# KBC says to sell the House; but a reduced rate would pay the bank back in FULL



## arknine (31 Jul 2013)

*Age: 40 
Personal and income details
Net Income: *€3,250 (PAYE - Basic wage) but I can work overtime (not guaranteed) and net approx €3,600 - not sure if o/time is sustainable into the future
Number of children: 1 (Shared Parenting - lives with me 3 days a week) 
Amount of child benefit received: €0 - her mother claims this 
Amount of Mortgage Interest Supplement received €75 (due to expire this year) 

*Home loan
*Lender: KBC
Amount outstanding: €425,000 borrowed - currently €464,000 due to 4 years of less than interest only
Value of home: €250,000
Interest rate:      SVR (4.5%)
Monthly repayment: €1740 interest only €2400 annuity
Amount in arrears: €5,000

*Summary of discussions and agreements with the bank:*
In MARP - KBC have been offering less than interest only repayments of €1,000pm. In Feb'13 they advised they were no longer going to extend less than interest only - and that I was to seek to sell the house. I appealed this decision and it was overturned but they advised that I was to revert in July with alternative proposals/options.

*Other loans and creditors *
€40,000 in short-term debt that I am repaying at €200pm. I was made unemployed in 2009 and was out of work for 12 months - all the short-term creditors have access to payslips and statements and are ok with the current arrangements

*Other savings and investments 
None

How important is retaining the family home to you? 
*
I really want to keep the family home. However I will get rid of it if it means I can get rid of the mortgage associated with it. 

*Any other relevant information

What is your preferred realistic outcome? 
*If the mortgage rate was permanently reduced to 1% I could afford to pay the full annuity repayments and repay the money I borrowed by the end of the term. KBC keep refusing to consider this as an option because they say this is not something they offer to customers. 
Basically they are willing to impose a loss of €220k on me and themselves, instead of offering a reduced rate. 

I would consider a split mortgage - however would require a 50/50 split with 0% on the warehoused part. This again is not something they can offer.

I am seriously considering bankruptcy at this stage.


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## Brendan Burgess (31 Jul 2013)

Hi arnknine 



> If the mortgage rate was permanently reduced to 1% I could afford to pay  the full annuity repayments and repay the money I borrowed by the end  of the term.



This proposal shows that you really don't understand how mortgages work or the time value of money. Putting it to the bank is pointless. In fact, it's worse than pointless - they won't take you seriously at all. 

€1,000 is way too low to be acceptable. 

You could propose a split mortgage €300,000 @ 4.5% over thirty years would cost you €1,500 a month which you could afford.  They would warehouse the €125,000. 

The alternative is to go to a Personal Insolvency Practitioner and apply for a Personal Insolvency Arrangement. But it would have to be realistic.  

If I was in your shoes, I would sell the house and try to do a deal on the shortfall.  You could be debt-free in a very short period.

Or sell the house, and go bankrupt and be debt-free in three years. 

By the way, this makes no sense either



> *Other loans and creditors *
> None - there is about €40,000 in short-term debt that I am repaying at €200pm.



Why do you say "none" if you ower €40,000?  

You could get this written off as part of a PIA, DSA or bankruptcy. 

Brendan


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## dereko1969 (31 Jul 2013)

http://www.revenue.ie/en/tax/it/credits/one-parent-family.html

Are you claiming the one parent family tax credit? If not, do so, and claim for back years too.


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## arknine (31 Jul 2013)

Hi Brendan - I wasn't offering €1000, this is simply what the restructure had been.

Sell the house - the bank would receive of €240,000 after disposal costs so 
PV of the recoverable capital = €240k

Repayments of €1500 =  reduced rate @1%  €464k over 30yrs  NPV of that (using SVR of 4.5% as discount rate) = €297k

The NPV of the Split would work out more advantageous for the bank as  the warehoused portion would need to be settled (but discounted back for  PV also) - 
NPV for the repayment stream of €300k @ 4.5% is the same for €464k @1%


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## arknine (31 Jul 2013)

Hi Derek - I am claiming this and it is reflected in my Net Income figure - thanks for the advice - would have definitely helped if i could claimed the back years as well!!


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## Brendan Burgess (31 Jul 2013)

Hi arknine

So you do have an understanding of the time value of money. 

