# Not in mortgage arrears.....yet!



## OHara (28 Feb 2011)

Hi there

We're not in mortgage arrears yet but we will be when interest rises.  I'm just looking for advice on my best approach here with banks.  Here are my details.  two investment properties and family home all in neg. equity, all bought between 2003 - 2007.

House 1 - variable rate - mortgage E870 per month (rent in E500)
House 2 - tracker - mortgage E1300 (rent in 1200)
House 3 - tracker - mortgage £1000 interest only, interest only ends in two years - total mortgage 653K

The plan was to sell one of my investment properties in the next year or so to pay off a large chunk of our main mortgage which is interest only but in less than two years our mortgage will be 3K upwards and the rent is falling way short on the other two properties.  We have a combined income of about 5-6K per month (maybe 7K per month at a push as I'm freelance) so the figures won't add up in a year or two.

Should we approach banks now, should we try re-structure loans on investment or main house??  Sorry losing sleep worrying about this now, short of winning the lotto, we will be s@rewed!!

All advice welcome.  The two investment properties are about 30% and 40% in negative equity so will be a long time before we could sell either.

Thanking you in advance


----------



## niceoneted (28 Feb 2011)

It would help grately if you listed approx value of each property and remaining balance on each.


----------



## Mpsox (28 Feb 2011)

In addition, it might help if you completed the money makeover template so people can have an overall view of your financial position and can advise accordingly


----------



## OHara (28 Feb 2011)

niceoneted said:


> It would help grately if you listed approx value of each property and remaining balance on each.



House 1 - mortgage 150K (value 100 approx)
House 2 - mortgage 315K (value 285 approx)
House 3 - mortgage 653K (value 500 approx)

All above guesses assuming I could sell them which I doubt!  Sorry wheres the template???


----------



## niceoneted (28 Feb 2011)

http://www.askaboutmoney.com/showthread.php?t=61289

link to page where template for money makeover section is. How realistic are your guesses on the values?


----------



## OHara (28 Feb 2011)

Age:
37
Spouse’s/Partner's age:
35

Annual gross income from employment or profession:
E100,000
Annual gross income spouse:
E30,000 - 60,000 (freelance)

Type of employment:
private sector employee & self employed

Expenditure pattern:
We are both generally 'savers'

Rough estimate of value of home
E500,000
Mortgage on home
E653,000 - we've been paying our mortgage for 3 years interest only, two more years to go on interest only. 35 yr mortgage - payments will go up to 3.5K per month or more depending on rates
Mortgage provider:
First Active
Type of mortgage: Tracker, interest only, fixed rate
Tracker
Interest rate
tracker of 1.75% over ECB - 

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Yes

Savings and investments:
E15,000 savings. 

Do you have a pension scheme?
Yes, I pay E265pm into personal pension


Do you own any investment or other property?
Yes two bought in 2003 & 2004.
House 1 - mortgage 150 (value 100K) variable at 4.65 - KBC
House 2 - mortgage 315 (value 285) tracker
(currently have to add about E500 a month as rents have dropped this will rise considerably!!!)

Ages of children:
5 & 3

Life insurance:
Yes.

What specific question do you have or what issues are of concern to you?

Once our trackers rise with interest rates, we're going to be fairly sc@@wed financially and without a doubt won't be able to pay.  Just wondering if I should speak to banks now, which mortgages should I try restructure, my main or investment properties, am I in a terrible position?.  My wife is freelance so her earnings used to be 90K upwards, she's now lucky if she'll earn 30 or 40k if even.  Just looking for general advice please as we are heavily indebted and the plan was always to sell one investment property to pay a large chunk of main home mortgage obviously thats not an option.

Thanks for you advice in advance.


Thanks.


