my sister wants to buy my apartment,but can't get a loan

An interesting question for Jill Kerby in yesterday's Sunday Times

owner: Brother is emigrating
Apartment value: €200,000
Mortgage: €235,000

Sister, who lives in the house, wants to take over the mortgage at €235,000
Has a deposit and good job,but "our bank won't lend on apartments"

The reader asks who will lend for the apartment?

I am not sure why the sister wants to pay €35,000 more than the apartment is worth. But it could be worth doing if there is a cheap tracker and she was allowed to keep it.

Karl Deeter's advice - if I understand it correctly:
Circumvent the banks
set up a tenancy in common agreement
Sister pays you some of her deposit as a downpayment
"de facto" ownership will be transferred

I don't fully understand Karl's advice, but it's an interesting question.

I would have thought that the brother should be paying the sister €35,000 to take over the mortgage!

I would also have thought it worth really pushing the bank on this one. They don't lend on apartments, but at the moment they are lending €235k on an apartment worth only €200k, anyway. Surely it would be in the bank's interest to faciltate the sale to the sister with a mortgage less than €235k. If the sister is not as good a risk as the brother, he could guarantee the mortgage or be added to the new mortgage. They could make it even more attractive to the bank by paying off some of the mortgage if he has capital, so the apartment would move into positive equity.

If he has a cheap tracker, then the bank should bite his hand off to facilitate this sale. But, then, he should be reluctant to sell it

If the bank doesn't facilitate it or if he has a cheap tracker, he could give the sister a buy option and the sister could give him a sell option at €235,000. This could be exercized whenever the banks lend on apartments again. This would be a way of keeping the cheap tracker.

She could pay the deposit to him now as security in case she does not honour her side of the deal.

Brendan

Large organisations prefer to have simplified rules and accept that there are exceptional circumstances where they would be better off if they did not apply theie standard rules. The alternative is to have very complex criteria that is open to interpretation and is more difficult to monitor.

In this case they would, most likely, be better off lending to the sister but they have determined that in the greater scheme of things a complete ban on apartment lending will yield a better overall outcome for the financial institution.

If you owe the bank €235,000 you must fit in to the banks generic rules, you have to owe them €235 million if you want a personalised solution.

"Circumvent the banks
set up a tenancy in common agreement
Sister pays you some of her deposit as a downpayment
"de facto" ownership will be transferred "

This does not work. It is not possible.

Legal ownership cannot pass without the say so of the lender.

mf

mf1 said:

"Circumvent the banks
set up a tenancy in common agreement
Sister pays you some of her deposit as a downpayment
"de facto" ownership will be transferred "

This does not work. It is not possible.

Legal ownership cannot pass without the say so of the lender.

mf

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Thanks mf

I didn't understand and didn't really like the sound of it either. While we would all like to "circumvent" the banks, and indeed the legal profession , I wouldn't think that they are too easy to circumvent.

Brendan

The idea of the tenancy in common agreement is that every year as equity starts to exist through repayment the brother in turn gives an annual gift of the equity of the property (as allowed under revenue exemptions from gift tax which is the first €3,000 of all gifts taken by a donee from one disponer in any calendar year - ie: slowly transfer ownership of the shares in the agreement), or indeed do it at the very end of the loan http://www.revenue.ie/en/tax/cat/leaflets/cat10.html in which case the sister has to keep living there after the gift - and we are assuming the place doesn't go up a lot in value in the future too.

It is true that you can't change title deeds without the banks consent due to their 1st lein, but a side contract should work fine given that it is a brother and sister we are talking about and not two strangers, both of them seem to be in agreement so why not?

Regarding the cost of credit: I won't factor in rate increases/decreases assuming that both are subject to the same with more upside on variables going further up

total cost of credit on 235k over 25yrs on a 2% tracker €292,000
total cost of credit on 200k over 25yrs on a 4% variable €364,000

so by borrowing the lower amount but with a new higher rate it makes a significant difference.

In this case you see a typical example of price and cost being out of alignment when you consider the property value and the financing cost on it.

Naturally, people should get their own professional and legal advice, there are legal issues here that extend beyond the obvious one of the property not being a PDH for the original borrower in which case the T&C's on the mortgage offer/contract may change, the mortgage being paid is in effect 'rent' and that is an issue too.

Having said that, if the banks are not willing to work with the person then alternatives are worth exploring even at a cost of professional advice. You can also call revenue and they are quite helpful.

Hope that helps make sense of things!
karl

Cheaper option would be for brother to stop paying mortgage. He won't be in the country as he's emigrated and thus can't be chased for money.

Sister continues to live there rent free while saving €1200 per month she'd otherwise be paying to mortgage lender. After 2 years she'll have extra almost €30k of a deposit saved.

Will take 2 years for bank to issue proceedings etc. She can then negotiate on behalf of brother and herself to buy property off bank at a considerable discount on even current value with a mortgage thrown in.

If she's €20k already she'd prob get place for €150k with only €100k finance needed. Bank would be delighted with €50k cash coming in.

Taking over €35k negative equity is a completely naive and stupid idea IMO. Why would you do that to yourself.

Cheaper option would be for brother to stop paying mortgage. He won't be in the country as he's emigrated and thus can't be chased for money.

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A very creative solution indeeed. But most people do actually want to pay back their debts and solve their problems by agreement with their lenders, even if the lender is making it difficult.

I think that the brother was going to the UK so it might not be too difficult for the bank to chase him.

And I guess that most people who emigrate want the option of coming back to Ireland and having a clean credit record.

Brendan

Brendan Burgess said:

A very creative solution indeeed. But most people do actually want to pay back their debts and solve their problems by agreement with their lenders, even if the lender is making it difficult.

I think that the brother was going to the UK so it might not be too difficult for the bank to chase him.

And I guess that most people who emigrate want the option of coming back to Ireland and having a clean credit record.

Brendan

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He could file for bankruptcy in the UK if he hid some cash and stayed out of work for a short period.

I'm going to call this one the David Drumm influenced option.

People's opinion on paying back hopeless debt (i.e. when in negative equity) has to be changing with the current shenanigans going on with the banks. With interest rates about to be whacked up and taxes going up to pay for this mess I believe people won't be so ready to pay back their debts in these kind of cases. The common man is getting screwed while the burgouis bankers are laughing.

Side contracts? Stamp Duty? legal expense, possibly recurring annually?

Sister becomes a tenant as she is not the owner, property becomes an investment property, possible change to mortgage purpose?

Taxation for the owner on rental income? Tax relief or lack of for sister?

I eagerly await the legal experts responses as it appears to be a harebrained idea.

Another option

Step 1 : Go get named on the property deeds as joint owner, so two owners will be declared.
Step 2: After a few years, the brother files to be removed from the deeds.

Presto... ownership change!

hermit said:

Step 1 : Go get named on the property deeds as joint owner, so two owners will be declared.
Step 2: After a few years, the brother files to be removed from the deeds.

Presto... ownership change!

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Except that the bank would have to agree to 1)

which they won't.

igy said:

Except that the bank would have to agree to 1)

which they won't.

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So if I got married to my girlfriend that owns a property could I not be added to the Mortgage as a co-owner?
Surely this happens all the time!