Complex Situation - How to Retain Tracker

[WhatsTheStor]

Property 1: Person A and person B purchased a property together. Tracker mortgage with KBC. Tiny negative equity of about 15,000 EUR. Payments up to date.

Property 2: Person C and person D purchased a property together. Again, tracker mortgage with Ulster Bank. Again, tiny negative equity of about 10,000 EUR. Debt remaining of 200,000 EUR. Payments up to date.

Person D wants to buy out person C and get a buy-to-let mortgage to cover the debt. Person C wants to sell to person D. Person D no longer lives in the country. Person D has approval for a buy-to-let mortgage at a variable rate from Ulster Bank.

Person A now is married to person C and wants to buy a place together. They have approached a bank. The bank, Ulster, allows the retention of property 1, will allow the sale of property 2 and the transfer of the tracker to a new property as this was a (great) condition of the original mortgage. However, Ulster will not allow more debt on top of this. They are capped at 200,000 EUR and will only allow the mortgage to be in person C's name, not A and C.

However, KBC will give a mortgage of 400,000 EUR to person A and person C and allow the retention of property 1 on a tracker mortgage but the new mortgage will be at a high variable rate.

Person A and C are not happy that Ulster are capping them as they need about 400k and also not happy that Ulster are not allowing 2 names of the mortgage but at the same time do not want to loose a tracker mortgage.

Any thoughts on the situation? Is there any way A and C can retain the tracker?

 

[Brendan Burgess]

This is probably one of the the most convoluted problems I have seen on Askaboutmoney.

I assume that both the mortgages on Properties 1 and 2 are with Ulster bank?

Let's take it in steps to see if I understand it correctly.

Is this what you want Ulster Bank to do?
1) D buys out C with a variable rate mortgage from Ulster Bank
2) C keeps the cheap tracker of €200k
3) Ulster Bank to allow A & C to buy a property for €400k with €200k of a cheap tracker and €200k at variable rate.

I can't see any reason why Ulster Bank would allow this. They want to get rid of cheap trackers.



Suggestion 1
A & B keep Property 1 and their cheap tracker. It should be a very good investment.
C & D keep Property 2 - likewise a good investment.

A&C move into one property or the other as their family home.
or
A& C rent a family home.

This way they keep their stake in the housing market and their cheap trackers.


Suggestion 2
Will UB allow the transfer of the mortgage to C?
If so, keep property 2 and tracker mortgage but it will be only in C's name.
It would be easier to try again for a different deal later.
Of course D loses out their cheap tracker and their ownership of the property.

What might happen after a few years of Suggestion 1 or 2.
A will build up a lot of equity in House 1.
A& C will have a lot of savings.
Ulster might let C take over the remaining mortgage at that stage and transfer it to a new house. A&C will have enough savings for the higher value.


Suggestion 3
C& D have a right to move the tracker to a new property.
Could C& D buy the house for €400k and keep the tracker and borrow €200k at SVR.
Then A& C could live in that property?

 

[Monbretia]

It's too complicated for me I gave up half way but as to why UB would allow the transfer of tracker I imagine it's because that mortgage is an Offset Mortgage, originally First Active, and it was a feature of them that they are transferable from property to property so they have to honour the t&cs of original loan. No obligation for UB to increase it though.

Then again I might be wrong but I can't imagine UB would do it unless they had to because of the offset.

 

[WhatsTheStor]

I assume that both the mortgages on Properties 1 and 2 are with Ulster bank?

Property 1 is with KBC.
Property 2 is with Ulster Bank, it was a First Active offset mortgage with tracker portability.

Let's take it in steps to see if I understand it correctly.

Is this what you want Ulster Bank to do?
1) D buys out C with a variable rate mortgage from Ulster Bank
2) C keeps the cheap tracker of €200k
3) Ulster Bank to allow A & C to buy a property for €400k with €200k of a cheap tracker and €200k at variable rate.

I can't see any reason why Ulster Bank would allow this. They want to get rid of cheap trackers.

Understood.

Suggestion 1
A & B keep Property 1 and their cheap tracker. It should be a very good investment.
C & D keep Property 2 - likewise a good investment.

A&C move into one property or the other as their family home.

Not an option. Neither property is a family home. Property 1 and property 2 are apartments.

or
A& C rent a family home.

Not an option. A&C are obsessed with owning a family home.

Suggestion 2
Will UB allow the transfer of the mortgage to C?
If so, keep property 2 and tracker mortgage but it will be only in C's name.
It would be easier to try again for a different deal later.
Of course D loses out their cheap tracker and their ownership of the property.

I will suggest this to them. The issue here is that C is obsessed with getting rid of the apartment and is delighted that he think he has a way to do it. Also D is obsessed with keeping property 2. Hence, probably not an option.

What might happen after a few years of Suggestion 1 or 2.
A will build up a lot of equity in House 1.
A& C will have a lot of savings.
Ulster might let C take over the remaining mortgage at that stage and transfer it to a new house. A&C will have enough savings for the higher value.

Fair comments. The reality is A&C want a family home with kids asap. Hence, probably not an option.

Suggestion 3
C& D have a right to move the tracker to a new property.
Could C& D buy the house for €400k and keep the tracker and borrow €200k at SVR.
Then A& C could live in that property?