----------



## niceoneted (1 Mar 2011)

I would look carefully at the location of the properties in longer terms especially the investment houses. 
Are they good areas for renting/ or likely to hold some value increase when things turn around? 
Is the home you are in now as the family home your forever home? 
The family home you are only paying interest on a mortgage on a house that has only been decreasing in value since you started paying it so that is the one I would seriously look at disposing of. The question before this statement is an important one though.


----------



## Bronte (1 Mar 2011)

OHara said:


> House 1 - mortgage 150K (value 100 approx)
> House 2 - mortgage 315K (value 285 approx)
> House 3 - mortgage 653K (value 500 approx)


 
In two years for house 3 it will be nearly impossible to pay the mortgage plus the mortgage on the investment properties. You've no room on the mortgage term for this property as it's a 35 year mortgage. 

Even now you are subsidising the rental properties by 500 Euro a month. 

Negative equity is 1. 50K, 2. 30K, and 3. 153K.

If you sold the lot and had debt of 233K how much would that cost. You have to factor in that you would be paying rent. But rents are going to cost you a lot less than 3.5K a month plus an extra rental subsidy of 500 Euro now. Also you can get very nice rental property at a relatively low rate. Instead of renting you could move into property 1 or 2 and it would cost you a lot less than property 3. In fact property 1 only has a mortgage of 150K and costs less than 1K a month. 

Forget about your previous plan, it doesn't apply anymore. Rents have declined but seem to be holding steady. How realistic are your house valuations. A lot of people have not yet accepted reality in this regard. We can't discuss property prices on AAM.  You can be sure that mortgage rates (as near as sure can be) will go up by 2% via the ECB. But one of your mortgage is variable and you can be sure the bank will be adding on more there if they can. 

You said you are savers, where are the savings?

You are paying 1K a month now and will have to go to 3.5 K in 2 years. What is happening your salaries now ? How are you spending your money.

The above is to give you some ideas and based on the fact that you have said you will not be able to pay in the future. You haven't posted a full and frank money makeover so you are restricting yourself on the advice that can be given to you.


----------



## OHara (1 Mar 2011)

15K savings as I said above, putting 2K a month in from now on as long as my wife has work!  Do you think we can renegotiate on anything, my view is everything comes back around, I want to try keep my rental properties as in 20 years I'll have the mortgages paid off, they're my pension and even though I have to continually add to them, I see it as putting money into savings.  Our main house is our forever home, I hope!!


----------



## OHara (1 Mar 2011)

Not an option moving into either other house, one is down the country, the other is an apartment so two small with two young kids.  I think my values are realistic enough, out about 10K on each max.


----------



## SPC100 (1 Mar 2011)

Well done on trying to sort out your situation, and face up to the reality of it. I admire your bravery. 

Some food for thought - 

You have ~1.1 million of debt.

*If* you could put it *all* on interest only at
1% it would cost you 916 euro per month
2% it would cost you ~1800
3%                         ~2700 
4%                         ~3600
5%                         ~4500
6%                         ~5400 
7%                          ~6300
8%                           ~7200

Your income is 5500+1200+500 = 7200

If I was in your position, and *if* I wanted to keep the properties, I would 

* Stop paying into my pension plan today. and save the money instead.

* Drop your standard of living today to the level of someone on social welfare. You have to be ruthless, No more restaurants, fast food, holidays, cars etc, start shopping in Lidl and Aldi, cancel all gym memberships, all phone contracts, charity donations etc., switch all utilities to cheapest providers, change cars to cheaper models with lower road tax, insurance, and higher mpg, lower service costs e.g.a japanese cars with a high mpg. This will allow you test out now the situation you are going to be in, and will allow you to build up a fund in advance to help cushion the large expenses that will come.

* Start negotiating with the banks, showing them that you are broke, that you will default, they will reposes unless they do a deal with you. Aiming for a deal where they agree to write off some of the debt (this would be better), or they agree to a 5+ years interest only.

I am not saying that you will manage to keep them, but this approach would lengthen how long you can keep the properties for.

