Want to sell rental property but bank require capital reduction on family home mortgage if we sell

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Laura

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We are thinking of selling our Rental Property as it has become too stressful for us to manage
1. due to a troublesome tenant.
2. property is 200KM from where we live now.
3. we need to move from our family home as we bought it before we had kids and we have no space whatsoever so thought it would free up some more money as deposit on new family home.
We had the rental property valued at 180K and the mortgage outstanding is 84K (interest rate 0.85%). Rent is €800 per month
However there is a cross charge on the property against the family home mortgage and we have been told by PTSB that if we sell the rental property they will need a capital reduction on the family home mortgage if the LTV ratio is greater than 60%.
We have 329K outstanding on the family home with 16K prepaid on the tracker mortgage (0.65%) and I estimate the current value is aprox 360K so on that assumption we would definitely be required by PTSB to reduce the capital on our family home mortgage.
This has made us rethink the plan to sell the rental property and left us stuck in the family home. Has anyone else been in a similiar position ? ie with a cross charge on another property and had to negotiate with PTSB ?
Also generally just looking for advice to help us make a decision as we are at an impasse.
Thanks for any input in advance.
 
Hi Laura

This is very complicated, so these are just some ideas for consideration.

1) Whatever else you do, stop prepaying your tracker mortgage. It's usually a bad idea. It's particularly bad in this case as the extra €16k would give you more flexibility to negotiate with ptsb.

Here are the figures, rounded up for simplicity

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How much is the home you want to buy? Can you afford the extra mortgage? What is your current gross income?

ptsb should allow you move the €210k tracker to a new property with an additional margin of 1%.

Alternative plan 1 - Keep the investment and sell the family home
Is this possible? It depends on how much you want to borrow?
Obviously ptsb would have to agree, which they might not do.

Alternative plan 2 - Let your current family home and rent a more suitable property

Your cheap trackers make both properties very profitable investments. The interest on your family home is only €2,000 a year, and I presume that the rent would be closer to €20,000 a year. You are getting €10,000 rent on the investment but paying less than €1,000 a year interest. The net profit after tax would be lower, and all of it would be going to capital repayments, so it might not be an option.

Alternative plan 3 - Try to negotiate a better deal with ptsb

ptsb has €390k of very cheap trackers. They should be interested in doing a deal to reduce this. They should be happy to get rid of €84k of it and get a higher margin from the €310k on your family home. You should set out the figures and make a submission on how much they will benefit from your proposal.

For example, if you sell the buy to let and trade up to a house worth €460k

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The benefits to them:
  • No change in overall security
  • Early repayment of €84k of cheap tracker
  • An extra margin of 1% on €310k
Alternative plan 4 - stay where you are for a few years

If you feel that you are forced to stay in your current home forever, then you would find the lack of space a problem. But if you have a 5 year plan to move, then it's far more manageable.

Your accommodation is very cheap at the moment - €2,000 a year. The rest of your repayments are going to paying down the capital on the mortgage. It's the same for the buy to let. If house prices don't change, you will be gradually reducing your overall loan to value from 67%.

The tracker is very valuable now, because you have € 400k worth of debt. As you pay down the capital, it will become less valuable.

Brendan
 
Hi Laura I'm currently in the same process and have been unable to negotiate a better deal. There is a Plan 5 which Brendan didn't mention- apply for a positive equity tracker mover informing the bank you are putting both properties on the market and the profit from both sales going toward new morgage decreasing morgage ask for new property. This for me having mulled over the options above over the last four months seems to be my best option! Hope that helps.
 
GTRE said:
Hi Laura I'm currently in the same process and have been unable to negotiate a better deal. There is a Plan 5 which Brendan didn't mention- apply for a positive equity tracker mover informing the bank you are putting both properties on the market and the profit from both sales going toward new morgage decreasing morgage ask for new property. This for me having mulled over the options above over the last four months seems to be my best option! Hope that helps.
Click to expand...
I would like to compliment Brendan for the time and effort he made to try and help Laura
 
Brendan, Thank you so much for the effort you have put into my questions and your analysis. You are right. It is complicated ! I will take some time to consider what you have outlined. Addressing some of your questions
  • If we are to stay in the same area where our kids are settled in schools\clubs etc etc 4bed houses are on avg 550K-600K :-(
  • We have approval in principal last year from PTSB for a 495K mortgage based on our combined salaries and we could at a push make the repayments. We are undecided if we want to burden ourselves with that size of a mortgage though but its our only option if we want more space and stay in the same area
Thanks GTRE for your input also.
 
Brendan Burgess said:
HI GTRE

Isn't that the default plan which the first figures show?

ptsb should allow you move the €210k tracker to a new property with an additional margin of 1%.
Click to expand...

Isn't the amount outstanding on the PDH €310k? If both properties were sold and the outstanding €310k tracker was ported to another property would that not make the figures more attractive?

I'm not sure I would agree that the rental property is particularly good as an investment. It's currently let at a gross yield of 5.33% to its FMV, which is ok but certainly not brilliant, even if it is being funded very cheaply. If it's causing grief I certainly wouldn't base my plans on retaining it just because it's on a cheap tracker.
 
