Case study Family home and 1 investment property - we need advice!

J

Julia111

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16
Income details
Net monthly Husband 2250 per month full-time employment private sector

Net monthly Wife 3200 per month full-time employment private sector

Amount of child benefit received 260

Amount of Mortgage Interest Supplement received 0

Personal circumstances so we can calculate your reasonable living expenses

One adult family or two adult family 2 Adults
Do you need a car for work or do you use public transport? 2 Cars, both needed in order to get to work as we live in a rural area
Number of children 0- 2 years old:
Number of 3 years old children:
Number of 4 - 11 years old: 1
Number of 12 - 18 years old: 1 (plus 1 child living with another parent)
Monthly childcare costs: 620
Montly spend on special circumstances: e.g. exceptional healthcare costs
We pay 450 per month on petrol as I especially need to drive a long way to get to work
260 per month maintenence


Home loan
Lender: KBC
Amount outstanding: 185,000
Value of home: 230,000
Interest rate: interest only
Monthly repayment 800
Amount in arrears 0

We have been paying interest only for several years. Have been in continuous contact with bank. They have now offered us the solution of signing a 5 year interest only deal for both properties, ie 800 per month for each property and re-capitalise the arrears of the BTL.

Investment property - Delete if not applicable
Lender: KBC
Amount outstanding: 205,000
Value of home: 120,000
Interest rate: interest only
Monthly repayment 350 for another month, after that they bank offered us the arrangement of interest only and re-capitalising arrears, ie 800 per month
Amount in arrears 8000
Monthly rent received 0


Other loans and creditors - delete those which don't apply to you
Term loan Amount outstanding 5500
Term loan term left 30
Family loan - amount outstanding 8000
Family loan - monthly repayment 167

Other savings and investments 0

Do you expect any lump sums in the medium term future? 0


How important is retaining the family home to you?
Which of the following best describes your situation?

Hard to answer this one, in an ideal world we would have one house, with one mortgage that we can pay off. However we dont necessarily want to live in this area forever.

We know we need to sell one of the houses however we live in an rural area where this may not be easy plus we have negative equity in the BTL. The BTL does not recieve any income at the moment as my husband's mother lives in it. She is 90 and we cannot turn her out of the house now.

We have been paying interest only for both properties just to keep both houses but we know that this is not a good long term solution.

Our questions are,
1) If we sell the BTL, does the negative equity automatically go onto our family home, even though this would mean putting us in negative equity with that house?

2) If we sell the family home, are we obliged to pay the 'profit' into the BTL? Or as long as we are paying that mortgage (maybe the agreed 800 per month deal we have been offered) is this amount safe for us to keep for the future?

3) Is there any hope of us ever buying a house again after being in this position? We actually need to be closer to work as I am driving a long way each day.

4) We dont know where to turn for advice on what to do for the best, should we speak to a solicitor or accountant or even the IMHA?


Thanks for reading!

J...
 
As you have equity in your home, would selling your current home with a view to renting for a few years closer to work/transport options be something you would consider?

While giving your mother-in-law the freedom of her own house is laudable it seems you are struggling to afford it, would her living in with you or perhaps some form of granny flat be an option?
 
If I am reading this correctly, your monthly net income is €5710.

Your outgoings that you list are potentially two properties at €800 each, childcare at €620, maintenance at €260, petrol at €450 and a loan of €167. Total of €3097. Leaving €2613.

On those figures it doesn't look like you are in that bad a position.

If you sell the BTL, what happens to your m.i.l? (Is she in a position to pay you anything in rent?) If you sell the BTL I'd imagine the bank will expect you to pay the shortfall. So with that in mind & the fact that you have a dependent relative it looks like you could be stuck with the BTL.

You have some equity in your own house so in theory the bank may let you sell that and buy a house closer to your work. If there is no link between the two houses that is. I think you should speak to the bank & see if they will let you do that.

