Two joint mortgages with friend, friend having repayment difficulties

A

Alder

Guest
Hi,
I need some advice. I have two joint mortgages with a friend of mine. Both are in negative equity and both are investment properties. My friend also has a mortgage on his own home. I have planning permission to build but am not even considering a mortgage due to the financial mess with these two properties.
One property is rented to students (so only rented for 9 months of the year), mortgage repayment is 1100 per month.
Other property is rented for 800 per month, interest only repayments 895.
My friend is just about managing his share of the current outgoings and repayments but if the second mortgage goes back to full monthly repayments, he says he can't afford it. He is willing to let the house go into arrears, be repossessed whatever. I on the other hand, am very reluctant to let this happen as I want to, at some stage in the next few years, apply for a mortgage to build my own house. (Wishful thinking perhaps!)
He is single and I am married and my financial situation is better off than his. Therefore being jointly and severally liable for the mortgages, I have repayment capacity, he doesn't. We are both in employment (Public sector) and earn about 70k. There is repayment capacity when jointly assessed but that is due to me having no personal loans.
What, if any, are my options? Two years ago we looked into gifting each others share of the houses, so that we would only have one mortgage each. That didn't work out as one bank was looking for a capital reduction of 50k, which was not feasible at the time.
Should I re-visit this again and pay the 50k (with a loan) and take sole responsibility for the other mortgage? Therefore if he can’t repay he is only affecting his credit rating.
I appreciate that a forum may not have all the answers, so would speaking about the details of the situation with a financial advisor be the best thing or who would be able to give me sound advice on this issue?
Any help greatly appreciated and apologies if this post is a little all over the place.


|Property 1|Property 2
Annual rent|9,600{br}but vacant|10,500
Annual interest|10,600|7,500
Value |170,000|160,000
Mortgage|254,000|195,000
Name of lender|kbc|ICS|
Interest rate and type|4.16% svr|4.49%
repayment now|€895|€1,131
repayment from Jan|€1,450|€1,131
 
Alder said:
Two years ago we looked into gifting each others share of the houses, so that we would only have one mortgage each. That didn't work out as one bank was looking for a capital reduction of 50k, which was not feasible at the time.
Should I re-visit this again and pay the 50k (with a loan) and take sole responsibility for the other mortgage? Therefore if he can’t repay he is only affecting his credit rating.
.
Click to expand...

That sounds like an excellent plan, to pay off 50K and take responsibility for only one mortgage. Hope the 2 banks will agree to this. The worse he looks the less likelyhood there is for the banks to go for it. You need to think of it from the banks point of view. If 50K is paid off can he afford the mortgage?

You really need to try and sever your financial relationship with him or it will will drag you down and is already curtailing your options.
 
Property 1
Annual Rent: 9600 (if being rented for 800pm every month! Currently vacant)
Annual Interest: 10600 (895 X 12 = 10740)
Next month Interest is 1450 X 12 = 17400
Value of house: 170000
Mortgage remaining: 254000
Negative equity: 84K
Rent: 800 x 12 = 9600
Current Monthly repayment: 895 interest only (1450 from next month)
Monthly shortfall will be: 17400 mortgage - rent of 9600 = 7800 / 12 will be 650

Note: Shortfall will be worse because there are vacant periods and other items such as tax and costs to be considered. This also applies to property 2.


Property 2 - 9 months rental to students
Annual Rent: 10500
Annual Interest: 7500 but with capital it's 1131X 12 = 13572
Value of house: 160000
Mortgage remaining: 195000
Negative equity: 35K
Current Monthly repayment: 1131
Monthly shortfall: 13572 - 10500 = 3072 / 12 is 256 monthly

Solutions:

Sell both properties with the banks permission. Leaves a shortfall of 119K of negative equity. Would you and your friend be able to pay back 119K if it were at the same mortgage term and interest rate you are currently paying (this would have to be negotiated with both banks. I note you have 50K. You could reduce the 119K by the 50K and then it would only be 69K. Between two of you in permanant jobs this might be doable. You've not posted up your other assets or income etc.
 
Hi Alder

I have edited your first post to summarise the information, you provided yesterday.

This is very difficult. The bank lent to you jointly as it's more secure than lending to you personally. They are going to be very reluctant to let your name off one mortgage.


You have €84k negative equity with KBC. If you offer them €42k, they might let you take your name off that mortgage and leave him solely responsible for it. They might also extend the interest only period. Worth asking for, but I am not sure if they will go for it.

He would still be a joint owner on House 2. As there is €35k negative equity, he should give you around €17,500 for you to take full responsiblity for that house and mortgage. But would ICS let you take over responsibility for it on your own? I doubt it.

Maybe you should offer KBC €20k and ICS €15k to switch the mortgages into your sole names. That would be fair to both of you.

Brendan
 
Brendan Burgess said:
I have edited your first post to summarise the information, you provided yesterday.
Click to expand...

Well you've now lost all the work I did on it, can you get it back? If you cannot do that could you put back the way he had it laid out so I can rework it. I'm no good with tables.
 
Thanks for the advice. I'm wondering if selling Property 1 or giving it back to the bank and take the hit on the negative equity would be an option? We could live with Property 2 in joint ownership, but Property 1 just seems to be the straw that's breaking the camels back. It seems to be an endless pit of money and I can't see how holding on to it would make life any easier. Will that wreck my chances of ever getting a mortgage in the future though? Is it even an option? :confused:
 
Bronte said:
Well you've now lost all the work I did on it, can you get it back? If you cannot do that could you put back the way he had it laid out so I can rework it. I'm no good with tables.
Click to expand...

