Buy to let arrears

I have arrears of 16000e on a buy to let property. Fully up to date with mortgage repayments on PPR. Problems arose after initial 5 year interest only was up and we couldnt afford to pay the interest plus capital. Have asked the building society to restructure our loans, but they insist the full payment is affordable. Recently submitted a SFS and got a call today to advise me to take financial advice, as they will be starting legal proceedings. Help!

Welcome to AAM Averagejo. It's quite impossible to help you with so little information. How about you have a go at giving us all the details, income debts etc.

Thank you Bronte, any advice is appreciated.

Net monthly income: 3600e paye
no wage increase since 2008 but due to usc and other charges introduced, down approx. 600e per month in take-home pay.
Net monthly spouse: 900e social welfare, unable to work due to chronic illness.
Child benefit: 130e

Personal circumstances:
2 adult family
2 cars (both old and not worth selling)
1 child aged 12-18 years old
Childcare: Nil
Monthly spend on special circumstances: Paying 200e per month to revenue from 2012 tax liability, which arose fro income on buy to let. 2 college going children aged 19 and 21, both living at home, who need help with college fees, 100e per month.

Home loan:
Lender: EBS
Amount outstanding: 130k
Value of home: 240k
Interest rate: SVR
Monthly payment: 1350
Arrears: Nil

Investment property:
Lender: EBS
Amount outstanding 225k
Int Rate: Tracker
Monthly repayment: 570e (full payment 1150)
Arrears: 16000
Monthly rent: 1000k

Discussions with Bank:
Originally buy to let was interest only for 5 years. After that we couldnt pay interest plus capital and EBS would not extend the interest only period. We have consistently asked EBS to restructure our loans, but they insist the full mortgage is affordable. The 570e per month was interest only figure, but rates dropped and we continued to pay 570, so a little goes off capital.

Credit Union:
Shares: 500e
Loan oustanding: 6000
Monthly repayments: 150
Term left: ? Transferred shares off larger loan, only paying interest.

Other loans:
Credit Card:
Amount outstanding: 6500
Monthly repayment: 350

Personal loan:
Amount outstanding: 13000
Term left: 3 and a half years

Monthly repayment: 330
Int rate: Fixed rate

Other savings: None
Other investments: None

Preferred realistic outcome:
If the bank forces us to sell the buy to let property we will have no income to pay the 350e per month repayment on our PPR, that we borrowed for the buy to let. We would like to try to hold onto it rather than be left with the debt and nothing to show for it. Not looking for debt write-off, just some understanding from EBS and a restructure of our loans.

Any other relevant information:
Our 2 older children are almost finished college, which has been a real drain on our resources in recent years. We have top up loans, as we extended our home rather than move a number of years ago, but our original ortgage finishes the same time as our personal loan in just over 3 years and our financial situation will improve. We don't mind if we lose the tracker rate on buy to let, because the low interest rate just means we have to pay more tax, as the rent is deemed as income.

What's the value of the investment.

It's good both properties are with one bank. What discussions have taken place with the EBS.

What are your rough ages.

Is it correct that the mortgage on your PPM is made up of original mortgage and top ups?

Your main problem is that there is equity in your PPR, the EBS will come after that, presumably that is why they have allowed you to collect rent of 1K and only pay them half of it.

Income 5060 (including rent of 430)
Mortgage 1350
Revenue 200
College 100
Cost of rental?
Living expenses ?
CU 150
Loan 330
Credit card 350
Non disclosed 300

We're at 2580 monthly, what is happening to that?

You mentioned legal proceedings, from their point of view, they are not getting all the rent, they might force you to sell, and then put a judgement mortgage on your home, or go for an instalment order against you.

Why two cars if only one person is working?

The investment property is worth approx 130k. The EBS won't engage with us other than to say that the mortgage is affordable and we need to prioritize our secured debt and basically stop paying our other loans. Both late forties. it is correct that our principle mortgage is made up of original mortgage and top ups for home improvements plus a top up for 10 percent deposit on buy to let, totalling 130k. Couple of other necessary exceptional circumstances, which I would rather keep private that costs 300 per month plus usual living costs and repayments on loans and credit cards as listed above. We have 2 cars and, as I mentioned, I have a chronic illness and would be house bound if I didn't have a car.
We were doing well financially, but things just went pear shaped with buy to let, and we are taking full responsibility for all our debts, we just need a few years to get things back on track. Is it unreasonable of us to expect EBS, who have made huge profits from interest we have paid down through the years, to help us out a little?

averagejo said:

The EBS won't engage with us other than to say that the mortgage is affordable and we need to prioritize our secured debt and basically stop paying our other loans.

Is it unreasonable of us to expect EBS, who have made huge profits from interest we have paid down through the years, to help us out a little?

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Ok there are two things here, the EBS is telling you what they want, but you are not listening because you think they should be more reasonable with you.

If you were EBS, they would be thinking, he's getting 1K rent and only paying us 570 Euro. Also they would consider that you should stop paying all unsecured debt, the credit union etc.

The bank is looking at the rent, looking at what they consider it is reasonable for you to live on, looking at the mounting arrears and want it sorted.

Let's try this from a different angle. What is it you think they can do for you?

