Negative Equity/Arrears

E

emma09

Guest
Hi,

All suggestions welcomed!

Buy-to-Let
3bedroom Semi-detached.
Tot Mortgage 250K
Property Value 180K approx
Negative Equity - 70K approx
Monthly Interest Only - Mortgage Due - 250euros (On tracker)
Rental Income
1200.

Residential Home
2 bedroom apartment
Monthly agreed with bank reduced payment 1050 (Actual Amt - approx 1350) (On tracker)
Mortgage 350K
Property Value - 220K approx
Negative Equity - 130K approx

1st Income 20,000 per annum
2nd Income 17,000 per annum
Child Benefit 420 per month

Currently living in a 2 bedroom apartment. Space a major issue. Moving to 3 bedroom not an option for us as a family - various personal reason which I cannot elaborate. Will sell, if it helps our situation, but I don't think it will help.

2 Children still require after-school care as only 4 and 6 years.

We cannot get another mortgage. We want to rent out a 3/4 bedroom and rent out our own 2 bedroom.

We should get around 1300 for our 2 bedroom.

To rent out it will cost us 2000 or a little more per month.

What, if any, options do we have.

Currently we use the money from our 3 bedroom to help us through our monthly bills etc. Term remaining is 12/13 years and we were hoping to start paying extra at this stage. Things did not work out as we planned!

Anyway, is there any chance that we could rent out by reducing our bills? I have done few different budgets and still not getting enough savings to make it happen. Someone else can advise? We were thinking for renting out for next 6/7 years when 1 child will be ready to move out of the nest" ( kills me to even think about it - again not what we had planned,definately not like this !)

thanks
 
You have a combined income of €51,000 (including rental income) and a total mortgage of €600,000.

That is completely unsustainable. It is only because you have an interest only mortgage that things haven't fallen apart before this.

Sorry to be the bearer of bad news, but you need advice on your overall financial situation not just getting more space.
 
cremeegg said:
You have a combined income of €51,000 (including rental income) and a total mortgage of €600,000.

That is completely unsustainable. It is only because you have an interest only mortgage that things haven't fallen apart before this.

Sorry to be the bearer of bad news, but you need advice on your overall financial situation not just getting more space.
Click to expand...


I understand that!

I have been very good "budgeting" last couple of years and have been saving 300/500 per month. My target is 10K by end of this year to help us with rent for a year or two. When I add everything, it seems like an impossible situation, and reading it as you wrote it sounds even worse LOL! But somehow, we are doing ok, and yes I understand its mainly because of tracker mortgage plus interest only on our Buy-to-Let. We will sell it when the mortgage term will end, but for time-being its helping us with our monthly expenses.
 
But you are also on a reduced mortgage payment from your lender in respect of your PDH!! This would normally preclude an ability to amass monthly savings. Renting out PD will immediately raise issues with your bank and exclude you from MARP. Cremeegg has pointed out the harsh reality of your financial position which based on current earnings could not facilitate a transfer as per your proposal. Increase in monthly RI will involve additional tax which can not be offset against your proposed rent payment.
You need independent financial advice.
 
The current buy to let is probably contributing €8,000 a year net to you.

You have a home which is costing the same in mortgage repayments cap and int (€1,350 or €1,050) as a similar would cost to rent, €1,300.

Both of these are good things. I take back what I said about your current situation being unsustainable, if you can afford the mortgage on the home things are sustainable.

Why are you underpaying your mortgage and at the same time saving 300/500 a month

If you rented out your home at €1,300 per month this would be about €9,000 net a year income, (again assuming that you are lower rate taxpayers, but the extra €15,000 income might put you into the higher rate).

So you would have an additional cost of €15,000 (€24k minus €9k) a year for the extra room. Is it worth that and if so can you manage it.
 
I take on board what you both are saying.

I am making the savings after cutting out a lot in personal expenses...mainly myself and my husband. I try to give my kids as much as is reasonably affordable. My savings are cash savings (old fashioned - at home - lol.. not millions but that's what they feel like to me! ) as I'm afraid banks will take it away!!