What I find odd is that you are asking for a permanent reduction in the interest rate. I can't see why on earth they would do that. 

The split seems to be the best option, and it's a pity you didn't put that to them at the start. 

In fact, if you can pay €1,500 then they should just put you on interest only for the remainder of the loan. that would be €1,500 per month. Over time, you can increase repayments or house price increases may evaporate the negative equity.  Unfortunately, the CB says that is not a sustainable solution.

You should make sure to pay the interest in full every month. They will probably not start repossession proceedings if you do that.  If they do , the court will probably not give them repossession.

Brendan


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## ClaireM (31 Jul 2013)

Asking for a reduction in interest is not unreasonable. It is one of the options available under the CCMA.

Under s.40 CCMA the bank are required to consider all the options listed under s.39 including a reduction in interest, split mortgage, equity participation, reduction in principal etc. They are required to document their reasons for rejecting each of the options.

Write and request the documentation showing their reasons for rejecting each of the possible options and then at least you know what you are up against.


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## Brendan Burgess (31 Jul 2013)

> If the mortgage rate was permanently reduced to 1% ...



Is completely unreasonable. I don't think that the CCMA obliges any lender to offer any particular solution. 

To the best of my knowledge, Ulster Bank is the only lender which is offering a reduction in mortgage rates. When they do it's for 5 years, and not a permanent reduction.

arknine's mortgage is unsustainable by most people's criteria. 

If he wants to keep the house, he should come up with a solution which is reasonable and then there might be a chance of it being accepted. Coming up with an unreasonable solution cuts off the discussion. 

While I agree in principle with asking the lenders to justify their decisions, where their decisions are unreasonable, they should not be asked to justify their decision to reduce the rate permanently to 1%. Pushing this "legalistic" point is just making it more difficult to find a resolution of the issue.


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## ashambles (31 Jul 2013)

On this scale of loan a bank will lose circa 300,000 in interest over a 30 year loan by offering 1% instead of 4.5%.


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## arknine (31 Jul 2013)

Brendan - Would it not be more reasonable for a bank to commercially  assess if the NPV  of a medium/long term solution provides a more  economical resolution than Repossession or Bankruptcy


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## arknine (31 Jul 2013)

ashambles - they would lose 50% of the current principal balance plus all future income if they seek the sale of the house now. Whereas by reducing the rate permanently they get back every penny that they lent, plus nominal interest (which works out at 25% greater return on a risk-adjusted NPV basis)


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## ClaireM (31 Jul 2013)

Brendan Burgess said:


> Is completely unreasonable. I don't think that the CCMA obliges any lender to offer any particular solution.



It does oblige them to consider options though.

s.39 CCMA 2013 requires the bank to consider each of the options that it offers for each case s.40 requires the bank to document the reasons for not offering each of those options.

My understanding of these sections is that if a bank is offering a solution such as lower interest, split mortgage, principal reduction to anyone then it must consider it for everyone and document the reasons for not offering each option in each case.


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## ang1170 (31 Jul 2013)

arknine said:


> Whereas by reducing the rate permanently they get back every penny that they lent, plus nominal interest (which works out at 25% greater return on a risk-adjusted NPV basis)


 
Not true - they run a substantial risk (based on the loan history) that they won't get "every penny back".


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## arknine (31 Jul 2013)

Claire - I can;t post a link - But Google the following "Draft Central Bank Internal Guidelines Sustainable Mortgage Arrears Solution"


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## arknine (31 Jul 2013)

ang1170 - if it re-defaults - principal would have been paid down to point of default and asset value hopefully increased. If they terminate the loan now - then they choose the worst economic option.

Based on loan history - I was made unemployed in 2009 and when I found a new job it was at 30% of my previous salary - I have fully disclosed and engaged with the bank in every instance.

The fact is the loan is currently unsustainable on current terms, which is no ones fault. Compounding the problem by forcing a loss now at the bottom of the market seems unnecessarily short-sighted when the terms could be amended


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## Brendan Burgess (31 Jul 2013)

> s.39 CCMA 2013 requires the bank to consider each of the options that it offers for each case



That is the point I was trying to make. "each of the options that it offers". No bank offers permanent interest only reductions which is what arknine requested.

He should request long term interest only. 

Brendan


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