Struggling With Rental Property Mortgage

There is a common belief from many investors that Banks should do the decent thing and write off a large portion of the balance where a property is in negative equity. This is based on the misunderstanding of the concept of loan v's investment. Banks are lenders and not investors. For simplistic purposes at a 2% interest rate (in line with many tracker mortgages) and 1% cost of funds, the Bank will achieve an annual return of 1% on funds lent. The investor (in return for taking the bulk of the risk) will expect to achieve a significantly higher return from using the funds borrowed to invest in business or property. However, if the gamble does not pay off the investor bears the full loss and there is no onus on the Bank (who lent the money) to share in that loss. Obviously if the borrower cannot pay back the funds the bank will lose all, or the bulk of funds lent.
OP's opinion is that the bank should share the loss he incurred in his property investments. However, if that investment had doubled in value would he also be running in to the bank to share the profits. The obligation under a loan agreement has nothing to do with the success or failure of the use those funds are put to. Otherwise we would need to open up venture capital banks with extraordinary high rates of interest to compensate for potential high capital losses. Brendan B's response may not be what the OP wants to hear, but like it or not, the OP did enter into both lending contracts with a full awareness of the risks attaching to a property purchase and when that risk does not pay off, there is no point in expecting the Bank who has merely supplied the finance at a low interest margin to share the pain unless this can not be avoided.
 
Brendan Burgess said:
I have called on the banks to do this to address their tracker book. However, they probably reckon that there are enough people out there who will sell their home anyway and pay off their mortgage in full. You are in a position to do that on your investment property.


But you are in a great position. You are just not looking at it clearly. You have

  • well paying jobs
  • €30k in savings
  • a cheap tracker on your home and
  • a profitable investment.
We do not shy away from pointing out to people how well off they are if that is what you mean?
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Thank you Brendan, I really do value the advice on this forum from yourself and other contributors. I am hoping to focus on the solutions for the future and not dwelling on mistakes of the past that nobody can change. I have always tried to be conservative in my risks and proactive in dealing with problems. The former hasnt worked out so well, hence the need for me to start this thread, so I'm focussing on the latter. Thanks again for your advice.
 
Bronte said:
I missed this in your post. You are wrong on both counts. The lender doesn't have to take a hit, you do, galling as it is, but you took the risk, not the lender, look at it another way, if it had gone the other way, you would not be on here asking us how you could pay the profits to the bank for the help they gave you in giving you the loan in the first place.

Many people chose not to have kids or limit their families due to economic reasons, including myself (and for a second reason I'm not going into).

I will add in your repayment amount of €321 to post 14 - reminder double check all figures.
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Hi Bronte, I hope I have not offended you with my earlier opinion on having kids and I apologise if I have offended you.

The banks saw opportunity to make money when they had an excess of cheap money thrown at them. THey took a risk by lending for a profitable return (invested) and not only that but incentivising large mortgages via cheap money and also fuelling the property bubble.

Borrowers including ourselves have to take some of the blame also but all I'm saying is that where both parties are to blame, it would be better for the greater economy, that if the banks are going to lose whether the loan goes full term or not and the borrower may not be able to see the loan through to full term, in which case the bank takes a bigger hit, instead of the bank and borrower protracting the saga, just sit down, assess the figures, come to an agreement quickly and let both parties move on. Both parties will have lost but both parties can start again.

In my opinion this would allow the economy to recover faster instead of crippling it and those who made a mistake can get on with the rest of their lives and maybe do something to create jobs with the money that is now not going into a mortgage where everyone is losing money.
 
Bronte, I checked my figures from bank statements, original mortgage offer letters etc, before I submitted them last night so they should be accurate. Thanks again for taking the time to offer an assessment of the situation.
 
Newera said:
I hope I have not offended you with my earlier opinion on having kids and I apologise if I have offended you.


Borrowers including ourselves have to take some of the blame also but all I'm saying is that where both parties are to blame,

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No offence taken at all, but you should be aware that there are a lot of people reading what you write thinking how lucky you are. You are just not seeing this.

Your second point I don't agree with at all, in your case you took the risk, it was not a shared risk with the bank, you would not have shared the profits if it had succeeded with the bank, you don't seem to understand that even if the bank took the 'hit' with you, it would be in effect other taxpayers, who would be on the hook.

I appreciate your thanks, it's nice to get feedback that we are helping someone, not only should you check your figures but all mine, I never stand over them. Nor should any viewer on AAM.

And not for a moment do I believe that the savings are your wife's ! The right thing to do is pay your relatives. I have found that the right thing to do, is generally the best thing for society, and you mentioned that in what you wrote, bring it home.
 
Reading the Threads;newera,

It is always difficult to ONLY stay on the clarity of FINANCE .

Try to take out any (family) type thoughts and let the true figures decide your financial position.

If the figures add up today , run with those figures, as trying to guess the future is @ best uncertain.
 
Bronte said:
Your second point I don't agree with at all, in your case you took the risk, it was not a shared risk with the bank, you would not have shared the profits if it had succeeded with the bank, you don't seem to understand that even if the bank took the 'hit' with you, it would be in effect other taxpayers, who would be on the hook.
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I completely disagree with this point. The bank, who are inevitably going to make a loss by the nature of the loan being a Tracker, would simply calculate what that loss is going to be over the lifetime of the mortgage and balance that against the risk of not being paid at some stage. Instead of realising all of the loss, even if they passed e.g. 80% of this figure on to the loan amount, they would be saving the Taxpayer money?


Bronte said:
And not for a moment do I believe that the savings are your wife's ! The right thing to do is pay your relatives."
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I'm not sure what exactly you mean by this but I agree the right thing to do is to pay my relatives and thats what we're doing.
 
MrDerp said:
I'd suggest that with baby no.2 on the way, you're time would be better spent sitting down with your wife and deciding what you're going to do to make up the shortfall of 570 that's coming (700 creche - 130 childrens allowance)

I'd also strongly strongly recommend that you discuss money in general, as a couple. The fact that you have separate savings and debt as a married couple suggests to me that you each keep a lot of personal income, and maybe you each keep a good few hundred back for personal expenditure like clothes and entertainment?
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Thanks for the feedback MrDerp. We have very good control and records of our finances and regularly assess our situation together. A certain amount of the money is / was my wifes, a certain portion is mine and the balance is joint money. Whether or not this is what other people do, its the way we operate and has been ok so far.
 
Newera said:
. We have very good control and records of our finances and regularly assess our situation together..
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I completely missed the income. 6686 monthly, less mortgage of 1385 less creche of 800, new child creche, 800 'subsidy of rental' 900 leaves you with 2801 monthly??? And most of the rental cost is actually capital repayments, as are a lot of the 1385 on the home loan. Eventually you will have two assets and no loans. I agree with MrDerp, it looks like a standard of living issue, other debt servicing or else other spending that is out of control.
 
When are morgages,especially buy to lets going to have their repayment periods extended to age 80 or 90 in ireland as the population are now living longer and similiar to America where where i understand it is regarded as discrimination against older people not to give them morgages to these ages and in Britain where some financial companies have no upper age limit on the repayment term.?Surely for people say in their sixties with big debts restructureing their debts to these ages would be a win win for banks and for owners.
 
Yes of course. However, very few BTL mortgages are self financing and most employess still retire at age 65 with a significant drop in income.
 
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