Case study Moved to London - can't afford mortgage on former home

K

Kine

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Brendan,

In line with another thread, I have outlined it below:


Personal details
Income self: £62,000 (I have managed to secure a slightly better job since my original post).
Income partner/spouse: Housewife (looking to return to work next Spring after baby #2 arrives)
number of children: 1 (second due in August)
Amount of MIS receivable: Is this mortgage interest relief? If it is then zero.

Home loan
Lender: UK retail with an irish operation
Amount outstanding: €360k or so.
Value of home: €150k give or take what's on the amrket (I had it valued at €175k, bank had it valued at €150k).
Interest rate: ECB+1.15% (tracker)
Monthly repayment: Full: €1300, Interest Only: c. €600; I'm paying €350 (currently under discussion, they offered me IO again, I said I couldn't afford that so €350 is what I proposed - 4 weeks have passed since I submitted in writing and still no response)
Amount in arrears: c. €4-5k (I managed to change to IO as soon as I could to help minimise this so it is probably lower than it should be).
Rent received per month: €950

I have outlined above the situation and nothing has changed - the bank refuses to do anything in writing, and are simply burying their head in the sand.


Other loans and creditors
Overdraft - monthly maybe £200
Credit Card - monthly maybe £200, but balance never really exceeds £500 and is quite often close to zero.
Personal loan - £4.3k left, £100pm payments.
Family loan - no real balance, but I definitely owe my parents a few quid!
Management Company: c. €800

Other savings and investments
Bank of Ireland shares.....perhaps I should say zero?!

Any other relevant information
Can't think of anything.

What is your preferred realistic outcome?
The mortgage is unsustainable - I can not afford to repay the full amount and raise my family at the same time. Main issue is the more I give the bank per month, the harder it is for me to afford to actually be a landlord as if anything breaks I need to be able to afford to fix it. Naturally, if I cannot in good conscience do this for a tenant, I can't have a tenant...ultimately means I would have no rental income. The bank have said I could sell (still nothing in writing) but would like me to service the remaining NE at about €750pm which, simply put, I cannot afford.

Ideal solution? Sell flat and negotiate a sensible amount to pay the bank over the next 5 years.
 
Hi Kine

Thanks for being the first to complete this Case Study.

I don't think that you should sell your apartment!

Rental income | €950 |
Interest |€540| €360 @ 1.8%/12
Profit before costs|€410 per month
Annual profit|€5,000

That profit will replace a lot of boilers!

Why are you paying only €350 when the rent is €950?

If you sell the house now, you will be stuck with €200k of negative equity or, as you say, €750 per month. But as it is, you are getting cash flow of €600 per month.

If I was the bank, I would seek to repossess the home, because I could lend on the €150k at the Standard Variable Rate of 4%.

Brendan
 
Brendan,

Thanks for the swift response - I think your table above, while technically correct with the info you have, is missing all the annual costs that I will / may have to incurr over the course of the year. The €350 is what I proposed to allow some expected and unexpected cost headroom, but it is not agreed so not final.

If I could figure out how to do a table like you did above I would put in a comprehensive income / outome expectation for the apartment (I have one in excel)!

I think the overall point is being missed though - if I can't agree the €350 monthly payment with the Bank and it is a higher number or even all the headroom, it still doesn't address the fundamental issue that I am not, and can't forsee a situation when, I will ever be able to make a material impact on the outstanding capital balance. In any event, my mortgage is highly unprofitable for the Bank. If I am not even servicing the record low interest rate tracker mortgage, what hopes do I have in 5 years time when the interest rate has started to creep back up, all the time being calculated on a capital amount I haven't even dented?

The fundamental point is the Bank are almost entirely unlikely to receover the full amount of the mortgage, the asset has already been impaired to an incredibly low level ina previous calendar year by the bank (if my experience of working in a UK bank is anything to go by - they have pretty much written off their entire Irish portfolios) so I just can't see why we can't draw a line in teh sand, agree that the 6.5x 100% mortgage they loaned me was, in hindsight, probably not the best bit of business and agree a way forward.
 
Should the tenant be withholding 20% of the rent due to non-resident landlord? Or has an agent been appointed (family member)?
 
I don't think I am missing the overall point at all. You can well afford to service the interest from the rent and you are not doing so.

You can well afford to make some payments towards capital from the rent and you are not doing so.

You can well afford to make some payments towards the capital from your salary and you are not doing so.

They should not have lent you 6.5 times your salary. But were you working in banking at the time as well? You knew what you were doing.

There are thousands of people who have lost their jobs and who are in completely unsustainable mortgages. I would like to see the banks look after them.

It appears to me that you fall into the "won't pay" category.
 
dereko1969 - I submit tax returns so there is no need for the tennant to withhold any rent.

Brendan - unfortuantely I do not have the time to respond to your post in detail at the moment, but I would streniously deny that I fall into the "wont pay" category. Every spare cent I have has gone into paying as much of that mortgage as I have been able. All savings have been exhausted attempting to keep up with capital repayments previously, and between all the ancilliary costs that arise with being a landlord (management company charge (still in arrears), NPPR, Household Charge, PTRB, Letting Agent fees, ad hoc repairs and maintenance) I haven't had a penny to spare since about 2010. In addition, how can you make the assumption that I am able to make capital payments from my salary? I can categorically state this is not the case, and I have provided all the evidence necessary to my bank proving this (bills, lease agreements etc).

Whether I pay €350 ot €550 in mortgage per month has zero impact on the ability of me to knock a meaning ful amount from my mortgage - assuming I pay €100pm off the capital it will still take me years to clear my arrears built up doing this.

Anyway, whether or not you agree is irelavent, I have spent the past 15 months crunching numbers, cutting bills to the bone and still find every month I come up short - I am most definitely not a "wont pay".
 
Kine said:
Brendan - unfortuantely I do not have the time to respond to your post in detail at the moment, but I would streniously deny that I fall into the "wont pay" category. .
Click to expand...

Could you just show us the P&L for the mortgage? You have a gross profit of €5,000. What costs come out of that?

It's very important. Because it seems to me that you are better off paying the mortgage than paying off a mortgage shortfall.

You have serious negative equity. But so do many people. But you can pay your mortgage or at least the interest on it.
 
Kine - your first post doesnt show what you are currently paying in rent or other expenses.

Why can you not afford to pay the entire amount of the rent on the mortgaged property to the bank and make up the shortfall yourself? Its not very clear.
 
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