Apologies. I had misread your post. I thought you had just quoted the original post and asked for more information.

I have restored it.

Brendan
 
Alder said:
I'm wondering if selling Property 1 or giving it back to the bank and take the hit on the negative equity would be an option?
Click to expand...

I don't think that this will help. You will still owe the shortfall to the bank and they will pursue it.

You can ask them to do a deal, but I doubt that they will.
 
I don't mind owing the bank the shortfall, at least it would be a definite payment, not an uncertain monthly outgoing as it is at the moment.
I appreciate your advice on this matter and reading other posts I see that it is a recurring problem for people, with varying scenarios and situations!
Who could I discuss my problems with in detail? Is an independent financial advisor the best person or is it now a matter of engaging with each Bank in order to find a resolution (if such a thing exists!)
My fear is that with me being in a better financial situation, I will be left saddled with the debt. I'm even considering getting out a loan so that I can prove I have a monthly outgoing!
 
Focus on the profitability of these investments for the moment

Total|Property 1|Property 2
Annual20,000 rent|9,600{br}but vacant|10,500
Annual 18,000|interest|10,600|7,500
Profit|2,000|-1,000|3,000

Overall, this business is breaking even. Your revenue matches your costs. You are showing a small profit, but this will disappear in other costs.

From a cash-flow point of view, it is very negative

|Property 1|Property 2
Annual rent|9,600{br}but vacant|10,500
repayment from Jan|€17,400|€13,572
Negative cash flow|€8,000|€3,000

But don't forget that the capital repayment element is reducing the amount outstanding every month.

You have two problems

Firstly, you have an investment which is draining your cash-flow, even if it is not loss-making. The solution to this is to ask the banks to move to interest-only. If they agree, then the situation won't look too bad at all.

Secondly, you have chosen to go into business with someone who does not have the means of handling the downside. This doubles the pressure on you. Again, by going interest-only this equates your positions. By this I mean, that if you continue to make up his capital contribution, he will benefit from the gradual elimination of negative equity which you are making. If you switch to interest-only, then he will not be benefiting from your contributions.

You have to explain the position to both banks and ask them nicely to switch you to interest-only. If they decline, you may be forced to take unilateral action and move to interest-only. You should separately save up your "capital repayments" in a separate account and have them available for any future negotiations.

There is no easy solution and I don't think that selling the properties will improve your position.

In any event, you can forget about building your own home for some time to come.

Brendan
 
I think your idea to sell property 1 is something to be looked at. Currently your shortfall there monthly is a minimum of 650 Euro. Whereas on property 2 it's 'only' 256 Euro.

You need to forget about a mortgage for yourself for now. Instead you need to concentrate on getting out of this mess. Times are with you in the sense that banks are actually now dealing with these kinds of problems. But you have to approach them.

If you sold property 1 you'd have NE of 84K. If you were willing to pay off 50K of that out of your savings then you'd only have 34K NE to repay between the two of you that should be doable? Particulary if you negotiate with the bank that this does not become an ordinary loan but becomes a loan equal to your current mortgage interest rate and term. These thing can be negotiated. It depends on the bank but until you start talking to them you will not find out what solutions are out there for you.

I presume you and your wife are currently renting. I assume that your income is greater than your business partner because he is single. It would be easy to focus on how unfair it is if you pay 50K over. But that is the risk you took when you entered into this venture. Time to cut your losses as this is only going to drag you down further if you don't deal with it.

You mention that your partner has a mortgage on his own home. Is there any equity in that or is he in NE there too and what bank is it, would be good if it were KBC because it would concentrate KBC on letting you sell property 1.

You seem quite articulate so I don't see why you couldn't have a meeting with the banks yourself. Financial advisors cost money. Have you talked to your business partner, is he willing to sort out this situation too?

If you do talk to the banks you need to have a negotiating strategy. For examply initially you might not tell them you have the 50K. See what they propose as solutions. They will be harder on you if both you and your wife are good earners. That's the way it works.

You've not been asked are you PRTB registered and are you declaring the rent to revenue. And on AAM we tend to find that a lot of people in your situation have avoided incurring further expense. If you are not the situation is even worse.

(Thanks BB for putting back the post)
 
Bronte's post prompts another suggestion.

If you and your wife are currently renting, is there any possibility that you could rent one of the two houses yourselves? It may not be ideal, but if you could do this as a temporary measure, it might contribute to the resolution of the problem.

And what about your business partner? If he has equity in his home, could he sell it and rent or even buy one of the investment properties?
 
Thanks for the advice, a lot of food for thought and options suggested that I hadn't thought about. It is worth pointing out though that the 50k I mentioned in my earlier post is not in savings, it would require a loan.
Just wondering, (I don't know how ethical this is!), but would it be wise to take out a credit union loan (say 15k) just so that I can demonstrate that I have an outgoing with loan repayments? It grates on me that my partner is heavily indebted to his benefit and because I didn't take out personal loans etc, I now 'appear' to have a greater cash flow! My fear is that when we approach the banks to find a resolution, I have repayment capacity as I have no loans/additional outgoings. As petty as it sounds, I want to make myself look less strong financially
 
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