Case study Moving from interest only to annuity on buy to lets and cannot afford repayments

[Justone]

Hi,
This is my first time posting here and I am looking for some advice or comments. I live in a town of about 6000 people and I have a principle residence and 2 Buy to let properties in the town.
Both myself age 48 and my partner age 47 are in permanent employment and we bought the Buy to let properties with the sole purpose of selling them on at a future date and hoping to make a profit to fund our children’s education. We remortgaged these properties with the AIB in 2009 who were offering us a better deal than the EBS who initially gave us the loans for these properties. Unfortunately due to the down turn in the economy one of the properties is in negative equity and while I have the other for sale for 10 months at €110k and open to offers but we have had no interest at all. In actual fact according to the Residential Property register only 32 properties have sold in this town in the last 12 months and most of these have been at very low prices. Both buy to let properties are on Interest only until Aug 2014 and the rent covers most of the repayments and I make up the shortfall from my own funds. The problem is that with these properties due to go to annuity repayments in Aug 2014 and hopefully one of my children going to college, I will not be able to meet the repayments on these properties. I went to the bank to raise this concern that I may not be able to meet the repayments if we go on the annuity repayments but would be able to do so if we stayed on interest only and whether they would provide this facility for me. I did not say that college fees would be the reason for not being able to make the annuity repayments. The Bank were not interested in going down this route and did not really engage with me other than to say to come back in 12 months time to discuss the situation again.
I keep the properties to a high standard and have very good tenants but I cannot really afford to raise the rents as there is little demand for rental properties in our area now and still surplus houses available.
I fully realise that this is a problem of my own making and that I took the risk and I fully intend on paying back these loans. While I have never missed a mortgage repayment at the moment I feel I have backed myself into a hole and need to find a way out. I know we are lucky to have permanant employment but the education of our children is of paramount importance to us. I have outlined my financial situation in as much detail as I can below and would very much appreciate any comments or advice on how I can make this issue more manageable.
Thanks in advance


Personal and income details
Income self: I am in permanent employment in the private sector and earn €62k pa. I have a DB non contributory pension but retirement with this company is compulsory at 60. The company pay a bridging pension until the old age pension kicks in.
Income history: I have been employed with the same company for 25 years
Income partner/spouse: My partner job shares and is a permanent employee in the private sector.Her income is €32k pa. She has a DB contributory pension and retirement is at 65
Income history: She has been employed with this company for 18 years
number of children 3 age 9, 14 & 17
Amount of Mortgage Interest Supplement received--- None
Receive Child benefit of €390 which will reduce to €260 next year.
Home loan
Lender: AIB
Amount outstanding: €158,000 on main mortgage which ends on Aug 2027, Top up loan of €14,000 which ends on Aug 2019
Value of home: €200,000
Interest rate: SVR of 4% on both mortgages
Monthly repayment €1185 on main mortgage & €199 on the top up. I also pay €91 per month for home & life insurance
Amount in arrears =0



Investment property – Property 1 Buy to Let – 3 bed town house
Lender: AIB
Amount outstanding: €90,800
Value of home: €105k according to the auctioneer but may be less.
Interest rate: 4.9% interest only until Aug 2014 and then Annuity for another 15 years
Monthly repayment At present €374 but this will rise to €715 in Aug 2014
Amount in arrears =0
Monthly rent received = €500
Investment property – Property 2 Buy to Let – 3 bed Semi detached house
Lender: AIB
Amount outstanding: €173,800
Value of home: €130k
Interest rate: 4.9% interest only until Aug 2014 and then Annuity for another 15 years
Monthly repayment At present €716 but this will rise to €1369 in Aug 2014. I also pay €133 per month to cover Life /House insurance and also the NPPR charge
Amount in arrears =0
Monthly rent received = €550

Other loans and creditors -
Overdraft =0
Credit Card= I clear credit card every month

Other savings and investments
Nationwide UK/Ireland = €10000
Credit Union €10000 with a further €350 put in every month
AIB €2000 contingency fund to cover tenancy vacancies etc
AVC’s to the value of €73k. Have stopped paying into this. In medium to high risk fund


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

I really want to keep the family home as we are very happy here.


Any other relevant information

What is your preferred realistic outcome?
I think I would like to get an extension of the interest only on the buy to lets for another 7 years with the hope that the property market would recover so that I could sell and repay any outstanding debts. People may have a more practical solution.

 

[manninp2]

Come Aug 2014 those two properties will end up costing you over €14,000 per annum and that's not including vacant months, maintenance etc.

You are only €29,600 in negative equity according to your estimates and you have €22,000 on deposit. For a family on €94,000 gross per annum €7,600 is not a significant shortfall in the grand scheme of things.

You took an investment gamble on the Irish property market and like so many of us, you lost.

If I was you I'd sell the two BTLs and do a deal with AIB to roll the shortfall, your home's mortgage and the top-up on your home into a new mortgage on your home. A €179,600 mortgage on a house valued at €200,000, at 4% over 14 years would leave you with a monthly repayment of €1,398. You can well afford this.

Any extra monies would be best invested into AVCs for your pension.

That's my advice, feel free to disagree.

 

[Luternau]

Welcome to AAM

To put you at ease, your situation is far from hopeless.

Sadly, the banks don't do proactive measures. So they won't talk to you until you are behind in your repayments-which won't happen till 2015 or 2016. I also cant see them giving you 7yr extension on interest only. These are generally short term measures of 6mth at a time.

However, by August 2014 or later, things may have changed a lot. Banks may be more open to an approach or you may be better off. Property may be moving in your town again, values may have improved (it's not permitted to discuss property prices on AAM) or rents may have gone up. That's a lot of things to be hopeful about.

Hope that helps you. All that said, you may have to look hard at your current expenditure. You could put up all expenditure using the case study format as it seems to me that you should have more disposable income than you indicate. How much was going into the AVC? You don't necessarily need life insurance on the BTL. If things are going bad; I would certainly cancel that.