"Unsustainable mortgage"

Posted by user "needtodo" but is being automatically moderated for some reason.

Hello
I would really appreciate some advice.
My husband and I have a mortgage of 540k. We are in arrears of 3k. House worth 290K now. We are currently on our 3rd temporary arrangement (which we have always adhered to). The mortgage is with Ulster Bank, fixed interest rate 4.95%.
The repayments each month are €2,500. We have 37 years remaining on a 40 year mortgage term. Our TRS will finish this year and we come off the fixed interest rate this year (further increasing the repayments) We also have a credit union loan €6k and credit card bill of 3k and over draft of €8k. Combined income is 70k.

I am self employed. Income has reduced by 60%. Husband is in employment. We cannot and will not ever be able to meet the mortgage repayments. We now have 3 children (triplets) so I cannot actually afford to go back into full time employment (it would cost €1,850 to have the minded). We live in the country (Carlow) so we both commute to Dublin. Both our jobs require that we have our own transport. We sold one car but cannot sell the other as we need it. It is a 2003 so the tax is high. Fuel costs, maintenance etc is high - but we need a car for work. We use public transport when we can. The cost of actually going to work is disproportionately high but we cannot give up work or find a job in Carlow/locally.

My question is what do we do? The mortgage is unsustainable. I know an option is to go to the UK and declare ourselves bankrupt. I also know that the Personal Insolvency route will be available mid year - but what realistically will they do for someone like us??
My husband is of the view that I am on drugs to think that the bank will ever write off a portion of the debt for us as we have earning potential (i.e, I will return to full time employment in a number of years and my husband is a professional in employment earning). I dont want to be at the mercy of the mortgage debt for the rest of our lives. We cannot even afford a pair of shoes at the moment. I have cut all unnecessary costs etc. Renegotiated loans with credit card co, credit union etc). The house has a lowest energy rating so costly to run too. I did love it but after 4 years of worry, love does not come into it anymore.
It wont sell - we have it listed since 2009.
So we cant sell the house - no one wants it, the car - we need it, plus we would only get 3k for it and then have no way of getting to work. We have no saving, assets etc.
I know we were idiots.

Many thanks for your time.

Hi needtodo

First of all, I don't know why your posts are being automatically moderated. I have left them "awaiting moderation" as I want to investigate it furhter. Hopefully, you will be able to reply to these posts.

Your mortgage is €540k and the UB SVR is actually 4.5%, so your repayments will come down a bit when the fix is over. The interest on your mortgage will be around €2,000 per month. From the sounds of things, you cannot afford to pay any more than this, so you ask the bank for interest only. If they don't agree, then just switch to interest-only anyway.

Check your mortgage agreement. Is there any chance that you are entitled to a tracker when the fixed rate ends? Don't rely on what Ulster Bank tells you - check your documentation. A lot of UB customers have got trackers when they were told that they were not entitled to them.

It's hard to know if UB will do anything for you. You are able to meet the interest, although with a struggle, so it's unlikely that UB will agree to anything else.

It's possible that a Personal Insolvency Practitioner might put a proposal as follows:
1) Write off the negative equity
2) Reduce the unsecured debt by 50%
3) Pay the reduced mortgage over 40 years and pay off the unsecured creditors over 6 years.

If you stick to that schedule, then the negative equity would be written off after 6 years.

UB can veto this proposal. We don't know how they will react.

An alternative would be to hand back the keys and rent a house in Dublin closer to work.

You would then enter into a Debt Settlement Arrangement. UB could veto it, but they might not see any point in vetoing it.

So check your mortgage to see can you get a tracker.

If not, put a proposal yourselves in writing to UB to split the loan into €300k serviceable and €240k suspended. Alternatively offer to hand back the keys.

Brendan

@Brendan, does it allow to Write off the negative equity if person go through the PIP?

I dont think there is any appetite among banks , as yet, for writing off this type of mortgage debt. Your income is actually quite good and your unsecured debts are not that unusual or unmanageable

I think your best route is through direct negotiation with your bank.
As was said already, if you could get them to agree to suspend half the mortgage debt and you agree to service the other half, your immediate cash flow difficulty will be solved.