We are on tracker mortgage for both houses. This helps a little.

I work part-time. I should be able to go full time from September when my youngest will start school. However minder costs kicks in and I won't get too much extra in hand. Maybe 3k per annum. Still deciding on if its worth going full time. After 4/5 years, without child minding costs, my full pay should increase by around 10K per annum, which will be a great help.

So, renting out for next 4/5 years is the hardest part on part-time income. Do you think I am mad to put myself under pressure? Kids really need another room. Apartment is really not suitable for a family of our size!
 
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Income
Salary One 1666
Salary Two 1416
Child allowance 420
Rental income 950

Total: 4452

Expenditure

Mortgage: 1050 (should be 1350)
Childcare?
Food?
Utilities ?
Cars?
Savings: 400

And you want to move out, rent yourself for 2000 a month. An extra 1K on what you are paying now. And you're going to fund this initially with your savings. And then with what, the 'extra' 400 savings and what else? The rent from your PDH.

This Emma is madness.

I'm not accepting the personal reasons on the 3 bed rental. It's quite clear your two bed will look after itself if rented, or very close to it. You then go and live in the three bed and you start paying capital off that, or capital off your PDH to get rid of it.

Questions

What is the term remaining on the rental?
What are the interest rates on both properties?
How is your 6 year old going to be leaving home in 7 years, at age 13?
How did you fool the bank on your monthly spending?
Do I have the salary figures correctly calculated
What tax are you paying on that whopping rental amount with such a low interest rate?
How long have you a property rented? Have you heard of NPPR, I dread asking this question.
 
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Bronte,
I am not asking you to accept my personal reasons for NOT moving into 3 bed. That's our own issue!
To answer your other questions.

The term on rental is 12/13 years - Its is in negative equity at present, but should be able to pay itself off at the end of mortgage term. We are keeping an eye on the market to sell it when its reasonable.

Both properties are on tracker rate - not sure of the rate, but 250 is the interest only amount for rental on 245K mortgage.

My 6 year won't be leaving home, my 12 year old will ( I have 3 children that's the main reason with the space in the apartment ), we could help him a little to rent a room nearby in few years time.

I did not fool the banks with the monthly spending. Everything .. all bills are paid through banks. I squeeze (entertainment, grocery and petrol) - we don't really entertain, i am good with grocery shopping and we don't use car as much as we used to and save on diesel. My husband sometimes a bonus of approx 200euros every 6 weeks, that goes in the savings. Banks can see that income coming in through Payslips/Bank statements but I didn't include in my total monthly/yearly income when I completed the financial forms. I've been submitting these for last few years and they've never asked me about this, but the info. about this little extra income is with them!


I don't understand your question about tax on rental amount? We have an accountant and he does yearly returns for us. I don't really understand that part of it myself!
NPPR - We've paid. We are registered for Water charges. We are doing everything "legal" - At Least as far as we know. We don't understand taxes/tax returns so we pay an accountant to do that for us as we were in "trouble" few years ago as we genuinely weren't aware about it ( tax returns on rental property" - but all is paid back and we are back on track with revenue for few years now!)

I know its going to be hard. I was hoping someone will say that they've done it? Or maybe advise on "sharing a 5/6 bedroom with student(s). Something along these lines, so we could get help in that way to pay for the rent? Friends of mine are renting out a room or two even in their houses and charging somewhere between 5/600euros per student? I understand we need Landlord's agreement on sub-letting. We can work on that and find someone.. we know some people who own bigger properties.. and looking for "reliable" tenants for long-term tenancy.

