Restructuring multiple buy to let mortgages - is it possible ?

Discussion in 'Property investment and tenants' rights' started by Susie2017, Sep 13, 2018.

  1. Susie2017

    Susie2017 Frequent Poster

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    A colleague has multiple buy to let's on very low rate tracker mortgages. They are mostly in west Dublin and are let on a full time basis albeit at rents that are well below current market rates. He managed to finance them all on a salary of 70 k, with v low deposits obviously before the market crashed with the (crazy) lending rules at the time. Anyway since the crash he has also lost his job and has had health issues. He is now unemployed for around two years and is living off the rental income alone. The first mortgage term will end in 2025 and others shortly thereafter, all finishing by around 2028. The last three were a big mistake and were bought in 2004/5/6 - still in negative equity to the combined tune of about 500k. Others bought earlier are probably only very slightly in positive equity nowhere near 500k. He has not repaid any of the capital. He is unsure whether to engage with the lender in relation to restructuring. I wonder if he should now as opposed to waiting til 2025 when he will be 57. Do the lenders restructure loans to people who only have rental income and no PAYE ? Could a broker help ? Could he restructure some of the loans to allow repayment of some capital (to use most of the rent) plus interest to allow him be in a better position ? Is it best to do this now or should he wait til he gets a job and get 6 months payslips ? Is his only option an insolvency practitioner or talk directly to lenders ? I have read elsewhere that the lenders will appoint receivers the day after the capital is not repaid. Are they likely to put a judgement order against him for the entire NE ? Any advice welcome or similiar experiences. He would like to keep some of the buy to let's as he has put a lot of time/work into them over the years, but is not optimistic. He is paying mortgages since he was 20 with no missed payments.
     
  2. Bronte

    Bronte Frequent Poster

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    Can you do the figures per property, loan, value, mortgage, rent etc

    Are they all interest only?
     
  3. Susie2017

    Susie2017 Frequent Poster

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    I dont have exact information. Mortgage rates are 1% or lower. Overall debt is around 2.5 million approx. He could afford to make higher payments but would have to get employment which he plans to do. His health is now good. His home property is the only one with capital and interest payments and is in a good equity position. Rest are interest only with overall neg equity of around 500k. Many tenants are long term so it would be difficult to raise rents to market levels. Property prices could rise further reducing the NE but he still will have the unpaid debt and the prospect of repossessions at the end of term. Is it not better to do try restructuring now than wait til he is nearly 60.
     
  4. Brendan Burgess

    Brendan Burgess Founder

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    Last edited: Sep 14, 2018
    A very interesting financial planning problem.

    As Bronte says, you need to give more information, preferably in the following format:

    Information required for mortgage arrears and negative equity questions

    Simply putting down the information in a systematic manner, will allow him to think more clearly about it.
    That is 7 years away. A lot can happen in 7 years.

    He will not be able to get refinancing when the term ends.

    Presumably the one which finishes first was bought first and so is in positive equity?

    He does not appear to be insolvent in that he can meet his repayments as they fall due.

    While his liabilities exceed his assets, it's not by much when you factor in the equity of the family home. Certainly not worth a Personal Insolvency Arrangement when a modest uplift in property prices could evaporate the negative equity.

    Even if he has been letting at below market rent, that rent has exceeded the interest paid and so he has been using the excess to finance his lifestyle.

    As his total investment properties are in negative equity, then there is nothing he can do at this stage, except wait and see how house prices develop.

    If they develop in such a way that they move into equity, then he should sell the lot so as not to face the risk of a fall in prices leading him to bankruptcy.

    If he has excess income, then he should pay down the mortgage on the property whose loan matures first. Assuming that is in positive equity, when he sells it, he can use the proceeds to reduce the mortgage on the property whose next loan matures.

    The only exception to this is if one of the later maturing properties has a significantly higher mortgage rate. He would save more money by paying that one down. However, as they are all below 1%, then this should not matter.
     
    Last edited: Sep 14, 2018
  5. Brendan Burgess

    Brendan Burgess Founder

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    Is there any point in talking to the lenders now?

    Not sure. If the mortgage on a property in negative equity has been sold to a vulture fund, it might be well worth having a conversation with them. They just might be happy to agree to the sale and write off of the shortfall.

    Otherwise, I see no point in talking to them now.

    Is there any point in talking to a Personal Insolvency Practitioner now?
    Probably no harm, but I can't see what they could do now if he is not insolvent.

    Brendan
     
  6. Brendan Burgess

    Brendan Burgess Founder

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    Last edited: Sep 14, 2018
    What is the value and how much is the mortgage?
    Which lender?
    What mortgage rate?