If it was me,I would not wait until I am defaulting, as you will just have thrown away another couple of years of earnings. I would try to do a deal now.


----------



## Bronte (1 Mar 2011)

OHara said:


> , putting 2K a month in from now on as long as my wife has work!


 

But the 2K, which you have not been doing, will not pay the mortgage in 2 years time so you are living beyond your means. Also 2K is not enough as you are going to have to subsidise the rents more.

Forever houses can be sold and another one bought. There are many people in their forever houses right now that would love to get rid of them. 

What exactly do you want to negotiate with the bank. I'm not saying that your idea is not attainable but something's gotta give. On the figures you've posted (which is not all the figures) it certainly doesn't look feasable. 

And honestly cannot fathom out how you think you are savers with only 15K saved on such massive salaries plus only paying interest only on home loan. 

You are a new poster so I'm not trying to be harsh so don't take it that way.

Re your rental properties, have you done all the sums on what they are really costing? Do they make sense?


----------



## Bronte (1 Mar 2011)

SPC100 said:


> * Start negotiating with the banks, showing them that you are broke, that you will default, they will reposes unless they do a deal with you. Aiming for a deal where they agree to write off some of the debt (this would be better), or they agree to a 5+ years interest only.
> 
> .


  Don't think the bank is going to play ball on this as OP's earnings are high.  Banks do deals where there is no other option.  Can't see them writing off any debt, why would they.


----------



## OHara (1 Mar 2011)

Thank you for that.  WHo knows maybe in two years our incomes will be up by 2K per month...or we could win the lotto

To be honest I was worried but not overly so (maybe naive) as in two years when interest rates are up, mortgage arrears will be an even bigger problem for banks and it just isn't feasible for them to repossess all homes, the government will have to step in surely as the cost to the tax payer of social housing etc will be astronomical.  

We are high earners with the potential to earn more and surely 60% of their money is better than repossessing and all the costs and hassle that go with it.

We gambled on house prices continuing to rise and selling one investment in 2012 property bought in 2004 and walking away with at least 200K in profit that would make our main house manageable.....stupid on reflection but how many others did the same!!  The bank were trying to give us 950K mortgage, thank god we bought a house nearly 150K cheaper!!!!


----------



## Bronte (1 Mar 2011)

Ohara you just don't get it.  Anyway I'll wait till some of the more experienced posters have a look at your figures.  In this regard I advise you to put up more details.


----------



## OHara (1 Mar 2011)

Sorry my wife didn't work in nearly a year and a half prior to November 2010.  So no we couldn't save. Prior to that we were saving 3K per month for a year but a bigger than expected tax bill on both sides meant we have only 15K left but now she's working we're back on track.

I thought banks won't allow you to sell your house for less than the mortgage so I assumed this wasn't an option, again what does that achieve?  The banks will get their money eventually maybe it will be 20 years down the line, when prices are back up and we can sell our two investment properties.  It just seems logical the banks have to play ball, again am I being naive or just plain stooopid here!!

And no our investment properties don't make sense as rent have dropped so much but still would fight tooth and nail to keep them after all the money I poured into them.

Surely my situation is replicated the country over and not looking for pity, its just with the sheer numbers involved the banks can not repossess everything!!


----------



## Bronte (1 Mar 2011)

OHara said:


> but still would fight tooth and nail to keep them after all the money I poured into them.


 
You are completely not focusing on reality.  That money is gone.  And it's not coming back.  Forget about it and deal with the now.


----------



## niceoneted (1 Mar 2011)

O Hara do you want to be a mortgage slave now and for the next 20-30 years or do you want to live a nice life on the wages you have now?


----------



## OHara (1 Mar 2011)

But I don't understand how we get out of 3 mortgages that are all in neg equity, so how do we or the banks have any other option than to negotiate and strike a deal with the money available to us??


----------



## niceoneted (1 Mar 2011)

Get estate agent out to value properties. Put them on the market as a tester. they may or may not sell for more or less than you put them on the market for. 