If its manageable somehow it will greatly improve our daily life. But if it will put extreme pressure financially, obviously not really worth it!

thx
 
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emma09 said:
The term on rental is 12/13 years - Its is in negative equity at present, but should be able to pay itself off at the end of mortgage term.
Click to expand...
Negative equity on this property is 70k per your figures. Your expectation is that this will disappear over the next 12/13 years. I.e property inflates at c3% pa. Obviously a fingers crossed position but not totally unrealistic.
emma09 said:
I did not fool the banks with the monthly spending. Everything .. all bills are paid through banks. I squeeze (entertainment, grocery and petrol) - we don't really entertain, i am good with grocery shopping and we don't use car as much as we used to and save on diesel. My husband sometimes a bonus of approx 200euros every 6 weeks, that goes in the savings. Banks can see that income coming in through Payslips/Bank statements but I didn't include in my total monthly/yearly income when I completed the financial forms. I've been submitting these for last few years and they've never asked me about this, but the info. about this little extra income is with them!
Click to expand...
As I mentioned previously you are currently relying on MARP in respect of this reduced monthly payment. If you leave the property you will no longer be in a position to avail of MARP and the bank should start demanding the full P&I repayment. This may be higher than the €1,350 mentioned as you will need to catch up on the element of previously reduced repayments.

Ask your accountant to assess your new tax liability given proposed renting out of your apartment. This will give you an idea of the net proceeds available to you and whether higher rate band will reduce the net rental income.

Student/rent a room idea is a possible. but with a young family may be very difficult to do in practice.
I suppose the bottom line is that you are under pressure to move out but unless you take account of all of the factors involved before making this decision you could end up in a worse financial position and the subsequent consequences would not be worth the additional space gained. The appearances of us pouring cold water on your proposal may appear unduly negative but supposing that you make this move and a couple of months later your bank looks for 300/400 pm in additional loan payments, how would you fare???
 
44brendan, thanks for your feedback.

I suppose you are right, once we leave our residential property and rent out it will become a "buy-to-let" and banks are not that helpful with 2nd properties as such!

I have full year to think and to plan, Next Summer is when I was hoping to start renting out, I don't think I'll be able to do any substantial savings in 1 year. I still think its not a completely MAD idea, as some posters have mentioned. If we go ahead with it, it will be extremely hard financially if we do it ourselves alone, and if we were to take on student(s) it will be challenging in other ways!

A lot to think about and consult with family & kids and see what option is the best and if we are willing to make even more "sacrifices" in our own lives! I suppose a spa weekend away will have to wait for few years!! :)

thanks.
 
I had another think on this Emma. What would happen I wonder if you left the house, went and rented somewhere suitable and told the bank to take the two NE properties. Have you discussed this with a financial advisor. Basically go bust/insolvent/bankrupt.
 
emma09 said:
My 6 year won't be leaving home, my 12 year old will ( I have 3 children that's the main reason with the space in the apartment ), we could help him a little to rent a room nearby in few years time.
Click to expand...

Please explain this
 
Bronte said:
I had another think on this Emma. What would happen I wonder if you left the house, went and rented somewhere suitable and told the bank to take the two NE properties. Have you discussed this with a financial advisor. Basically go bust/insolvent/bankrupt.
Click to expand...

That is an interesting suggestion Bronte

The income then would be

Salary One 1666
Salary Two 1416
Child allowance 420

Total 3,502

Rent on the property they want €2,000

Left for a family of 5 to live on €1,502 a month. Not easy and exposed to the vagaries of the rental market. At least now they own their home even if it is too small for their needs.
 
Bronte,
Well, I was thinking (hoping) that we won't have to take extreme measures of bankruptcy/insolvency. This way we lose both properties almost straight away.
Like I said, there is a chance of me to work full time, I will need to juggle the childminder fees, .. at the end of say 5 years, I shouldn't have as much childminder expenses. We are looking for a long-term tenancy with agreed fixed rent for 3/4 years. Once we know exactly how much our rental expenses are, we can work our household budget around that.

Our income, hopefully will increase a little in next 4/5 years not much, but still every little helps in our situation, we maybe able to pay off 1 mortgage or near enough to it before retirement. We are both 40.. still good 25 years left for us to earn !

All this I understand is in "hoping" and "wishing" but still I don't think its an impossible situation. Optimism is my motto for this year!! :)
 
cremeegg said:
That is an interesting suggestion Bronte

The income then would be

Salary One 1666
Salary Two 1416
Child allowance 420

Total 3,502

Rent on the property they want €2,000

Left for a family of 5 to live on €1,502 a month. Not easy and exposed to the vagaries of the rental market. At least now they own their home even if it is too small for their needs.
Click to expand...

