# Sell house to clear debts?



## gellert (21 Feb 2011)

Married with 3 kids (5,4 & 3)
1 income: approx 2200 p.m 
My income fluctuates as I am basically part-time (can be as low as 1400)
(Salary reduced from 3000 since 2009 when I was full time)
I get some JSA if I am not working very much, but this will run out in 5 -6 months
Wife lost her job.
Mortgage: 31 years left, 252000. monthly repayment 1187
Value of house: 300000??
two cars - 7 years old and 13 years old
Unsecured loans:
AIB: 40000 - 499 monthly repayment (bank seeking full repayment)
PTSB:7000 - 190 monthly repayment (bank seeking full repayment)
Credit Union: 14000 - 320 monthly repayment
credit card:1200 (bank seeking full repayment)
trade creditor: 8000

I am keeping up the payment on my mortgage and the credit union loan (I have some rental income that allows me to pay the credit union), however the AIB and PTSB are seeking repayment of their loans as I have not been able to make repayment since last August. I have gone to Mabs and we are paying 200 euros pm towards those loans. 

We have reduced or cut our items where possible, e.g. got rid of health insurance, gone to basic form of life insurance, cheap telephone package, pre-paid mobile etc. Our money goes on paying the mortgage and paying for the essentials - food, electricity (monthly bill 70pm), clothes for kids, oil etc.

I feel we should sell the house (if we can) and pay off the mortgage and our unsecured creditors. We could rent a similar house for less than the current mortgage.

As I said, two banks are seeking repayment of approx 47000, how long before this goes to court? If we improved our finances (new job) and were able to offer the agreed repayment, would this make a difference? Or do we just have too much debt.

We were foolish. I would appreciate any advice. Thanks.


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## callaghanj (21 Feb 2011)

What did mabs have to say?


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## gellert (22 Feb 2011)

Mabs have been very good, but I have not raised the issue of selling the house with them yet. In regard to the unsecured creditors, their line is that our circumstances are now different and under the code of conduct agreed with the banks, they should agree to reduced repayment on a temporary basis.


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## Bronte (22 Feb 2011)

Where is the rental income coming from?


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## Brendan Burgess (22 Feb 2011)

I would be reluctant to sell the house. I assume it's in the right area? I assume that you, your wife and kids have put down some roots and like living there? 

What interest rate are you paying on the mortgage? If you have a cheap tracker, then this would be another argument for keeping it.  I calculate that you are paying 4% which I assume is a standard variable rate. 

By making the full repayments, you are actually paying off capital of €3,600 a year which is not a good idea. As this is likely to be the cheapest loan, you should seek a 12 month full moratorium. This would enable you to reduce the balance outstanding on your more expensive loans. You won't get it, but you should get a 6 month moratorium.

You have €70,000 in non-mortgage loans. This seems huge now that your income is low. But it will be more manageable when your income improves. 

If you have a rental property, presumably you should be selling that. 

If you are making some payment on all your loans, and MABS is working with you, it's unlikely that the banks will take legal action. If they do, they will get a judgement but what can they do with it? 

It's probably little consolation to you, but, while you position is bad, there are many others in huge negative equity, who would be delighted to be in your position where your assets match your liabilities, just about.


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## gellert (22 Feb 2011)

Thanks for the reply Brendan. I am not on a cheap tracker, but a fixed rate of 5.2%. I asked for a moratorium before and was told that this is not available as I am on a fixed rate. At the end of the tax relief (in 3 years I think) we will be paying 1400 pm.

The rental income comes from a flat that is part of my house, so it's not sellable.

The banks have not taken legal action yet, however AIB wrote to me requesting full repayment of the 40000 and have imposed a blended interest rate that comes to 16% apr!

My parents own a very nice house five minutes away that I am to inherit. I feel we should offer my parents the market rent for a few years (less than our current mortgage) to allow them to pay off their small mortgage.

I just fell we have too much debt. We can’t save and have no rainy day fund.  I work in the public sector and it will be many many years before my income increases to anything like it used to be. I have taken all the public sector reductions, plus I had a reduction in my hours. I am not complaining. I was foolish. I just want to do right by my kids. At the moment, I can't even give them swimming lessons or take them to the cinema. What kind of a childhood can we give them if we are debt slaves for the next 30 years?


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## Bronte (22 Feb 2011)

The 200 that you are paying via Mabs, is this less than the 'agreed' amount? Is that why the bank is taking you to court. 