You may end up covering the interest only payments on the BTL for the next five years but where else could your m.i.l live that would actually cost much less than that anyway?
 
Thanks for your thoughts! I neglected to put the monthly payment for the 5500 loan which is 185 per month.

This leaves us around 2400 per month and to be honest our expenditure is closer to 3000 per month so we juggle. We know we need to do something, quite apart from the fact that we are not paying anything off either of the houses.

Right now it is hard to see my mil being able to move, she really is too old and as you say the negative equity makes that difficult too. So we cant really sell right now but we need to make some decisions so that when the time comes we know what to do.

We have thought about selling our home and renting closer to work but the down side is that a family home where we want to be is at least 1100 per month and so with the 800 for the BTL we could not afford that.

The 2 properties are both with KBC so do you think they will let us move? I didn't think that this would really be an option.
 
Check your original mortgage contracts. Make sure that one property has not been used as collateral or has a tie-in to the other property. If they are completely separate make sure the deal that KBC is offering doesn't link the two properties together for the deal to work. If there is no link I don't see how KBC can prevent you selling a house that you have equity in. Bear in mind that if you don't want to rent you will need a new mortgage & that may prove difficult with the BTL in negative equity & being in lived in by a dependent relative, not paying rent.
I think you need to ask KBC what are your options.

I also think if you sit down and look at all your outgoings you should be able to reduce them down from €3000. Plenty of families are living on less than that. Could you carpool to reduce your petrol costs? Buy a more efficient diesel car? Sell & buy cheaper cars to clear your loans to leave you with more disposable cash. If you're regularly spending €600 more a month than you have coming in that adds up to a substantial increase in debt over a year. I think you've got to look at cutting expenditure.
 
Thanks Butter, I will look at the documents but I suspect that they are not tied together in the way you describe by what I remember. Your advice to speak to KBC again is good, the problem seems to be that we can never speak to the same person. They dont seem to have an account manager for each case as such, just different people each time we call. Each time we have to explain our situation again. This is why we wondered if we should go to someone else, solicitor, accountant?

You are right about the expenses, I have run the figures more accurately and it comes out that we spend 2600 per month ( I had included loans in the 3000 figure I think).
We have worked hard to reduce over the years, we have 2 old cars that we pray will keep going as long as possible. Our childcare costs will go down in September when our youngest goes to school so that is something, might be a saving of 200 a month.
 
I think one of the key things to find out is what you could borrow in a new mortgage if you sold the family home & moved closer to work? Maybe try speaking to an independent mortgage broker & see if they have any info for you.
Also could you try & make appointment to speak to someone in the KBC branch. It's more personal than by phone. KBC seem to be active in the mortgage market at the moment. Yes it's a pain to keep explaining yourself but until you know the full story & all the options it's hard to make a decision.
I feel your pain about childcare - if I add up what I have spent over the last ten years for childcare for two children - I think I would drop with the shock!
 
I'm back to update and get some more advice. We have written to KBC several times with the aim to get them to consider our situation as a whole and not constantly having to fill in SFS forms every three months, for the separate properties, which is so stressful. We asked for a longer term solution too.

Finally with many calls and letters and really staying on top of them, we had a meeting with a case worker who went through the numbers.

The offer has come through now. The offer is to pay interest only on our primary residence and to pay less than interest only on the BTL, but with the condition that we put it on the market and sell it within 12 months.

We have questions about this of course, what happens if it does not sell? What about the negative equity? The answered we got when asking we're, oh it goes up to board again for a decision...??? What does this mean? Can they put the neg equity onto our main residence?
 
Hi anyone out there? Could really do with some help! Instead of what was described to my husband on the phone on Friday, we got our letter today. It's is basically saying we have agreed to surrender our second property for voluntary sale. If it does not sell within 6 months we hand it over to kbc. Help!!!
 
If you sell the investment property you will be left with the shortfall owing to the bank. That is about €85k. It is unlikely that the bank will write this off as you have positive equity in your home.

