# 3 buy to let mortgages - unsustainable. personal insolvency route



## lizzy (20 Feb 2013)

Hi , I would like some advise on what anyone out there thinks we should do regarding unsustainable mortgages on buy to let properties. 

Situation as follows:
Myself & Husband and 2 young children.

*Incomes:*
*Husband:* self employed in the construction Industry. His work situation can vary from week to week but on average in the past year his income has been approx €1300 net per month.

*Myself :* I am employed in full time employment and current salary is €2769 net per month

*Child Allow* : €260 per Month


*Property 1 Family home. KBC*
Mortgage remaining €185000.
Term remaining 17 years
Value approx €350000
Repayments €1223 @4.25% SVR ( Due to increase to 4.5% in April)
We pay full interest and capital on family home. No Arrear

*Property 2 BTL KBC*
Mortgage remaining €189000
Term remaining  16 years
Value approx €120000
Repayments €770 @ 4.85% SVR ( due to increase to 5.1% in April)
We pay Interest only which is due to finish in April. No Arrears
Rent received €850 per month
OH €140 per month

*Property 3 & 4 BTL* ( Combined Mortgage) *KBC*
Remaining mortgage €370000
Term remaining 18 years
Value prop 3 €40/€50k Section 23 property
Value Prop 4 €120000
Repayments €1000 @4.85% SVR ( Due to Increase to 5.1% In April)
We are paying less than interest only as agreed by bank. No Arrears
Rent received
Prop 3 €300 monthly Longford Section 23
Prop 4 €750 monthly
OH- €280 per monthly


*Credit Union Loan*
Remaining Loan €2500
Repayments €500 monthly
Ends July 2013
Shares €5000

*Credit card*
€1000
Repayment €200 monthly

*Family loan*
€5000
Repayment €200 per month


Based on the above information I would like to know what the best solution is regarding the investment properties. At the moment you can see we are paying interest only on property 1 and less than interest only on property 3 & 4. We can clear the credit union loan from our shares and start paying interest only on property 3 & 4 but I don't think the bank will allow this because they will want us to start paying the full interest and capital from April. Based on the rental incomes and our joint incomes we will never be in a position to pay full interest and capital on any of the investment properties.

Last year the bank made us reduce our family home mortgage to interest only and pay interest only on all the investment properties but I wanted to pay the full interest and capital on our family home and less than interest only on the mortgage with the 2 investment properties assigned to it. They agreed after intense discussions because I was still paying them the same amount of money per month but I just wanted the payments allocated differently. we were paying them what we were receiving in rental income for the 3 investment properties. This meant we have to come up with the money for all Overheads associated with them.


Do you think we should try sell the 3 BTL properties and come to some sort of arrangement with the bank on the shortfall.we are willing to pay as much of the shortfall as we possibly can based on available funds.

Will the bank make us sell our family home because we have equity in it, or can they put a judgement on it for the shortfall.

Would we qualify for the PIA

All advise greatly received.


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## 44brendan (20 Feb 2013)

A quick overview of this situation and proposed remedy is as follows;
Net monthly income excluding rent is 4,329. mortgage is 1,223. Based on your family circumstances total living expenses (Bank standard) amounts to 2,900pm. This includes cost of running 2 cars, but no child minding costs. Pay off the CU loan from savings. Other loan repayments 400pm.
Net rental income is 1,580. Excluding the mortgage you have an ability to service the 2 loans at app 1,400 pm. 
Banks all now have a policy on BTL's known as MARS (similar to MARP). Policies are individual to each Bank but broadly if a borrower can meet a notional interest rate of 5% on BTL exposure they are generally prepared to agree a medium term repayment structure (up to 5 years) at this level. This would amount to a monthly payment of 2,330 in you case. You are well short of this figure. You may in time have to look at a PIA. This will involve a decision on your complete debts, including the HL. However based on your circumstances, this would appear to be the most appropriate option for you. No point in the Bank insisting on P&I repayments as you clearly have no capacity to meet this. IO is your best option until the new legislation is introduced.


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## lizzy (20 Feb 2013)

Thanks 44Brendan for your reply.

Just a few more questions I would like answered.

One of the BTL properties have a section 23 on it. If we sell this property the section 23 allowance which we have used up over the last 7 years will be clawed back and due to the revenue.Approx €15k This is because we don't own the property for 10 years. If this happens who would get priority from the sale proceeds. The bank or the revenue.

When the interest only period on BTL property 1 and the arrangement we have on BTL property 2 finishes in April what do you think we should propose to the bank. If we sell the properties, can we look to have some of the shortfall written off and try to service some of it over a number of years.
Under the PIA can we look to keep our family home which is a very moderate size home for 2 adults and 2 childern. 
Keeping our family home is our main priority.

If we went down the PIA route can myself and husband still be directors in the company we own and can my husband still work as usual.

All advise greatly appreciated.