Anyone with 3 young kids and a new mortgage has to struggle at the beginning. The early years of a mortgage are always the toughest. 

Just because you can't take the kids swimming or to the cinema is surely not important or necessary for children 5 and under?

Plaintly speaking what you seem to be saying is that it's tough, I've run up debt, I want an out, an easy out is to take from my parents. What about the ramifications for your parents of losing their savings (in the other house). You have admitted you were foolish in the past, as can be the case when one is young, but also you have lost wages, your spouse a job and you've taken a salary drop so naturally you're finding it tough, plus 3 kids so close togeether. What you have not said is what the debts were run up doing and are they still being run up. That may be more important to tackle. Also maybe you should redo all your outgoings and income to see if others can spot where you can make savings. And can you tell us what happened with Mabs. 

What is a 'blended' interest rate. Is your mortgage with AIB or PTSB. Have you engaged with your lenders. 

Without all facts and figures it may be that moving to the other house is a good option.


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## gellert (22 Feb 2011)

Thanks for the reply Bronte.

The 200pm that I pay via Mabs is the agreed amount. The banks are not taking me to court yet, but is this is not the final outcome of not being able to make the full repayments? How long will they take the reduced amount?

I don't want my parent to give me the house for nothing, I would pay them the market rent and would do so for 5 or 10 years, whatever they want. Currently it's empty and costs them money finding tenants and upkeep. The agreement was that I would inherit this house, I never put any pressure on my parent about this and still don't. I am not looking for a bail out. 

The mortgage is with Ulster Bank. The unsecured debts were run up paying off for the construction of our house - I hoped to remortgage, but obviously that became impossible. The "blended interest rate" is made up of 12% surcharge interest and 4.835% variable (16.835%).

I've no problem struggling, I don't need a fancy car (I have a  13 year old astra) or fancy holidays. I just want to do right by my kids. I feel I am being too proud about my house, if I can't afford to live in it I should sell it and try and pay back my debts. I am especially worried about the 8000 I owe to someone who worked on my house - I want to pay him this money.


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## Brendan Burgess (22 Feb 2011)

> I asked for a moratorium before and was told that this is not available as I am on a fixed rate.



You should not have been told this. When were you told this. Check out the Mortgage Arrears Code and go into Ulster Bank with it. You might not get a moratorium, but you should get your loan reduced to interest only for a period. 


Given that your parents have a house nearby which you may eventually own, then it does make sense to sell your home and pay off your debts. 



> The unsecured debts were run up paying off for the construction of our  house - I hoped to remortgage, but obviously that became impossible. The  "blended interest rate" is made up of 12% surcharge interest and 4.835%  variable (16.835%).



This is an interesting one. The Financial Regulator is trying to stop penalty interest on mortgages. While the personal loan is not a mortgage, you could argue that as the money was borrowed to build the house, it should be treated the same. 

The 12% surcharge on a loan with a rate of 4.8% seems disproportionate in any event. You should challenge it as an unfair term. But challenge it immediately as if they initiate legal action, the Ombudsman won't hear your case. 

Brendan


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## Bronte (22 Feb 2011)

gellert said:


> The banks have not taken legal action yet, however AIB wrote to me requesting full repayment of the 40000 and have imposed a blended interest rate that comes to 16% apr!


 
Did AIB do this before or after Mabs?  What advice did Mabs give you in relation to this?


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## gellert (22 Feb 2011)

Again, thanks for the replies. AIB sent the letter after the Mabs intervention. 

AIB granted me that loan after exploring the possibility of a re-mortgage. They wouldn't taken on the re-mortgage but agreed to advance that 40000 loan to pay for bills related to the house construction. I will contact the ombudsman. I thought I should contact the bank first and then the ombudsan, is this not the case?


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## Bronte (23 Feb 2011)

That's interesting.  I thought that once Mabs were involved and an agreement was reached that the bank wouldn't proceed further.  

What about you selling and renting somewhere other than your parents house.  You make it messy when you refer to it as your inheritence.  You don't know you will inherit the house.  If you have siblings for example.  

When your income drops to 1400 per month are you entitled to social welfare towards the mortgage or other allowances like FIS.  

In any case if you are happy to get out of the debt and make a clean start, then why not.  Nothing wrong with that.  Not sure why you said you were foolish in your first post, I had assumed you had run up the debt on non essentials but it seems you ran it up building a house.


