Moved to London, letting my home in negative equity

S

sjane

Registered User
Messages
9
I am in negative equity of €60k. I am currently renting my property as I now live in London.
Total outgoings on the property including, Mortgage, Property Tax, Tax Paid on earnings, Property Management fee, Letting agent fee etc amout to approximately €1300.
I am now receiving €1000 rent per month. I am hoping to increase this to €1200 in April.

My mortgage payments are not in arrears however i am nervous in the instance i do not receive €1200 for rent and i have to supplement the outgoings. As it currently stands i will have to send at least €100 a month home to ensure all my bills are being paid on time. I cannot afford this as cost of living in London is also expensive and my salary covers only what i need to survive here.

My property is beginning to feel like a burden and i am getting conflicting advice on what i should do. I know that prices are on the rise but it will be at least 5-10 years before i am in a position to break even.

I would appreciate any advice. Has anyone been in the same position and can offer me some guidance.

Thank you.
 
Thank you for the reply Brendan, this is all new to me so feeling somewhat out of my depth.

Income details
Net monthly; £2,200
Moved to London in November 2013.

Home loanLender: Permanent TSB
Amount outstanding: €236,000
Value of home: €175,000
Interest rate: Tracker
Monthly repayment; €800 approx
Amount in arrears; NA

I do not have any other loans or creditors.


I would like to keep the property but cannot afford to suppliment the outgoings on a continual basis and am wondering what i can do, if anything to ensure it is manageable.
 
OK, this is a very profitable investment for you.

Your mortgage is €236,000. If the interest rate is 1%, you are paying around €2,000 a year in interest. Your repayments are €9,600 a year. So most of your monthly repayments are actually capital which means that you are reducing the balance due on the mortgage.

As you are paying down capital of €7,500 a year, you will reduce the mortgage to €175,000 in about 7 years. So if prices remain the same, you will be out of negative equity in 7 years and you will have a very profitable investment.

If you sell now, you will still owe ptsb €60,000 and will have to make repayments on that. But you won't have any income.

So you must try to hold onto this and to hold onto your tracker.

A few options
1) Can you borrow the €300 a month from a family member? You are not borrowing to subsidise your lifestyle. The more you borrow from them, the less you owe to ptsb, so this would be very healthy borrowing.

2) Ask ptsb to reschedule the mortgage. The problem is that they might try to kick you off your cheap tracker, which would be a disaster.

3) If you find the going tough, you might just have to go into arrears. If you continue to pay most of the repayments, then it's unlikely that they will take any action other than sending you arrears letters.

But you definitely should not sell it.
 
Brendan Burgess said:
As you are paying down capital of €7,500 a year, you will reduce the mortgage to €175,000 in about 7 years. So if prices remain the same, you will be out of negative equity in 7 years and you will have a very profitable investment.
Click to expand...

Sorry about this sjane. I'm just trying to understand how this works. I don't understand how if she's paid in all that money but the values of houses stay the same how it could be a profitable investment. I get what your saying about the debt chasing her if she sells but how can it be a profitable investment if she is only breaking even after putting all that money into it. Could you explain it? Sorry, I'm a bit thick when it comes to money. Do you mean that the tenants are paying most of it and she is just topping it up or is there more to it.
 
Hi Clueless, is that question to me or Brendan?

Thanks for your reply Brendan.
In relation to your first point to borrow money from a family member, that isnt an option.
I am aware how valuable the tracker mortgage is so rescheduling the mortgage will probably mean they will try to take that away from me and that as you said would be a disaster so that rules that option out.
On your third point, would going into arrears affect my future borrowings, especially in the UK?
 
clueless said:
I don't understand how if she's paid in all that money but the values of houses stay the same how it could be a profitable investment.
Click to expand...

You are confusing the interest paid with the repayments. The repayments are a form of saving. The profitability is the current revenue less the current costs. Rent less interest paid and expenses.

Put it another way, if she keeps the property, she will eventually own it mortgage free.

There is a bit more about it here:

http://www.askaboutmoney.com/thread...ive-equity-or-keep-it-and-rent-it-out.154137/
 
sjane said:
On your third point, would going into arrears affect my future borrowings, especially in the UK?
Click to expand...

I am not sure if it would affect you in the UK. But if you have a €60k unsecured loan, that would certainly affect you.