Figures above are now modified. Does it cost you 2580 monthly to run the house, groceries, utilities, cars, insurances. I presume you have done an SFS.

If you didn't pay the 3 unsecured loans you'd have 830 a month to pay the investment property. That is what the EBS is looking at.

Is the personal loan with the EBS?

The EBS get all the rent because the top up on my original mortgage has to be paid too. What I would ideally like is for the EBS to extend our loans on our principle mortgage. That way we would have a bit of breathing space, lower our repayment on our principle mortgage, but pay the buy to let mortgage in full (interest plus capital) which would also give us a chance to address our other unsecured debt, instead of just forever paying interest. Do you think there's any chance of this happening. Am I totally naive and unreasonable? I would plan that in a couple of years, we will be able to increase our payments.

Personal loan is with Bank of Ireland. I did a SFS and it showed minus figures, but of course EBS want me to ignore other loans. Ideally I would like to pay all my loans. Being in arrears doesn't sit well with me. Having many a sleepless night!

averagejo said:

Originally buy to let was interest only for 5 years.

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Given the amount of negative equity you are in, is it fair to assume you bought the property, like so many did , during the tiger years. You say you have not had a gross wage increase since 2008, so I assume you have not had a gross wage decrease either. (ok, I know in fairness you have suffered tax usc increases etc like everyone else so net pay has decreased ). Lets also point out that interest rates are historically low now....your tracker rate is probably not much more than 1%.....in 2008 it was closer to 6%...yet you are currently struggling.

My query is: did the bank stress test your ability to repay the loan?

You were on interest only for 5 years - supposing you were not -
would you have been able to make full repayments interest and capital in say 2007/2008 when interest rates were closer to 6%?

In the examiner yesterday I believe it was reported a judge did not allow a repossession (albeit possibly on a pdh ) when the bank failed to stress test a mortgage.

I think your current liabilities exceed your assets - what will happen when interest rates rise again as they inevitably will? The bank will try to take everything then anyway?

averagejo said:

. Do you think there's any chance of this happening. Am I totally naive and unreasonable? .

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Have you asked them? And more importantly have you done the figures and demonstrated to the bank that it makes sense?

Mrbea to be honest I dont know if the loan was stress tested. I spoke to someone in arrears suppport in the EBS and he told me they would do figures up and send them to me, but they never did. I wrote to them and asked if this could be done and they didnt reply either. Basically they dont want the hassle of a tracker mortgage that they're not making money on (this is a quote from someone I spoke to in EBS). For the record I dont have a tracker mortgage on my PPR. In the most recent call this week, they told me I should sell the house at a loss or else be in court within 3 months, which I dont want to do because I will be left with the debt of the shortfall and nothing to show for it.

averagejo said:

Mrbea to be honest I dont know if the loan was stress tested. I spoke to someone in arrears suppport in the EBS and he told me they would do figures up and send them to me, but they never did. I wrote to them and asked if this could be done and they didnt reply either.

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I think you will probably find that had they done their homework, as they were supposed to have done, before lending you the money, then they would not have lent the money. They were supposed to stress test the loan, but it seems they did not. Could you even have afforded to pay interest and capital at the time of taking out the loan, had you been required to do so, at interest rates then prevailing ( never mind a rise of 2% in interest rates )? There is something very wrong about them lending you the money if they knew you could not afford to pay it back.

averagejo said:

they told me I should sell the house at a loss or else be in court within 3 months

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Classic example of them -the same people who lent you money knowing you could never pay it back - now trying to bully you. Get the figures they promised you, and take it from there. Not even loan sharks would be allowed offer 5 year interest only loans to ordinary , non-financially-educated people, to get them "hooked".

I could complain about the banks, but what's the point. Need to work out how to minimise our losses now. Should we sell at a loss and worry about the debt in the future? I fear the choice might be taken from us anyway if we end up in court.

Update on this is bank have agreed to extend home loan on ppr so we can afford to pay buy to let payment in full. Will recapitise the arrears.

great outcome for both you and the bank. the bank will still get their money but you will be able to live a little while doing so and so there is an incentice for you to engage with them.

That's good news! I hope things improve for you now.
Would you share how you managed to get the bank to come around - it may help others in their negotiations.

fobs said:

great outcome for both you and the bank. the bank will still get their money but you will be able to live a little while doing so and so there is an incentice for you to engage with them.

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Yes I feel it's the best outcome for us and the bank, so will be taking them up on this offer.

Butter said:

That's good news! I hope things improve for you now.
Would you share how you managed to get the bank to come around - it may help others in their negotiations.

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Thank you Butter. My advice to anyone is to put a proposal to the bank in writing. I did this quite a while ago and feel at last someone with some common sense looked at this. It makes perfect sense from the banks point of view as my home loan, which is a svr mortgage is extended while the buy to let tracker mortgage will be paid on time. I found trying to deal with them over the phone frustrating and unconstructive.

The trouble with the phone is that you rarely get the same person twice. Maybe by sending a letter & getting a written response you then have a point of contact to work through & can hopefully develop a relationship with. Having written evidence of the process & agreement has to be helpful too. It's a good lesson. Well done on your successful outcome!