You have to go to the bank and talk to them. Give them the estimations of values. See will they allow for the sale of them and for the neg equity to be converted to loan. 

I and I am sure others here appreciate and understand that you have put a lot into your properties but do you want to be throwing good money after bad. It's all about crunching the numbers.


----------



## orka (1 Mar 2011)

OHara, part of your problem (nice problem though it is to have...), is that you earn too much to make the banks want to do a deal with you (not that they seem to do deals with anyone at the moment). 100K income should give 5,300 net; your partner on 30K to 60K should net a further 1K to 2K; 2 childrens allowances is 300 per month. So your total net income per month is 6,600 to 7,600. Even when your main mortgage goes up to 3.5K per month and even if you are then subsidising your investment mortgages by 1K rather than 500, that still leaves you with 2,100 to 3,100 per month to live on after mortgages - that is not close to what the banks might look on as being unaffordable for you.


----------



## OHara (1 Mar 2011)

Problem is my wifes salary is a moveable feast, but again in two years maybe we'll both be earning more (or less) but I just wanted to be armed with knowledge if and when we find it hard to pay our mortgages. We're also lucky to have no childcare costs which I know is a rarity.....good grandparents!

I think my wife will always get work even if its not what she does to make ends meet


----------



## niceoneted (1 Mar 2011)

Because her salary is so unpredictable means that it is more so important to sort this out.
Orka did the sums well and even with the 3.5k and possible 1k shortfall and low income from wife you could still have a little over 1k plus what ever your wife brings in to live off a month. Possibly enough for food and basic bills. But do you want to live like that.


----------



## OHara (1 Mar 2011)

Thank for all your help, twas good to get it down in black and white.  I'm of the belief that property is a long time investment, we'll leave them sitting there until the mortgages are paid off and then sell so if we have a few years of pain so be it. What goes down must come up right! Was just testing the waters to see what people thought my chance were of renegotiating even one of them as interest only for a few years.  Did I read here that BOS were down writing some of their buy to let mortgages....who knows what will happen in the future


----------



## gearoidc (10 Mar 2011)

OHara. 
I can empathise with you because I'm in a similar boat. 
I currently have debt of about €620k on props- both investment (one a joint investment with friends)- worth no more than €400k now. I have continued paying one mort but have recently stopped paying the joint one (due to my friends' unexpected refusal to acknowledge tens of thousands in mortgage payments I paid out for them...... way too messy to get into the detail, not to mention very damaging to my peace of mind, and not the point of my post)

Arrears are mounting and I realise I'm kicking the can down the road on this one plus there is another big problem looming in the shape of ECB rate hikes.

But like you I find myself asking what can the banks can realistically do at this point?
Will they really entertain the idea of repossessing, and then flogging hundreds/thousands of properties in a firesale?
Would this not be their absolute very last resort?

I'd appreciate an opinion on this ....


----------



## SPC100 (11 Mar 2011)

Great to hear that  net income is a bit better than previously stated.

Each interest rate rise of one percent will cost you about another 1000 euros per month.

When ppr is on capital repayment a 1.5 percent interest rate increase things would be very tough.

I would act now to budget hard and save cash like crazy, and try to get interest only extensions.


----------



## SPC100 (11 Mar 2011)

G. 

Hard to know, but they are likely to take a harder line on people who did not engage with them.

Don't ignore it. 

P.s. If I was you I would Sit down with your bank statements, your friend and maybe a neutral party to try and discuss.


----------



## Bronte (11 Mar 2011)

Gearodc  it would be better if you did your own thread with full details.  That said you are very naive if you think the banks don't have choices.  You need to stay one step ahead of them.  The very people who are going to pay the most are those that are on good salaries.  They are going to be squeezed by the banks.

In relation to a firesale.  The first of these is coming up soon and is widely advertised.  In fact I'd looked into attending it myself.


----------