Brendan
 
Can you give us the actual figures for annual costs please.

I think the idea of borrowing from family is crazy. Just making an even bigger mess.

If you go to the PTSB and mention the house is rented you risk them changing you to an investor interest rate. Be very careful.

No idea on this, but would PTSB pursue you in the UK for 60K. It seems you can barely afford 100Euro a month to subsidise the Irish property so I don't see what they can do to you in the UK.

A property that only costs you €100 euro is nothing while building up an asset that will eventually be worth a lot for you.
 
Bronte said:
I think the idea of borrowing from family is crazy. Just making an even bigger mess.
Click to expand...

Hi Bronte

Jane has a loan of €236k today. She owes ptsb €236k
She is paying down capital of €7,500 a year.
This time next year, she will owe ptsb €228,500
Let's say she can pay down only €3,900 from her own resources.
This time next year she will owe ptsb €232,100
She will end up in arrears and may lose the property and end up with a judgement against her for €60,000.

If a family member, can lend her €300 a month, then
This time next year, she will still owe ptsb €228,500
But she will owe her family member €3,600
So she owes the same amount in total: €232,100

She keeps her property
She keeps her tracker
She keeps her credit record intact

At some later stage, she may sell the property and repay her family member in full.

Of course, it would be better if ptsb agreed to write off the shortfall.
Of course, it would be better if ptsb agreed to reschedule the mortgage and let her stay on her tracker
Of course, it would be better if she could afford to pay her mortgage in full without borrowing from anyone else.

But as these options are not available, then she should consider borrowing from a family member.

Brendan
 
I go with the maxim: neither a borrower nor lender be.

€100 a month is nothing. And she'd be better off sorting out her own mess. What family member would want to be out €3600 annually for an indefinite period of time, this is how family rifts start. It's a lot of money.
 
Bronte said:
I go with the maxim: neither a borrower nor lender be.
Click to expand...

That's great poetry for the 16th century, but it's meaningless today. And it's particularly irrelevant as Jane already is a borrower.

What family member would want to be out €3600 annually for an indefinite period of time

I know many people who would be quite happy to lend to other responsible family members in difficulty in order for them to retain a great investment.

Brendan
 
Thank you Brendan for your clear and helpful replies.

Also thank you Bronte for your input.

I have really found this forum of great help.
 
Thanks Brendan for that. I get what you mean in that she's at least not 60,000 in debt. Lets hope the market picks up eventually.

I have to agree about borrowing money from a family member. Been there, done that. Paid it back very quickly but it was thrown back at me at every possible opportunity. You borrow money from family members even if you pay it back ten fold you'll still be paying for it forever. If you have to go to a family member to borrow money be very sure that it is someone who won't use it to punish you/hold it over you forever.
 
Maybe there's something here I don't understand!!! OP has indicated that monthly RI is 1,000 with potential to increase towards 1,200. Mortgage payments are 800pm. Direct property related expenses are likely to be low, so what is the issue? The net RI should currently meet the mortgage payment and this should increase if rent is raised. When she talks about "bills" are these external loans and if so why on earth should they be paid from RI?
 
44brendan said:
Maybe there's something here I don't understand!!! OP has indicated that monthly RI is 1,000 with potential to increase towards 1,200. Mortgage payments are 800pm. Direct property related expenses are likely to be low, so what is the issue? The net RI should currently meet the mortgage payment and this should increase if rent is raised. When she talks about "bills" are these external loans and if so why on earth should they be paid from RI?
Click to expand...

My reading of it is that the rent is currently €1,000 pm (with scope to increase it to €1,200 pm) and that the outgoings attributable to the property are currently €1,300 pm.

But of that €1,300, the bulk is capital repayment / deferred saving.
 
Last edited by a moderator:
Gordon Gekko said:
My reading of it is that the rent is currently €1,000 pm (with scope to increase it to €1,200 pm) and that the outgoings attributable to the property are currently €1,300 pm.
Click to expand...

This is correct Gordon. So you think my situation overall is manageable, despite not receiving enough rental payments to cover the total outgoings attributed to the property.

What would the repercussions be if there was a break in the tenancy and I couldn't afford to pay the mortgage for 1 month or 2?
 
You must log in or register to reply here.
Back
Top