If the banks will not listen, I would then be inclined to go the "Personal Insolvency Act" route. The Act places special emphasis on trying to keep debtors in their homes. If the bank choses not to consent to the Insolvency Practioners proposal, I think it will strengthen your hand if you finally end up in court.

@Dr.Debt, is there a guideline how to start ''Personal Insolvency Act'' route (step by step)?

The PIA was passed into law at the end of 2012, however it wont go live for a number of months yet.

Within the act there are several routes that a Debtor can take covering secured debt, unsecured debt and bankruptcy

The 1st step will be to appoint a Personal Insolvency Practitioner who will be responsible for guiding you through a fairly lengthy process.

If you want a blow by blow account of what is involved,you could attempt to read through the Act itself or alternatively, there are several summaries contained in the Personal Insolvency Bill section of this website

Dr.Debt said:

The PIA was passed into law at the end of 2012, however it wont go live for a number of months yet.

Within the act there are several routes that a Debtor can take covering secured debt, unsecured debt and bankruptcy

The 1st step will be to appoint a Personal Insolvency Practitioner who will be responsible for guiding you through a fairly lengthy process.

If you want a blow by blow account of what is involved,you could attempt to read through the Act itself or alternatively, there are several summaries contained in the Personal Insolvency Bill section of this website

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the goal would be to keep the property, get the negative equity written off and then continue to live (however with a lower debt).

Would the Personal Insolvency Bill be a good resource to sort these issues?

You could aim at having debt written off but I cant see this happening apart from,in very extreme cases where there are very few assets and little or no income and little prospect of future change in circumstances.

Just remember that proposals made under the Personal Insolvency Act will (in most cases) need to be agreed to by the bank who holds the mortgage on your house.
The proposal will need to be reasonable and realistic. If you propose wide scale write offs of your debt, the most likely outcome is that the bank will veto the proposal.

Reasonable proposals will have some chance of success. The skill and judgment of the PIP who is designing the proposal will have have a large bearing on the outcome.
The banks will only agree to proposals that are in their best interests. If the bank is likely to get a better result by going a different route, then the expectation is that the bank will go that other route.

The Government are committed to introduction of the new Insolvency Legislation by the commencement of Q2 2013. However PIA will have no real impact for these clients. Dr Debt is correct in that the Bank could not realistically decline a reasonable proposal and then expect the Courts to listen to them if they commenced proceedings.
In reality the Bank will be satisfied for at least the medium term if the clients can continue to cover interest on the mortgage. In terms of "PIA" clients would be entitled to reasonable living expenses before any repayment capacity is calculated. This is another outstanding issue to be decided by the Insolvency Director (Lorcan O'Connor). Also unfortunately, the new legislation will not force banks into agreement to a W/O of unsustainable portion of mortgages (the legislation is not designed for this purpose).
The potential for UK bankruptcy remains for the moment, but would be difficult where both parties are in employment in Ireland. The EU are proposing to bring in legislation in the short term to cut-off the relaxed "COMI" rules, which facilitates bankruptcy tourism.

44brendan said:

The EU are proposing to bring in legislation in the short term to cut-off the relaxed "COMI" rules, which facilitates bankruptcy tourism.

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when is that due to become a real problem (for people)

Insovency accountant recently advised that EU were tightening this loophole. Expectation is that activity has commenced to introduce the required legislation and it should be in place prior to the end of the year.

certain people (outside EU) mentioned that there are no written formulas in any of EU country laws (Include the UK and it's bankruptcy regime).
Rumour is that the UK bankruptcy will not really let the Irish people get off the hook (there is a point that Irish banks may not accept UK Judgements) and once people return to Ireland (from UK after discharge in UK) they may face troubles from Irish banks (at certain point (after many years), thus when the very same people become financially sound) as no line in UK bankruptcy laws clearly states that the Irish debts are fully cleaned by this bankruptcy.

Returning to your answer: does it mean that current ''tourists'' may need to make up their minds within next 10 months to commence such routes? - by the end of this year.

I'm concious of not taking this post off topic, but essentially that is what it does look like will happen.

Does it mean that UK bankruptcy judgements can be nullified by Irish Courts (based on the applications from the Irish banks)?