I didn't run the figures but I wonder if those you've done are close to the insolvency limits. I bet they are. I cannot imagine anything worse than spending the years when you need a big house in a tiny apartment tied to insurmountable debt, counting on the eldest moving out at 18!

I wonder if they managed to get through bankruptcy/insolvency, property back on stream, so reasonable rent, and she does seem to budget, would she be in a better position in 5 years and able to buy a house.

I also have a sneaking suspicion it's what the insolvency advisors are telling people to do. I know if it were me I'd go and run every possible scenario and fit myself in with the one that suits that. She can even stay on part time and play that card too.

Poster Jim Stafford has a great post on insolvency today, he even has links to a presentation. I'm not in this area so I didn't read it but if I was in the likes of Emma's situation I'd be taking my savigns and paying for a good advisor to run the numbers.

I wonder would Emma's life be a lot healthier and happier if she just walked away. I've two of my own family fighting for years now, I've a best friend just going through bankruptcy. Etc.
 
emma09 said:
Bronte,
Well, I was thinking (hoping) that we won't have to take extreme measures of bankruptcy/insolvency. This way we lose both properties almost straight away.
Like I said, there is a chance of me to work full time, I will need to juggle the childminder fees, .. at the end of say 5 years, I shouldn't have as much childminder expenses. We are looking for a long-term tenancy with agreed fixed rent for 3/4 years. Once we know exactly how much our rental expenses are, we can work our household budget around that.

Our income, hopefully will increase a little in next 4/5 years not much, but still every little helps in our situation, we maybe able to pay off 1 mortgage or near enough to it before retirement. We are both 40.. still good 25 years left for us to earn !

All this I understand is in "hoping" and "wishing" but still I don't think its an impossible situation. Optimism is my motto for this year!! :)
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Is it extreme, or are you a suitable canidate. I'd say people on low salaries like yours might be ideal for insolvency.

I'm a long term landlord myself so good luck with stability there, though I must say the last few years have been particularly stable for me as I've not increased the rents and the tenants are therefore not able to move. Woe betide you a bad tenant and the costs of that. (put some money aside for that !)

And as for losing two properties in NE, are you losing or gaining. One of them you're not even paying the capital on, you're paying tax on it and you'll end up with diddly squat.
 
Bronte,
I've read several posts and people advising posters to "just walk away". It does seem the easiest solution financially. Morally and emotionally its not that simple, surely??

In my case, if I were to give up my residential house and "just walk away", where and when do I start to "build back" my life? The only reason I am thinking of renting short-term (5/6 years) in "expensive" place is because it's near my family and friends, otherwise I could choose to move out of Dublin and commute and pay nearly half the monthly rent. When we bought the house(s), we were financially able to afford both, wages were reduced and jobs lost in between, family size increased.., but when we bought we knew we'll be happy here as a family and the plan was to move to a "family home" in a year or two.. but as we all know sh&t happened!!

Perhaps its a little easier if you move out of the country altogether, but moving to a new area within your county and starting all over again seems hard. Desperate situations and all that.. I understand, but I still think our situation doesn't warrant extreme measures.

We are not living a "poor man's" life, we are on a tight budget, Yes but we do treats once in a while, kids get what they need and a bit more. They are good kids and happy in general. If the rooms were a little bigger that we could have more space, or a space to build another room, would be great. Its just the simple logistics of daily life, where to "hang laundry" - between swimming, soccer and other activities, clothes alone take up sooo much space. Somedays, it gets bit too much for all of us. The eldest specially could do with a "quiet space" to do his studies.. or to "hang out" with his buddies .. things like that we are finding hard.

It could be worse, I know! When I was growing up ( lol, thought i'd never say these words), there was no such thing as my room and your room!! But we had a lovely big garden that we could get away from it all and were outdoors so much - space or lack of it didn't really matter!!

Simpler days :)
 
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