What about your mother in law if you sell the property. Or more realistically you cannot sell until you have rehoused her. If you can rehouse her then you would probably be better off to rent out that house rather than sell it.

Can I make a personal comment (with a purpose) you appear to be over anxious about the situation and this understandable emotional response to a difficult situation is leading you to over react and make bad decisions.

Why have you been chasing the bank? I understand that the existing situation is stressful and you would like it resolved. But you seem to be stampeding yourself into a bad outcome.

Look back at Butters post no.3 You have net income of €2,6013 per month and spending of €2,600 I suggest that you live with this and see what improvements you can make.

You are contributing the rental value of the property to your mother in law's upkeep. Is there any other child that could be asked to make a contribution. Say pay you half a reasonable rent for the property.

It also must be recognised that at 90 your mother in law will not be able to live in the house for many years and that things will change there.

So my advice is do not sell the investment property, hang on through your present difficulties. Your child care cost will go down in Sept, try to get some income from your mother in law or on her behalf. Is anyone in receipt of carers allowance for her?
 
Broadly agree with cremeegg! However you do need to address the KBC proposal to sell the property. It's unrealistic to expect the Bank to allow you to retain this property purely for your MIL to live there rent free. They have given you 12 months to sell the unit. But realistically it may take 6 months to cater for alternative housing for your MIL. Obviously you can resist the Bank's proposal and they will have some difficulties in obtaining forced re-posession of a property currently occupied by a 90 year old. However, given the positive equity in your main PDH, they will in time have recourse to you for any shortfall on sale. Even though the 2 loans are not formally connected the Bank are likely to hold an "all moneys charge" as security which covers all debt owed to them. Given that you are paying less than IO currently on the overall debt, I see very little options on you being in a position to re-finance your HL. How will you pay a new full monthly mortgage payment??
Ideally you need good independent financial advice and should attempt to obtain same from a reliable source!
 
Back in June you posted

Julia111 said:
They have now offered us the solution of signing a 5 year interest only deal for both properties, ie 800 per month for each property and re-capitalise the arrears of the BTL.
Click to expand...

This was a good offer and if it still available I think you should accept it.
 
I'm amazed KBC have allowed you to keep a house with zero rent coming in.

I think the offer of KBC to sell the 2nd home is a good one. It doesn't matter if there is negative equity. If that home is gone they will come to an arrangment on the NE, so that you pay your current mortgage and also the NE. You'd have the current 800 and the investment 800, making 1,600 available to pay down the two mortgages of 185K plus 85K NE = 270K.

What you ought to do is find out how they propose to let you pay off the 85K. Hopefully at the same interest rate and term as currently.

Why can't your MIL move in with you or rent somewhere suitable? From the banks perspective it's not their problem.

You ought to also go through your current spending and see where the 2,600 is going. Is this not detailed on your SFR. Ideally, if this frees up cash you need to try and tackle the high interest rate loans and also start saving for your next cars.
 
Bronte,

I do not understand why you think they should sell the investment property and crystallise a €85k loss.

Would they not be better off to hold the investment property paying €800 per month and housing the mother in law.

While the mother in law is not the banks issue. In reality they cannot sell the property unless some arrangement is put in place first.

It seems to me that the OPs main problem is that they are contributing €800 per month to the mother in laws accommodation. Without this cost or with some support toward this cost they would have a much smaller problem.
 
cremeegg said:
I do not understand why you think they should sell the investment property and crystallise a €85k loss.

.
Click to expand...

Is it not better to crystallise the loss and start dealing with it rather than putting it on the long finger and getting nowhere. Even if the bank is currently being 'nice' there is no guarantee banks will continue in this vein in the future. If they start to make headway they could have the banks doing all sorts (penalties, arrears, hiking interest, legal fees).

I should have added my advice would be probably different if they were not in a rural area - we are not allowed to talk about property price rises - but if there is a possibility of rises that will wipe out the NE then that is a very relevant consideration.
 
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