Thanks for the suggestion. This makes financial sense but is making a personal situation mess messier. Not a runner.

I have been thinking more about this. Do you think this 'suggestion 4' is a runner:

Person D buys out property 2 from person C but keeps the tracker rather than a buy-to-let variable rate? Person D then offers person C some compensation for loosing the tracker. Perhaps, 50% of the differential between the variable rate and tracker rate via a monthly payment? Would that work?

Thank You.

 

[Brendan Burgess]

The issue here is that C is obsessed with getting rid of the apartment and is delighted that he think he has a way to do it. Also D is obsessed with keeping property 2. Hence, probably not an option.
...
A&C are obsessed with owning a family home.

I think that these people need counseling because they have some very unhealthy obsessions.

C wants to get rid of the apartment, but wants to keep the tracker.
D wants to keep the apartment, but doesn't seem to care about the tracker.
And they want to own a family home.

These are all fine aspirations. But they should not be obsessions. They can't all be achieved.

The reality is A&C want a family home with kids asap.

So live in the apartment as the family home. Then move when the first kid arrives. Or, horror of horrors, live in the apartment for a while with one child, and build up their savings.

 

[Brendan Burgess]

Person D buys out property 2 from person C but keeps the tracker rather than a buy-to-let variable rate? Person D then offers person C some compensation for losing the tracker. Perhaps, 50% of the differential between the variable rate and tracker rate via a monthly payment? Would that work?

Ulster Bank has to approve this. Would D meet the income requirements for the mortgage on their own? It's very difficult to persuade UB to do this, but they might.

 

[Brendan Burgess]

Suggestion 4

Property 1: Person A and person B purchased a property together. Tracker mortgage with KBC. Tiny negative equity of about 15,000 EUR. Payments up to date.

Where does B fit into all this?

Does A live in Property 1 at present?

Would the following work?
Step 1 - A takes over the apartment and mortgage from B.
A now owns their home with a cheap tracker mortgage.
Step 2 (probably some time later...) A applies to move the mortgage from Property 1 to Property 3 with C on the mortgage.

KBC is more flexible than Ulster Bank
They allow borrowers to keep the tracker + 1.25% for the remaining duration of the mortgage.
Their normal mortgage rate is a lot cheaper than Ulster Bank's.

Brendan

 

[WhatsTheStor]

Thanks Brendan.

I think that these people need counseling because they have some very unhealthy obsessions.

Logic and financial sense do not always come in tandem. I am tying to help these 4 people but I am constrained by factors such as A&C's rush for a family home.

Ulster Bank has to approve this. Would D meet the income requirements for the mortgage on their own? It's very difficult to persuade UB to do this, but they might.

Ulster Bank have already said that they can "take one person off the mortgage" and keep the tracker. So, D would be able to keep the apartment and get C off the mortgage.

A complex agreement then needs to be reached between C and D for D to compensate C for loss of the tracker. Is there any formula for this? or is it simply 50% of the differential in the buy-to-let rate versus the tracker rate?

This is probably the best option, all things considered, right?

Where does B fit into all this?

Does A live in Property 1 at present?

A lives in property 2 with C at the moment.

B does not live in property 1. Property 1 is rented to other people.

Would the following work?
Step 1 - A takes over the apartment and mortgage from B.
B now owns their home with a cheap tracker mortgage.
Step 2 (probably some time later...) A applies to move the mortgage from Property 1 to Property 3 with C on the mortgage.

The 2 sentences in step 1 seem to contradict each other!

KBC will not allow the tracker be kept if the debt is moved to another place.

As things currently stand, A and B want to retain property 1 as an investment and neither party wants to sell it.

 

[Brendan Burgess]

"Would the following work?
Step 1 - A takes over the apartment and mortgage from B.
A now owns their home with a cheap tracker mortgage.
Step 2 (probably some time later...) A applies to move the mortgage from Property 1 to Property 3 with C on the mortgage."


The 2 sentences in step 1 seem to contradict each other!



As things currently stand, A and B want to retain property 1 as an investment and neither party wants to sell it.

Sorry Typo. I have edited it to A taking over the property from B.

KBC will not allow the tracker be kept if the debt is moved to another place.

KBC does allow trackers to be ported from one primary home to another.

Was Property 1 bought as a home or as an investment? If it was as an investment,they would probably refuse.

 

[Brendan Burgess]

Ulster Bank have already said that they can "take one person off the mortgage" and keep the tracker. So, D would be able to keep the apartment and get C off the mortgage.

A complex agreement then needs to be reached between C and D for D to compensate C for loss of the tracker. Is there any formula for this? or is it simply 50% of the differential in the buy-to-let rate versus the tracker rate?

This is probably the best option, all things considered, right?

No, renting a house while keeping the two very good investments is clearly the best option.

I don't see how D taking over the mortgage and property helps C.

A and C will still have to borrow €400k at 4% from KBC to buy a family home.

OK, C will have lower repayments, but that does not seem to be much of an issue.

If they do go ahead with this, the simplest thing for D to do is to agree to pay a lump sum to C.

It would be something like the following

Mortgage €210k tracker
House worth €200k

Depending on the interest rate and term remaining, the true "value" of the tracker mortgage is probably around €180k on an SVR basis.

House value: €200k
Adjusted mortgage: €180k
Net equity: €20k
C's share: €10k