# Interest only to Capital on rental property.



## jammacjam (5 Mar 2011)

Family member has asked me for advice. I dont really know what to tell them. There doesnt seem to be any way out of this? They are in negative equity at the moment in a rental property they have. 

The dreaded letter came changing from Interest only to capital. Their  bank have stopped all interest only .They bought in 2006 for around 400,  house is maybe if you are lucky worth 250 maybe nearer 200. on interest  only at the moment of 1k if it changed to capital it would be over 2K.  They can pay this, as its rented out, but is there any real point.
Are they just throwing good money after bad. Do you just sell it but  where do you get the difference. What do you do in this situation?


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## Knuttell (5 Mar 2011)

What age are they?

Are they financially well off?can they carry this debt comfortably?

Is the property in a good area within the M50?

Can they pay off this debt or will cap/interest repayments cripple them?

Need more detail.


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## jammacjam (5 Mar 2011)

Knuttell said:


> What age are they?
> 
> Are they financially well off?can they carry this debt comfortably?
> 
> ...



They are late 50s. 
Ok area. Just outside the M50 but beside train station. 
The cap interest will be a drain but not criple them..
Sorry about lack of detail


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## Brendan Burgess (5 Mar 2011)

Hi Jam



> Are they just throwing good money after bad. Do you just sell it but   where do you get the difference. What do you do in this situation?



They have a mortgage of let's say €350k on a house worth €200k. That is a problem, but it depends on their other wealth. If they have equity in their home of €150k, then they are solvent. 

That is the risk people took with property investment. It was not a one way bet. 

This is not an issue of throwing good money after bad. They owe €350k and they have to repay it. They may as well start now.  It will slowly reduce the negative equity on the property.

Should they sell the property? The lender will only allow them sell it if they have a plan to deal with the shortfall. 

If it's a cheap tracker, they may at some stage be able to do a deal and get a reduction in the mortgage if they transfer it elsewhere e.g. onto their home.


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## theoptomist (5 Mar 2011)

Brendan Burgess said:


> Hi Jam
> 
> 
> 
> ...


 They dont need a lecture. What is the point in just existing to repay a mortgage on a house, doing what the government should have done when they had the money, housing families who cant afford homes.
They should talk to the bank to keep them on interest only and keep their tracker until such a time selling the house is viable.
Letting houses is stressfull, maintanence, insurance, and not to mention bad tenants if lucky enough to have them.
I know they borrowed the money but the banks have to take part of the responsability, they lent recklessly and should not just be able to squeeze people when they feel they need too.


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## badbob (6 Mar 2011)

I agree totally with previous post!!!!


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## oldnick (7 Mar 2011)

Yes, agree as well. Very sad to see our guru Mr BB adopt such a hardline pro-bank attitude with poor people in debt . This "serves them right" attitude is very disappointing.


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## Knuttell (7 Mar 2011)

oldnick said:


> Yes, agree as well. Very sad to see our guru Mr BB adopt such a hardline pro-bank attitude with poor people in debt . This "serves them right" attitude is very disappointing.



I did not pick any pro bank tone from the post,its a matter of simple fact,borrowed money must be repaid,it these strange days we find ourselves in,the only ones picking up defaulters debt is the tax payer,thats you and me...

I never borrowed one cent of money that I personally did not stress test to the nth degree to ensure I could repay in any given circumstance,I just wish people would take more responsibility for their actions,I am no fan of Banks,never have been but they didnt hold a gun to peoples heads and force them to take out ridiculous loans.


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## oldnick (8 Mar 2011)

Well, they may not have forced people to take out ridiculous loans but the facts are that the banks did make ridiculous loans, the banks were/are the supposed experts whose top employees earned obscene amounts, and the government appeared to support their actions.

In society people heed the advice of those who are experts in a certain field - doctors, lawyers, bankers, governments etc etc.
If those experts tell people that they should invest in a product -and by their actions the banks certainly did so advise -then surely the banks share the responsibility ? 

That is why in in some countries like the USA when one defaults on a house loan then all the bank can do is take the property back and not chase the defaulter for the balance. It is accepted that the bank shares the risk with the client.

Whilst i admire your wisdom and caution in carefully checking everything,  there were many people who ,through advice ,indeed pressure, from the banks, government etc were made to feel that had to borrow  -before-its-too-late take-all-this-money we're throwing at you.

One could argue that, metaphorically, the banks were almost holding a gun to their heads. That may be going too far, but  to tell those people now that a debts a debt and you must give the banks what they want is being a bit one-sided .

Actually the OP's case is not a serious one. They can manage - but there are so many many people in this country who can't .
Blaming only the people,  and not the banks as well,  doesn't seem right.


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