Property business loan changed from interest only. Can't afford repayments now

[Raul]

Hopefully this is the right forum. I am posting this on behalf of my brother. His small construction company built some apartments a few years ago with a view to sell them. With the downturn, he has been renting them out ever since. His business loan was interest only and he can just about meet repayments ever month and his company's bank account is regularly in overdraft.

The bank recently changed his repayments away from interest only and his last repayment almost doubled. He was never notified of this. His company simply can't afford to pay anything other than interest only at this point in time. He is meeting the bank manager on Monday to discuss more.

I'm just looking on people's thoughts here on whether they think the bank would look to move him back to interest only given that he simply can't afford anything else? Any advice on how he should approach it would be welcomed.

Thanks!

 

[Raul]

2 years since my last post. It's causing him a lot of stress as he has battled for years to try to make repayments while maintaining the apartments and feels he is fighting a losing battle.

He has met with the bank 3 times over the past 2 months as can't even afford interest only repayments anymore. A lot of the time though, they aren't returning calls or following up on it.

He is going to talk to them now about handing back the keys of the apartments. The existing value of the apartments are probably about 10% short of the loan value. Would a bank even consider this considering they are still getting some repayments every month even if it's not covering the interest?

 

[Brendan Burgess]

First of all, what are the numbers involved? Value of properties, amount of loan?

What is the rent received and what is the interest charge?

You say a "construction company"? Is it actually a limited company? Or is he a sole trader?

If it's a company, has he given a guarantee on the loans?

Does he have other assets e.g. his home, which could be sold to reduce the loans?

 

[Raul]

Hi Brendan,
It's a limited company. The loan is €400K. We would estimate that the total value of the apartments is about €350K but who knows. There are no guarantees against the loan. There are no other assets that can be sold. Monthly rental income is around €2000 but can vary as tenants come and go. Monthly interest is €1900. The tenant turnover is quite high and he is constantly repainting, buying new furniture etc and then you have fees such as PRTB, management company and taxes such property tax and household charge. He feels that he is fighting a losing battle for the past 5 years. I know the banks would be dealing with way poorer performing loans but is it even worth proposing handing back the keys in this instance?

 

[Bronte]

He is going to talk to them now about handing back the keys of the apartments. The existing value of the apartments are probably about 10% short of the loan value. Would a bank even consider this considering they are still getting some repayments every month even if it's not covering the interest?

What does your brother want? Wouldn't he be better off if the bank allowed him to sell the apartments? It is certainly better that he sell them than the bank. He may be incorrect as to value, there may be no purchasers. It sounds like he has been trying to be a good landlord mainting the properties (which keeps their values and ensures good rental) but it looks like he is fighting a losing battle. Now he cannot even pay interest only. He will be liable for the shortfall on sale, he can try to reach an agreement with the bank, agreeing to repay this over a number of years with low interest with income he earns elsewhere. If he cannot afford to do this they will come after any othere assets he has.