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## Bronte (21 Feb 2013)

*Incomes:*
*Husband:* €1300 net per month.
*Myself :*€2769 net per month
*Child Allow* : €260 per Month
Total: 4329


*Property 1 Family home. KBC*
Mortgage remaining €185000.
Value approx €350000
Repayments €1223 
Equity 165

*Property 2 BTL KBC*
Mortgage remaining €189000
Value approx €120000
NE 69K

*Property 3 & 4 BTL* ( Combined Mortgage) *KBC*
Remaining mortgage €370000
Value prop 3 €40/€50k Section 23 property
Value Prop 4 €120000
NE 200

*Credit Union Loan*
Remaining Loan €2500
Repayments €500 monthly
Shares €5000

*Credit card*
€1000
Repayment €200 monthly

*Family loan*
€5000
Repayment €200 per month

________________________________

*What to do*

Pay off credit union. Frees up 500 Euro monthly. Pay off credit card, frees up 200. We are now up 700 Euro monthly. And still have 1500 in Credit union shares.

Sell family home releasing equity of 165K. Move into property 2. Already paying 1223 on home loan so this amount should easily cover interest and capital on Investment property 2?

With the 165K. Use 150 of that to pay off some of the mortgage on property 3 & 4 so 370K -165K leaves a mortgage of 205 K and negative equity of 35K.  Lower mortgage should be doable.   Pay off family member 5K, down to 10K for costs. Meanwhile you've freed up another 200 monthly on the family loan so total monthly salary increase is no 900 to 'subsidise' property 3&4. 

Lizzy I cannot see any issue whatsoever in relation to your financials? There is no way you're going to get debt writeoff unless I've made an error with the figures. One thing I have not looked at is whether any of your investment properties should be kept. You can easily manage a mortgage, I've shown you how to repay all debts and have an increased income.

I await your arguments on why the family home is a priority and why property 2 or indeed 3 or 4 is not equally as suitable?


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## Dr.Debt (21 Feb 2013)

You're not in such a bad situation. Continue with interest only for now.

I have a feeling that the world will look a lot different in five years time.There's no point in making drastic selling decisions now in such a frail market.

In the end of the day it depends on how agressive your bank gets. If the bank is pushing hard, then I would start looking at a PIA. The bank will probably be able to veto any proposal under a PIA but at least the PIA process should slow things down and it will make the bank back off for a while.


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## lizzy (21 Feb 2013)

Hi Bronte,

Thanks for for reply, but I am slightly confused by your suggestions.

You suggest we sell our family home and move into property 2. This is not an option because all 3 BTL properties are not in the same county which we live in. Myself and my husband would not be able to travel this distance to work, and we also would have to move our childrens schools. Also property 2 is a very small 2 bedroom house. We have never been able to rent to a family of 4 due to its size.

Also you seemed to have missed that we owe €370000 on property 3 & 4 and are valued at approx €160000. The negitive equity on these 2 properties is €210000 & Section 23 clawback of €15000.

We owe in total, including our family home €744000 and the value of all properties is €630000. So total negitive equity on 4 properties is €114000. When I break it down like this it doesn't sound too bad, but the reality is we will never be in a position to pay the full interest and capital on the 3 BTL properties, so we need to review our situation as soon as possible and stop kicking the can down the road.

Myself and my husband are now 40 years old and we want to clear this mess up because the constant worrying is effecting my health.

We really do want to pay as much of the debt as possible and keep our family home. 

Dr.Debt , surely the bank will see all 3 BTL mortgages are unsustainable.We are afraid that if we have to keep pumping money into the BTL properties we eventually wont be able to pay the mortgage on  our family home.
As previously mentioned my husband is self employed in the construction industry so his work is never dependable.


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## Bronte (21 Feb 2013)

Sorry Lizzy I didn't double check.  I'll go back and fix it.


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## Bronte (21 Feb 2013)

lizzy said:


> You suggest we sell our family home and move into property 2. This is not an option because all 3 BTL properties are not in the same county which we live in. Also property 2 is a very small 2 bedroom house. We have never been able to rent to a family of 4 due to its size.
> 
> .


 
How far are the 3 properties away from you ? How come you're able to get such a high rent for a 2 bed property at 850 Euro rent? Can you describe the size and type of each of the investment properties?

Also for each of the rentals can you re do them and write how much a full mortgage would cost.  Can you clarify what a combined mortgage means in relation to property 3&4.


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## lizzy (21 Feb 2013)

Hi Bronte,

Property 2 and 3 are approx 200km away from where we live.They are very small but very rentable because they are just off a main street in a busy seaside town. Property 4 is in Longford which is a 2 hour drive from where we live with a rental income of €300. This property is really our problem. We bought for €180k in 2006 and now worth €40/50K. ( Section 23 in Longford) 

All propertes are 2 bed townhouses. The one in Longford bigger than the other 2 but rental income a lot less.

*Property 2 BTL KBC*
Mortgage remaining €189000
Term remaining 16 years
Value approx €120000
Repayments €770 @ 4.85% SVR ( due to increase to 5.1% in April)
We pay Interest only which is due to finish in April. No Arrears
Rent received €850 per month
OH €140 per month
Full Mortgage repayments Int & Cap €1438 approx ( I will need to double check these figures )

*Property 3 & 4 BTL* ( Combined Mortgage) *KBC*
Remaining mortgage €370000
Term remaining 18 years
Value prop 3 €40/€50k Section 23 property
Value Prop 4 €120000
Repayments €1000 @4.85% SVR ( Due to Increase to 5.1% In April)
We are paying less than interest only as agreed by bank. No Arrears
Rent received
*Prop 3 €300 monthly Longford Section 23*
Prop 4 €750 monthly
OH- €280 per monthly
Full mortgages repayments Int & Cap €2805 approx ( will also need to double check these figures )


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