    If his buy to lets are sold at a loss in 7 years, then the lender will be able to get a judgement for the shortfall and register it against his home.

    Is it worth overpaying the home loan? I don't think so. House prices may rise or fall. But it wouldn't be that surprising if the negative equity disappears due to house price rises over the next 7 to 10 years. Certainly if he is paying down the capital in the meantime, it should be possible.

    It's at least 7 years away, so there isn't too much he can do about it now. But one of the options if he is still in negative equity would be to sell the family home to clear the shortfalls. He might not have a home, but at least he would be solvent.

    Or if there is enough equity in the family home, he might be able to sell that and clear the entire mortgage on one of the buy to lets and live in that.


    Brendan
     
    Last edited: Sep 14, 2018
  7. Brendan Burgess

    Brendan Burgess Founder

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    This is just madness.

    His objective should be to get out of these properties without affecting his family home. That will be some achievement. He should be delighted with that.

    Forget about keeping them, it's not possible unless there is such a huge increase in property prices, that he can use the equity from one to pay off the mortgage on another.

    Brendan
     
  8. Brendan Burgess

    Brendan Burgess Founder

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    I would stress that he does have to protect against the possibility of a major fall in house prices.

    So if the properties move into positive equity as a group - then he should unload them as quickly as possible.

    Brendan
     
  9. llgon

    llgon Frequent Poster

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    Even if let at below market rates there must be very significant income from this portfolio. Have you any idea how much? I would think he should have income from it of at least 30-40k per annum after expenses, interest and taxes, and quite possibly close to 50k. If he puts all of this towards paying down the mortgages over the next ten years it should clear most of the negative equity, even without a rise in property prices.
     
    cremeegg likes this.
  10. Susie2017

    Susie2017 Frequent Poster

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    What about restructuring now ? Say over 20 years capital and interest. Any chance of Pepper agreeing to that as things stand ? I know the rates are currently around 4.5% which would be a much higher payment for him. Has anyone ever negotiated a lower rate for multiple properties. He doesnt want to sell currently.
     
  11. Susie2017

    Susie2017 Frequent Poster

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    Yes ligon there would be substantial income at a guess around 90k pa gross. Obviously mortgages and management fees have to be paid. He has to keep on top of income taxes, usc and prsi also. He had s 23 relief in the past but that has now run out. As i dont have exact figures its difficult to be sure of the surplus which could be used to pay down capital but id imagine he could do so with the first mortgage due as said above.
     
  12. Brendan Burgess

    Brendan Burgess Founder

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    Hi Susie

    He does not need a restructuring now.

    If he wants to pay capital now, he is free to do so without penalty.

    "I know the rates are currently around 4.5% which would be a much higher payment for him."

    This is very confusing. I thought that they were all on <1% interest?

    You are not suggesting giving up a 1% tracker in exchange for a 4.5% mortgage rate over a longer term? If you are, that would be financial suicide. Forget about it.

    It's possible, just possible, that when the loans mature, Pepper might refinance them at 4.5%. But your friend should not worry about that until the time comes.

    In the meantime, he should be paying down the first loan to mature and hope that increases in prices rescue him.

    Come back to us in 6 years time with an update.

    Brendan
     
  13. llgon

    llgon Frequent Poster

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    4.5% x 2.5 million = 112,500 interest + capital

    Gross rent : 90k estimate.

    I agree with Brendan
     
  14. Susie2017

    Susie2017 Frequent Poster

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    Thanks everyone. Yes I had wondered if he would be best to switch to capital and interest to increase his equity and start doing it now while he is 50. But as you said the rate would be much higher at 4.5 %. He is hoping to get paid employment soon and realises that he will have to sell most of them (at least). It is also important (is it not) that he sells the one in most negative equity first to offset the capital loss against others or he could have a large capital gains tax bill if he does not offset the highest loss first. This will be quite difficult as the bank are going to want their money back also. Will certainly feedback down the road in 2025 if Im still around !
     
  15. RedOnion

    RedOnion Frequent Poster

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    No, you are making an issue where there is none.

    He doesn't have to do any restructuring to start paying capital. He just starts paying it.

    No need to refinance / change rates, etc.
     
  16. llgon

    llgon Frequent Poster

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    Yes, I think this may be an important issue to consider. But he may not necessarily have to sell the one in most negative equity first and it could actually be a very bad move. If he does this and is unable to repay the balance of the mortgage immediately the bank could appoint a receiver to his entire portfolio

    It is important to distinguish between negative/positive equity and capital gains. Presumably your friends portfolio cost in excess of 2.5 million, possibly close to 3 million. So it is likely all his properties will need to rise significantly in value in order to bring a capital gains liability on any one property and the equity situation won't affect this. If this was to happen your friend will be in a much better position to try and hold on to one or more properties. He would probably be best at that stage to keep the property/properties with the biggest capital gains.

