critical analysis needed of my plan

We are going to meet our mortgage advisor with the hope of getting them to allow us to sell our apartment and continue paying the balance of the mortgage on the original terms. I know it is pretty unlikely but the following will be my argument and I would be grateful if you guys could critically analyse it for me.
(as if it was written by my wife!)

We have a baby arriving in September so we are definately moving out of our apartment for good.
We have two options:

  1. We could rent our apartment and rent a 3 bed house or
  2. (Our preferred option) Sell our apartment (we hope to get €100,000) and continue to pay the balance €178,000 in the same terms as the original mortgage.

Reasons for wanting to sell apartment:

There are very few first time buyers buying one bed apartments in Dublin. They will not have much resale value and 2 bed apartments or 3 bed houses are not that much more expensive so one bed apartments are not an attractive buy for these people.

The only people who seem to be buying them are cash investors because they are achieving a good rental yield at present of around 10%.

For this reason I cannot see the value of 1 bed apartments rising even if we do have a “recovery” in house prices with other dwellings.

With no recovery in sight to the euro crisis, rising unemployment, potential rises in interest rates, further cuts to social welfare, rises in property taxes, introduction of water charges, cuts to rent allowance (resulting in lower rents and decrease in attractive of 1 beds to cash investors) etc I can only see 1 bed apartments falling further and therefore if the bank blocks our bid to sell the house they are effectively condemning us to being in further negative equity. The value could easy fall to €60,000 or lower and will unlikely rise higher than current levels in the medium to long term.

If we rent our 1 bed and rent a 3 bed we will lose our mortgage interest relief and it will cost us €812.50 a month between the balance of renting our 1 bed (best possible outcome assuming we have only one month rent free period and little maintenance required) and making mortgage payments and that value rises to €1285 when you include management fees, property tax etc.

If we sell our apartment and continue to pay the balance on the original terms of the mortgage it will cost us €887 a month which is more affordable than €1285 (best case scenario) and we wouldn’t have the worry of rental free periods, maintenance bills, property charges etc.

I may have to take a career break to look after our child(ren) and from the banks point of view option 2 would make it easier for me to make my repayments and not fall into arrears as it is more affordable.

Are there any other points that could strengthen my argument for this?

A one-bed apartment with a mortgage of 278k?

Since you are planning to rent, make the bank an offer. Say you will split the loss with them - you’ll take on an unsecured loan of 50k at unsecured loan rates. Do it all in writing. Continue to negotiate and work your way up to half the loss at SVR.

Anything more than that, walk away. Post back the keys. Declare personal insolvency (when the bill comes in). Whatever. You need to offer the bank something or a hard road chasing you and you need to have evidence that you offerred them something in good faith.

I don’t know how much you earn, but I doubt that even 887 a month (which is at current low rates) is affordable. The low rates will not continue forever. You risk crippling yourself and ending up no better off in a few years time.

Why would a bank let you keep 100k when they could have it?

You have a better chance of trying to ensure you don’t lose the interest rate relief by renting and not declaring it. Either way I would think you would lose it.

The bank may care a bit about you falling into arrears, but if it smells cash, it will want a good chunk of it

I don’t keep the 100k it goes to the bank and reduces the mortgage balance from 278k to 178k.

First up, congratulations on the baby arriving in September. That’s a lot to handle. Women and men to a lesser extent, “nest”. Usually a bit to excess. Sometimes not that rationally.

You are under zero pressure to go anywhere with one baby. You do not need a house or a 3-bed apartment. Not for 18 months at least. I speak from experience. We really overestimated the space required and were in a bit if a panic. But when the baby came, the apartment was absolutely fine. We have a lift, no stairs to worry about in the apartment, it’s easy to heat, it’s cosy and we didn’t have the interruption and upheaval of moving before the baby came.

Your analysis of future price falls to 60k are bordering on insane. The price of a one-bed apt in Dublin has never been this low. Further falls are - in my opinion - highly unlikely. Basic yield analysis strongly suggests this to me. There’s an air of irrational pessimism out there now as there was optimism during the boom. If your apartment was 300k or so at peak, chances are it’s a nice enough place and will rent out ok. Stop panicking. If you need to move, rent a while.

I don’t see why the bank would swap a loan with security (the apt) for a smaller loan with zero security (no apt). You’d be forcing them to re-classify your loan as a personal loan where interest rates are more expensive. No way can I see them continuing to charge a mortgage rate.

