Key Post In arrears - Ulster Bank offering 1% special interest rate for 5 years

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Personal and income details
Both employed - both in private sector
Net income (joint)– 4170 pm
Child benefit: 530pm
Income history: both of us have had significant pay cuts over last 6 years. Wife made redundant from job 2009 but secured part time role elsewhere on significantly reduced pay. I too accepted a significant pay cut. Long commute for both with high commute costs. Actively looking for employment closer to home.

number of children: 4
Amount of Mortgage Interest Supplement received: None

Home loan
Lender: UB
Amount outstanding: €593,288
Value of home: at best €360,000 (just got valuation back from auctioneer)
Interest rate: specify whether tracker or SVR or fixed rate: SVR 4.95% (correction – not 4.49%)
Normal Monthly repayment 2,968.34 approx.

Summary of discussions and agreements with the bank: Have been on reduced payments since 2009. Paid mortgage in full until 2009. Finished 3rd temporary arrangement early 2013. Amount in arrears 18,000

Other loans and creditors - delete those which don't apply to you
Overdraft - 4,000
Credit Card - 3,000
Credit Union e.g. €2,345 against shares of €1,822
Car loan e.g. 1,566 outstanding
Family none

Other savings and investments : none

How important is retaining the family home to you? Really important but I must be realistic.

Which of the following best describes your situation? I want to remain in my home.

What is your preferred realistic outcome?
The bank have recently offered a 5 year 1% interest arrangement with minimal terms and conditions. They accepted high petrol costs and childcare of €900 pm and have allowed cost of living amounts in line with insolvency guidelines. We will pay the minimum credit card and credit union loan repayment (but as expected no second car/no health insurance/no sky/no allowance for anything outside of essential and reasonable bills). They will take what is left as a reduced monthly payment. We are delighted to have been offered this arrangement as we had been seriously considering insolvency and bankruptcy. Pluses are it gives me 5 years of a breather and who knows what will happen in that time. In addition I will be paying a couple of hundred off the capital sum over the 5 years. Can anyone see any difficulties with this offer? ie., accept it (it is as good as it seems) or face reality – a mortgage I cannot afford now or in the future. I will probably still have an unsustainable mortgage in 5 years time as I cannot foresee us returning to previous income levels.

I would appreciate a constructive analysis of this offer.

 

[Brendan Burgess]

Hi Calves

Let's look at your net Reasonable Living expenses

couple with 4 children|€2300 (depending on ages)
Exceptional costs|€900
Total RLEs |€3,200
Net income|€4,170
Available for mortgage/housing |€1,000

So the problem you face, is that you have only €1,000 per month to pay for your housing expenses, whether that is a mortgage or through rent.

€1,000 per month is not enough to pay the repayments on a house worth €360,000.
€1,000 per month is not enough to pay the rent on a house worth €360,000

You don't have enough money left over to pay the €1,500 you need to keep UB happy.

But if you reject the deal, will you be able to get accommodation for yourself and your children for €1,000 per month?

Let's look at your options

1) Pay Ulster Bank €1,500 per month for 5 years
2) You and your wife apply for a Personal Insolvency Arrangement
3) You and your wife sell the home and apply for a Debt Settlement Arrangement
4) You and your wife go bankrupt


Option 1 - Ulster Bank deal
You will be paying €18,000 a year, €12,000 of which will be capital.
At the end of 5 years, you will owe €520k
The house is worth €360k, so it would have to increase by around 50% over 5 years to eliminate the negative equity.

You get the use of a €360k house for the next 5 years for a cost of €1500 per month.

if you go for one of the other options, you will pay far more than €1,500 to rent an equivalent house or you will get a far smaller house for your €1,500.



Option 2 - Personal Insolvency Arrangement

A PIP would do the following calculation

You have €1,000 per month to pay towards your accommodation.

There is simply no way you can make repayments on the current value of the property - €360,000 - the house is too big for your needs and should be sold.

Option 3 - Sell the home and apply for a Debt Settlement Arrangement

You will have €1,000 to pay for rent and unsecured creditors. In other words, you will have nothing to pay for unsecured creditors.

Therefore, there is no point in having a 5 year DSA. They should terminate the DSA i.e. write off your unsecured loans immediately and give you a fresh start.

I would be tempted by this arrangement

Option 4 - Bankruptcy
Only an option if the DSA is vetoed.

Option 5 - a Trade down mortgage
I am just putting this out there , but I don't think it's suitable

|current| after trade-down
Value of property|€360k|€160k
Mortgage|€593k |€410k
Negative equity| €233k|€250k
Price increase required|64%|156%

Although the repayments will be lower, you still can't afford the repayments on a €410k mortgage
It will take a lot longer to exit negative equity.
You will have a much smaller house

This would work for you, if UB agreed to write down the shortfall. You could meet the repayments on €160k.



Where will you be in 5 years' time if you take the UB deal

It will be something like the following
Mortgage: €540k
House value? Say €300k to €600k ( No one knows)
So you may still have big negative equity;
Or you may have positive equity.
But the most likely outcome is that you will still be in negative equity, but much reduced.

If they extend the deal, at some stage the value of the house will match the reduced mortgage - it might be 5 years, it might be 7 years, it might be 10 years.

The worst outcome for you would be that house prices fall and you would be in the same financial position as you are now.

You might ask Ulster Bank to agree to the following amendment. If you make the full repayments as per agreement for 5 years, that they will allow you to sell your house at the end of the 5 years and write off any shortfall.