    If this is not possible the next best option would be to first sell the property with the most positive equity along with the biggest capital loss. So maybe he could target his capital repayments at a particular property to achieve this and review his strategy regularly.

    However his main focus should be on paying off as much capital as possible for the next six years. I would recommend that to help this he should look at increasing his rents as much as regulations allow over this period as the yield is poor.
     
  17. llgon

    llgon Frequent Poster

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    Let's not forget that he appears to have received a good income from them over the years as well, while not making any capital repayments.
     
  18. cremeegg

    cremeegg Frequent Poster

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    Having been in this situation myself a few years ago I sympathise with your friend. Being in financial difficulties is bad , but your friends situation, where he knows that he will be in financial difficulties at some point 7 to 10 years from now is much worse emotionally.

    He needs a plan and some decisions.

    Income of €90k on property worth €2.5 or is it €3m in west Dublin is a joke. It should be nearly 10% of the property value. He should look at ways of getting this up. Even 4% per annum is something. In 4 years it is an uplift of 17%. If he has a number of properties there may be some scope for greater uplift. Can he do major renovations on the property which is furthest below market rent. If a tenant leaves can he do Airbnb.

    You do not say if all the properties are with one lender or several. This is important, if he goes into default on one property what effect has that on the others.

    How should he use his income in the years between now and the end of the IO period. Does he want to try to save his portfolio, to save his home, or just get the most he can out for himself.

    The situation regarding the home depends on if it is the same lender as the investments, and on the term. The best position is a different lender, and a term that extends much longer that the investments. That way a judgement mortgage would mean little.

    If it were me and there were no hope of saving the buy to lets I would be putting every spare penny into a pension, that cannot be matured until after the crunch period. Some pensions can be taken by a receiver most cannot, do some research around that.

    Or gifting €3k pa to any children I might have.

    Does he have a wife. Is her name on the home, or on the investment properties. Any transfer of assets to her now, when he has no unmet creditors, and more than 5 years before any issues arises, could hardly be looked at by a receiver or whatever when the crises comes. If married perhaps a divorce might be worth considering, surrender the family home, and any other assets in positive equity.

    There are a huge number of possibilities here and many variables. He needs to research all the possibilities now so that he can put plans in place well in advance of the crunch in 2025. It is also very good for the stress levels to be taking steps to deal with your situation, rather than waiting for the bad stuff.
     
  19. Susie2017

    Susie2017 Frequent Poster

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    Last edited by a moderator: Sep 15, 2018
    Hi Cremegg, many thanks a lot of food for thought there and in other posts. Yes his portfolio would have been over 3 million in value, not sure of exact figure now. Yes they are all with Pepper, including his own home, which is in positive equity. None of his tenants want to move on. In some ways this is good as the work after each one moves out is always v time and cost consuming. On the other hand he is stuck on lowish rents and has not kept up with 4 % increases owing to health issues, until now at least. He would like to hold onto some, even one. He has been a landlord for many years and to some extent it is part of his identity and if it is all stripped away it will have consequences for his mental health Im sure. He is unmarried and has no children. To some extent he has been burying his head in the sand. But I think he has been starting to think more about it in recent weeks. I know not many would have sympathy with him but I can assure you he has put many many hours into maintaining these properties, weeks and weeks of painting and decorating etc and dealing with problems 24/7 over the years. He could write a book. Could you elaborate more on transfer of assets - do you mean his home/savings ? Other than the information here who could he go to for professional advice ?
     
    Last edited by a moderator: Sep 15, 2018
  20. cremeegg

    cremeegg Frequent Poster

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    He can (and should) go to a solicitor for legal advice, an accountant for tax advice etc. Unfortunately what he really needs is business advice to develop a plan, hard to say where he might find that.

    This is not really a runner if he is unmarried.

    Well he can increase the rent 4% for each year since the legislation came into effect. 8% if its 2 years etc. He can do the detailed research, or indeed ask on here, how to go about charging the max rent he is entitled to.


    He still has to decide if he is going to try and save his properties or if is going to accept that he will loose them all and try to maximise his return in the meantime and try to keep the proceeds. The one option that I can still see is a pension.

    A properly structured pension would allow him to put money away while he is still collecting rent, in such a way that he would not loose it if a receiver was appointed. Proper professional advice would be needed there.