If you got a tracker, try to hold on to it for dear life.

The post above about threatening bankruptcy etc would be a stressful course of action. In Ireland you’re liable to pay back all of the mortgage whatever the property is now worth. Unless you have nothing to lose, I’d advise you to move out in time when you need to, rent it out and see how you go for a while.

Enjoy the baby. They grow up fast and really, worrying too muck about this sort of stuff is a bad idea in the end.

If you approach your bank with terms outlined above is there a risk you can you lose you mortgage terms? i.e. if you rent it (or threaten to) out technically its a buy-to-let. you might lose your tracker (if you have one). find out the BTL rate. my advise is to be super super careful what you tell your mortgage provider. tell them nothing unless you absolutely have to… if you have a tracker thats worth a lot. a lot. work it out based out prevailing rates. you jeopardise that if you blab about renting place out.

There is another thread where this is discussed in detail.

Its a pickle alright
It honestly sounds like 1 is the better option
an alternative is going bankrupt here (when legislation comes in) or in the UK
You will be 20 years trying to pay that down

The banks are not your friend.

Your mortgage advisor is not your friend.

The bank has €2 Billion in cash set aside to deal with mortgage arrears/defaults/restructuring. But it has €20 Billion in mortgages going 90 day+ in arrears.

It also counts any money it doesn’t use from this €2 Billion as pure profit.

You are in competition with all the other people in the same situation as yourself, and the bank itself, for a deal from this scarce resource.

The person in line before you has stopped paying his mortgage, is threatening the bank with legal action for mis-selling and is having all correspondence in writing and is routing this via an address in the UK. The bank is concerned about this guy.

You are next in line, being reasonable, not in arrears, making payments and seeking alternatives - therefore you are of no concern to the bank for the moment. You can be given forms to fill, hoops to be jumped through and circles to be gone round to allow the bank to tick their “We’re working with people” box.

The person after you has 6 BTLs, has made no payment in 2 years, is taking the rent and stashing it offshore, has put the PPR in the wife’s name and is being taken to court by the bank. This guy is a critical performance factor for central office and is therefore of great concern to the bank and is being carefully monitored.

The manager sees the next round of redundancies coming up in 12 months and reckons as long as everything can be put on the long finger until then it becomes somebody else’s problem.

You need to be more… voluble.

"The only people who seem to be buying them are cash investors because they are achieving a good rental yield at present of around 10%. "

Yields of 10% are unrealistic both short term and long term and keep in mind a management fee and an increasing property tax,
If I had 178k plus fees and stamp duty the last thing in world I would do is purchase a 1 bed Apartment even if it was 78k for the obvious reason that NAMA is at present selling off all the gold on their books and will soon sell the silver but who will buy the bronze?
Answer is The Tax payer for the purpose of social housing and IMOP the bronze will be purchased at an inflated price and by doing so will destroy the private rental sector by forcing those tenants on rental supplements to either move to approved accommodation or ask their present landlord to take a massive hit on the yield .
At the end of the Day NAMA is the monster in the room.

Don’t forget that tax needs to be paid on your net rental income. That whittles it down a good bit.

Starting much the same way with same case here: viewtopic.php?f=10&t=45622&hilit=pharmed&start=0

The thing is, the security is much smaller than the loan, so in fact the reality for the bank (if they were to really apply rigorous analysis to this) is they have a secured loan of 100k and an unsecured loan of 178k, all running at mortgage rates (i.e. secured loan T&C). In fact, given the LTV the bank tries to aim for, one might say that the 100k apartment only secures 90k or 80k of loan. Also, the dropping market etc., further erodes the security of the loan.

If the poster tries to convert the loan as proposed, then the bank will try to put the balance on personal loan rates. However (as I’ve posted already in other threads) I know very personally (not me, but know all details) of a person who got the bank to take apartment as payment for loan, and leave negative equity balance on mortgage rates (which was an ECB+a bit tracker 8DD ). That was 2 or 2.5 years ago, so the numbers stacked a bit differently (2 bed apartment, and negative equity balance was about 70/80k… LTV started low though as deposit was big).

pharmed,
have you gotten any legal advice as you planned?
I’m curious what the situation is these days. As I said, my datum is over 2 years old at this stage.