Could you please provide any link or some sort of reference to what was told in post 9

It isn't at all clear if the OP wants, or should want, to retain the current home.

The OP is undertaking an arduous and relatively expensive commute. Having read the initial post my initial reaction was they would be better served by seeking out somewhere to rent closer to work. Maybe get a 2-3 year lease on a house at a reasonable rent and start to recover some quality of life.

Many thanks for your replies. Brendan I remortgaged 5 years ago and agreed to give up the tracker then - is it still possible that we may be entitled to it? I will get out the paperwork and check in any event.
We are not even paying the interest. We are paying 1,300 per month. The only frills we could stop paying are income protection - 92 euro. I could also sell my engagement ring and wedding ring and clear the credit union loan. This would free up another 250 euro pm.
From reading the replies I am forming the view that we could put a long term proposal to the bank now (perhaps with the assistance of a suitably qualified person), instead of waiting for the Act to become operational. Assuming it is fair and realistic, if it is refused then perhaps we can then utilise the act or indeed go to the uk.
Is there any guide from the uk on what reasonable living costs for a family of 5 are?

Meant to ask - who could help us to put a realistic proposal together - an accountant with insolvency experience?

Before you decide to hire anyone it is not exactly clear what it is you want? Some ideas

1. Leave the house and move to Dublin and let the bank come after you

2. Negotiate with the bank a write down of the mortgage to a sustainable level on a salary of 70K

3. Continue paying 1300K a month and forget about it until the new insolvency regime

4 Go to the UK, losing your job, but you'd be debt free within a year or so but could start again.

Could you give us an idea of your income and expenditure, so far we've 1300 Mortgage and 250 Credit union.

Do not sell your rings, you'll only regret it, in any case it's not necessary and is a sign of someone in despair, you might need help for that, and triplets is not easy. Can you try and tell us what would be the best for you.

Not trying to go hard on you but you mentioned being tied to a mortgage forever, you did sign up for a 40 year mortgage, when people do this, this is exactly what they do. That's why on here I'm forever warning people not to get long term mortgages. I'm just pointing this out again to people who are currently thinking of borrowing long term.

I imagine you cannot see the wood for the trees at the moment so if you could just focus on the I & E on here we might be able to give you some better ideas.

Where are you getting the value from for the house?

Hi Bronte

Thank you for your reply.

This is the list of our monthly bills:
House insurance – 60
Car insurance – 40
Car tax – 76
Mortgage (2,500) – 1,380 (temporary arrangement)
Heating – 170
Life insurance – 90
Car maintenance – 208
ESB – 100
Phone – 100 (this includes broadband for work)
Household charge – 8.33
Credit union loan – 250 (minimum payment)
TV Licence – 13.33
Doctor – 50
Credit card min payment – 70
Childcare – 650
Diesel – 400 (commute from Carlow to Dublin each day)
Income protection – 92
Food etc - 700

Total - 4397

Combined income plus child benefit = 3,998

Some bills are high – such as the car but we cant sell it or afford to change to avail of the cheaper road tax.

Both our families live in the same area. We don’t want anyone to know of our financial problems. Yet I think this now looks inevitable. Equally, we don’t want this financial misery over our heads until we are 77 years old.

The house was valued by an Estate Agent at 290k as it is unfinished. We think we could get 330k for it.

What do we want to do in order of preference?

1. Remain in our home and negotiate with the bank a write down of the mortgage to a sustainable level. Fantasy?????

2. Personal insolvency legislation – if we are eligible –a write off of some of the debt. Remain in our home.
3. Negative equity trade down – to a smaller, more economical house – closer to work, with some write off on the negative equity.
4. Voluntary surrender with some debt settlement.
5. UK – Bankruptcy.
6. Split mortgage.

AAM is fine for general information and broad outline on issues. However, you need specific guidance in respect of your own circumstances and in putting together a proposal for dealing with your debts. I.e. you need the guidance of an experienced practitioner in this area. MABs, appears to be totally overburdened at the moment and can be hit or miss on whether the advice they give is best possible.
You need a reference to a good accountant who specialises in this area. Perhaps someone from AAM could point you towards someone in the Dublin/Carlow area, who can provide you with proper advice at a reasonable cost!