K worth 90K approx or less. (Mortgage variable 840 p.m, rent €500) no management fee but property tax etc
Home loan & 2 rental properties all bought between 2004 - 2007

Lender: ulster bank (2 trackers) & KBC (variable)
Amount outstanding: Almost all, think we've paid off about 30K
Value of homes: 650 - 750K
Interest rate: 150K Variable, rest tracker.
Monthly repayment: 2.9K (rent coming in 1600)
Amount in arrears: 0

Summary. Family home on interest only for 5yrs, up in February, payments currently about €800 tracker will go up to about 2K in Feb (when tracker rises up to about 3.3K eventually). I have to subsidise my rental properties by about €500 per month never mind repairs, property tax etc. We didn't buy them as investment, we both owned a house each, then bought family home together (it wasn't worth selling the other two at that stage and we thought they would rise in value!!!). Although we're managing to pay everything and probably have a nice life compared to most, I see problems ahead. We probably earn 160K between us and we're both doing very well and we see that rising but when trackers rates rise and we have more property tax on the 3 properties we'll be in trouble. The only way our situation is sustainable is we put the two rental in interest only forever and/or we're allowed to park some of our main house mortgage.

Other loans and creditors -
Overdraft 0
Credit Card 0
Credit Union Loan - 0
Car - 10K
Creche - 700
Other savings and investments - all savings now gone, I had 30K saved. Gone on maintenance fees, fixing things etc in rental houses. So I suppose this shows are income at the moment doesn't meet our outgoings.


How important is retaining the family home to you?
Which of the following best describes your situation?

I care! If it looked like we'd lose anything, I'd emigrate for a much better life then we're having. We're high earners, we work really hard and it all goes on mortgages and tax. When the property taxes will mean we'll have no extra cash.

What is your preferred realistic outcome?
Managing and reworking our existing debt, as I said we're both doing well and our incomes are getting higher all the time (we're lucky both in booming industries), I could see us paying all this off eventually but we need to rework it in the short term.
 
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A suggestion : It would help if you broke down the 3 mortgages to what each house actual mortgage is and the rent from the two properties. Maybe even include what they are worth now in case an option os selling could be there.
 
Based on the figures you gave us, both your income and outgoings are
high and eventhough you are in negative equity on the properties you ARE otherwise cash-flow solvent and able to pay your debts as they fall due.
For the time being at least your total income is greater than your total outgoings.

You dont mention what your net income is but based on a total gross income of 160,000, it must be somewhere in the region of 8000 to 9000 per month.

At the moment the banks are mainly preoccupied with people who are cash-flow insolvent, who cant meet their monthly repayments. This is obviously NOT your case.

Given your very strong income, I suspect the banks will require you to
put forward a very compelling case for them to agree to a restructuring.
 
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As I said we're fine now, and yes we would bring in 8K per month but the mortgages are trackers and eventually our 2.8K outgoings on mortgage will probably become well over 6K then they're unsustainable (albeit rent in about 2K). Our situation just about works as the interest rates are so low. I suppose our only option will be to put the two rentals on interest only which would free up about 1K.
 
After your February 2013 reversion to capital payments on your PPR, then I calculate that your total monthly mortgage repayments will be around 4250.

Your rental income is 1600

Therefore your net monthly housing cost is 2650.

If your net monthly income is c 8000 or 9000 and you dont appear to have many other significant borrowings, then on paper at least it would appear to be manageable for a family such as yours
 
Importer said:
After your February 2013 reversion to capital payments on your PPR, then I calculate that your total monthly mortgage repayments will be around 4250.

Your rental income is 1600

Therefore your net monthly housing cost is 2650.

If your net monthly income is c 8000 or 9000 and you dont appear to have many other significant borrowings, then on paper at least it would appear to be manageable for a family such as yours
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yes that is true for the immediate future but as I said its when trackers rise and our mortgages all go up I foresee problems but I suppose we'll deal with that when it happens!
 
In my view, Interest rates are unlikely to rise significantly in the near or medium term. If I was you that wouldnt be my concern at all. Id be quite happy to live in peace with the trackers for now

In your shoes, If i was going to do anything, I would look at trying to unload one or both of the rental properties. Its probably a headache you could do without.Sell them at market price and try to work out a deal with the bank to convert the negative equity to an unsecured loan. Your income is so strong, they just might be willing to listen.
 
Importer said:
In my view, Interest rates are unlikely to rise significantly in the near or medium term. If I was you that wouldnt be my concern at all. Id be quite happy to live in peace with the trackers for now

In your shoes, If i was going to do anything, I would look at trying to unload one or both of the rental properties. Its probably a headache you could do without.Sell them at market price and try to work out a deal with the bank to convert the negative equity to an unsecured loan. Your income is so strong, they just might be willing to listen.
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Hopefully it won't come to that as I see them as my pension, in just over 20 years we'll have an income every month from them, so I'll try my best to keep them. Would kill me to see all the money i've paid into them go down the drain.
 
I understand. kinda

The downside however is that you have too many assets tied up in one asset class ie property. All your assets are residential property located in the same country. When that asset class goes into meltdown as we have seen lately you then find yourself in financial turmoil

A good financial advisor would advise you to diversify your investments into different asset classes, ie equities, bonds, funds or possibly a different class of property or even property in a different country.The main idea is to diversify and spread your risk widely and avoid having all your eggs in one basket.

At the end of the day, A Financial Advisor can only advise. You must make the decision.
 
Importer said:
I understand. kinda

The downside however is that you have too many assets tied up in one asset class ie property. All your assets are residential property located in the same country. When that asset class goes into meltdown as we have seen lately you then find yourself in financial turmoil

A good financial advisor would advise you to diversify your investments into different asset classes, ie equities, bonds, funds or possibly a different class of property or even property in a different country.The main idea is to diversify and spread your risk widely and avoid having all your eggs in one basket.

At the end of the day, A Financial Advisor can only advise. You must make the decision.
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True! But we never intended to be landlords just plain bad timing. We both had just bought, met, got pregnant and needed a house to live in so we could treble whammied! I know we're luckier than most but I can't see us being able to pay everything unless we put two rentals on interest only or park some of our mortgage for a year or two! I'm confident our wages will rise enough to furnish all this but not in the immediate future!
 
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