Col., you’re right that the Bank coul apply rigorous analysis and see the large element of unsecured lending currently. But that’s not how they work. They’re trying to repair balance sheets. Crystallising an actual shortfall is less attractive to them than having some sort of valuation against the loan but a potentially greater degree of cover.

Can I ask what bank did the deal on the negative equity apartment?

I’d also post your query on Askaboutmoney.ie, they deal with these queries a lot over there, and people who are also in neg eq trouble are probably more likely to be reading and answering posts that than the Pin to be honest…

Of course, it was Bank of Ireland.

Discussions at branch level were predictably useless (“why do you want out?”; “prices are dropping and I don’t like apartment/area enough to stay in longterm”; “why not just rent it out?”; “prices will keep dropping”) until he used the magic words “my gut feeling is to sell” at which point they responded. “Go with your gut, you’ve got to go with your gut!”, followed quickly by “I’ve an apartment too, should I sell?”

Not sure on logic of losses etc., I think the NPV was positive for bank as loan is still performing, less money out at unprofitable tracker rates too.

Also, to be clear, these deals won’t (I expect) happen at branch level no matter what your gut!

I have a brother who tried to do something similar. I posted on the pin on his behalf a few times.

From his experience, I second what What Goes Up said. There is no point whatsoever in trying to get the bank to make a deal with you when you are not a lost cause. they dont give a shit about you and they will never work in your best interest. You are wasting precious head space by assuming they will act rationally and logically. They wont.

If I were you I’d rent your apartment without notifying the bank. I’d find a house to rent and subsidise the rent if needs be. If the bank come knocking at your door saying you changed teh terms of your loan hand them the keys and walk away. Its a risk I would be willing to take.

Its not nice and its not above board but hey…

I’m not saying they’ll do favours. Just that the bank can be made to come to arrangements.

The meeting where my contact got the deal involved significant escalation on the bank side, and he brought in an economist from Trinity (a contact of his, to reinforce that his economic analysis was at least well considered and thought through) and an energetic Solicitor. She made the case that if the bank compelled him to proceed with an undertaking that he was convinced would lose money, the bank would be liable for the additional losses they forced on him by preventing him from exiting the arrangement (this has precedent in cases of creditors forcing a business to continue trading even though the proprietor believes it will only pile more losses on losses).

I would say that making the deal hinged on:

  1. Seeming determined enough to continue escalating and to take legal routes
  2. Having a well articulated model to back your exit strategy (important because of the legal tactic being followed)
  3. The deal, as a one-off, probably had positive NPV for the bank (if everyone did it, would be problematic for banking sector however).
  4. Having threat of worse outcomes for bank in future (that the next 100k drop in price would be their problem… might be hard to stick it to them, but the court-case would be awkward and generate headlines, might establish a very interesting precedent if it ever did work… hinges on point-1. to be a credible threat).
  5. Started moving early to get a buyer. Helps establish the price (see point-2.) and means you can act once the approval is in place. Also means bank will have to force you to turn down an offer, rather than arguing later on “you couldn’t have sold it anyway”.

A big aspect of the whole thing is just seeming/being smarter and more determined than they are and not like a sheep, and realising you don’t have much to lose but they do! (e.g. no manager wants to be the cause of a public debacle when there’s the whiff of redundancies and public taste for sacrificial lambs… mint sauce optional)

I have another friend, a recently appointed hospital consultant, who I told about this case when it was still fresh (was a more junior doc then… and money a bit tight due to needing to work abroad). He also had interest to get out of an apartment (not to stop paying his debt, but to stop losing money). Had a word with the bank in a friendly way to see what could be done (any kinds of options, even mortgage holiday, interest only, etc.,), they said no dice (because of all the reasons other posters highlight… no problem paying, unlikely to abscond, etc.,). His response was that was a shame and he went on with the apartment. Probably another 80k down now on his and similar on his wife’s.

I found the entire episode very educational, and had a lot of admiration for my contact in how he went about making this happen. It was a tough road (right at end, even, seller nearly pulled out!), hard to swallow the loss (and pride), but ultimately the right approach. I don’t like using terms like sheep, but really it’s about not being a sheep/lamb in this.

If you can’t be a wolf, at least be a cantankerous goat :slight_smile:

You make it sound like it is the bank that you are diddling. It is not. Tax relief for owner occupier is provided by the state, not by the bank. You are advising tax evasion.

OP has already posted this on boards.ie once and the Pin twice. He keeps asking the same question in the hopes that someone will validate what he has already decided he wants to do.