Sarenco said:
Isn't the amount outstanding on the PDH €310k? If both properties were sold and the outstanding €310k tracker was ported to another property would that not make the figures more attractive?
Click to expand...

The OP wants to sell the investment property which has equity of €100k.
The lender wants this paid off the home loan, which would bring the outstanding mortgage down to €210k.


Sarenco said:
If both properties were sold and the outstanding €310k tracker was ported to another property would that not make the figures more attractive?
Click to expand...

That is what I am suggesting in Alternative Plan 3
 
How many children do you have and what ages are they? 4 Children 11 \ 9 \ 6 \ 2
How many bedrooms in your present house : 3beds 960sq foot - no scope to extend either.
 
Laura said:
However there is a cross charge on the property against the family home mortgage and we have been told by PTSB that if we sell the rental property they will need a capital reduction on the family home mortgage if the LTV ratio is greater than 60%..
Click to expand...

What exactly do you mean by cross charge.

You are not in NE on either property, yet the bank wants you to reduce your tracker home loan, sure they do, they want to get rid of trackers. I would question the legality of their actions. I think they have some neck asking you to pay down part of your home loan, it makes no sense from your financial viewpoint.
 
Hi Bronte

When the lender issued the loan to buy the home, the OP gave their investment property as security as well.

So it's perfectly reasonable for the lender to ask that this security not be disposed of. Or to ask that the LTV on the home be reduced in order to release the security.

Brendan
 
Also just to raise a further point on this issue; All bank charges are now taken as "All Money Charges". This in effect means that while you may have a number of separate loan facilities with a bank that are all independently secured a bank may refuse to release security even in the event that the associated loan is repaid if it feels that it is not satisfied with the risk relating to the remaining facilities. This is an option that can be used at the bank's discretion!
 
Brendan Burgess said:
When the lender issued the loan to buy the home, the OP gave their investment property as security as well.

So it's perfectly reasonable for the lender to ask that this security not be disposed of. Or to ask that the LTV on the home be reduced in order to release the security.
Click to expand...

But the OP is not in NE on the home. If it weren't it might be perfectly reasonable. But what I actually wanted to understand was whether it was legal. As in does the contract state this. What if the customer refuses, do they have grounds to withold the deeds. Normally when they are released to the solicitor he will undertake to repay the mortage so as not to affect the banks interest, in this case this can be done as there is no NE.

The OP is at about 90% LTV on the home loan.

Not clear on the prepayments but this might be making it even better.
 
44brendan said:
Also just to raise a further point on this issue; All bank charges are now taken as "All Money Charges". This in effect means that while you may have a number of separate loan facilities with a bank that are all independently secured a bank may refuse to release security even in the event that the associated loan is repaid if it feels that it is not satisfied with the risk relating to the remaining facilities. This is an option that can be used at the bank's discretion!
Click to expand...

So this is a new thing nowadays? Have you a copy of the clause 'all money charges' ? Seems to me my advice then to investors is to have their loans with different lenders.
 
The OP has a mortgage of 310 on a house worth 350 i.e. LTV of 89%. That is a lot less security than their current 72% LTV of the combined properties.

Reducing it to 60% seems excessive, but they are well within their rights to have it reduced to, say 70%.

Yes, it's perfectly legal. It was a contractual condition at the time the mortgage was issued.

Brendan
 
Brendan Burgess said:
Reducing it to 60% seems excessive, but they are well within their rights to have it reduced to, say 70%.

Yes, it's perfectly legal. It was a contractual condition at the time the mortgage was issued.

Brendan
Click to expand...

Well what if they figures were different and they made her reduce it to say 30% LTV. Why is 70% ok but not 60%. YOu mean the bank can pluck their LTVs out of thin air. And of course this has nothing at all to do with the fact she has a fantastic tracker. Which I think is portable? But with having to reduce it, they reduce what she can buy. It wouldn't matter though 90% if the earnings are say a civil servant.
 
Hi Bronte

With Irish attitudes to repossession, I would not lend 80% to buy a house. I probably would think 70% is safe enough.

89% is close to reckless lending.

60% may be to safe.

The fairest would be to allow her to sell the property. Pay the profit off the home mortgage. When she trades up, give her the tracker of €310k as long as the LTV is below 70%.

But it's probably not an issue of fairness here. She has a fantastic tracker. ptsb are not under any legal or moral obligation to do a deal with her to allow her continue with it.
 
Brendan Burgess said:
But it's probably not an issue of fairness here. She has a fantastic tracker. ptsb are not under any legal or moral obligation to do a deal with her to allow her continue with it.
Click to expand...
Absolutely! I'm not sure as to whether "fairness" comes into the head of any large business CEO's head when decisions are being made. If the contract with the client allows you to use leverage to reduce/eliminate an unprofitable loan exposure most banks will do so!

BTW Bronte you will find that all banks' are likely to include the !all moneys" charge in their mortgage documentation!
 
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