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## Brendan Burgess (23 Feb 2011)

Bronte said:


> What about you selling and renting somewhere other than your parents house.  You make it messy when you refer to it as your inheritence.  You don't know you will inherit the house.  If you have siblings for example.
> 
> .



If the parents have a house which is not rented and it's a house which is suitable for your needs, then this should override the other issues. 

The parents might not charge rent if you can't afford it. 
And if you live in the house for 3(?) years, it will not be subject to CAT. 

Brendan


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## truthseeker (23 Feb 2011)

Bronte said:


> You make it messy when you refer to it as your inheritence. You don't know you will inherit the house. If you have siblings for example.


 
I agree with this. There are many reasons that a house may not turn out to be an inheritance:

You could die before your parents.

Your parents could need very expensive medical treatments and sell the house to get the money for them.

Your parents could need insitiutional care at the end of their lives and use the house as a method of payment for this.

Your parents could decide to sell the house and party/travel away the money.

There could be other siblings involved.

After death it could turn out there are debts that need to be covered from the proceeds of the estate.

None of the above may happen, but one cannot assume they will receive a house as a clear inheritance.


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## Brendan Burgess (23 Feb 2011)

But this does not stop the OP from renting the house from the parents now. 

If he does not inherit the house, then he moves on and rents another house.


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## gellert (23 Feb 2011)

Thanks for the replies everyone. The input of others helps to clarify things in my head. 

I agree that it could get messy renting a house from my parents. However, I would like to set up a long term rental agreement where I agree to pay the market rent. This would in effect "pay" them for the house. 

In term of other siblings etc, they each have their own slice of the inheritance pie, the house that I'm talking about has always been considered my slice, I just never pushed the issue because I didn't see the need. 

Yes my parents may need institutional care. I would hope that I and my siblings could stump up for this when the time comes, or indeed look after them in their own home.

Anyway, I'm going to take Brendan's advice and ask the mortgage company for an interest only period and tackle AIB on the penalty interest. Debt slavery will ruin a large section the 30 somethings in this country.


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## gellert (23 Feb 2011)

Just to clarify - how do I tackle AIB on the penalty interest rate they are applying. Do I complain directly to the branch or to Financial ombudsman or to both??

thanks


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## selfassessed (27 Feb 2011)

Just to offer an alternative viewpoint ....

If I were you I would look at putting your house on the market.  I don't know anything about the house but if it is in reasonable location and priced well you may be able to sell it.  You won't know until you try.

These days capital appreciations on homes is negligible and will be for the foreseeable future.  Yet all the depreciation and other running costs still remain the same.  Years ago nobody cared if the bathrooms or kitchens were 20 years old, just sell the house and let the new owner replace them.  These days if you do that you won't find a buyer, so depreciation is a very real cost.  Plus bills for repairs, decorating, insurance, waste collection and so on.

I think you can also get a very good deal by renting.  You will get a far better house for your money than by paying a mortgage.  1000 euro a month would rent a mansion in my part of the world.  And let the landlord worry about the bills.

The peace of mind from not having to deal with the banks and so on has to be worth something too.


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## Bronte (28 Feb 2011)

gellert said:


> Just to clarify - how do I tackle AIB on the penalty interest rate they are applying. Do I complain directly to the branch or to Financial ombudsman or to both??
> 
> thanks


 
Banks can apply any interest rate they like so I cannot see how you can complain.


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## teedee (8 Mar 2011)

Hi There

I think you would be entitled to claim under the family income supplement scheme also. You can google this to get all the relevant details. Its fairly straightforward and only takes income into account - not any capital you may have.

T


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## csirl (8 Mar 2011)

I think the sell the house plan makes sense - the reality is that the OP cannot afford the mortgage repayments. If there is cash left over after the mortgage is discharged, it can pay some of the other debts. The one caveat I'd put on this is that the OP may not get the asking price he expects.



> But this does not stop the OP from renting the house from the parents now.
> 
> If he does not inherit the house, then he moves on and rents another house


 
I agree with Brendan. The other thing to consider is that the parents are not currently getting any rental income from the house, so the OP moving in and paying rent could be a win win for both. I'd also imagine that there would be more security of tenure becuase of the family relationship - a very important issue to consider if you have kids and dont want to be moving every couple of years.

Overall I agree with the general thrust of the OPs plans - its better to make an orderly exit on your own terms than let the world cave in on you.


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