Thursday 22 August 2019

Why is bank refusing to take ex-partner off mortgage?

Your questions answered

'The rules around lending have changed significantly since this mortgage was drawn down.' Stock image
'The rules around lending have changed significantly since this mortgage was drawn down.' Stock image

Patrick McGettigan

Q My daughter has been separated from her partner for 10 years - he left the home they shared and which they had a joint mortgage on. For the last 10 years, my daughter has paid the mortgage with no help from her ex-partner.

The bank has refused on numerous occasions to remove her ex-partner's name from the mortgage. Her ex-partner has written to the bank and agreed that his name should be removed, and he has confirmed that he does not pay anything on the mortgage. However, the bank has refused to take his name off the mortgage. What should my daughter do?

Helen, Co Meath

This is a difficult situation for your daughter and her ex-partner. From the bank's perspective, they are both responsible for the repayments - even though your daughter has been paying off the mortgage for the last 10 years with no help from her ex-partner.

The bank gave your daughter and ex-partner the loan based on their financial situation at the time and the bank retains the security of knowing that they are both responsible if something goes wrong with the loan.

What your daughter and ex-partner have effectively done is made a separate agreement between themselves about the ownership of the house. In the event of a default on the loan though, each borrower may be pursued by the bank for the entire amount even if only one individual was responsible for the default.

The bank has not agreed to take your daughter's ex-partner off the mortgage as there is no business reason for them to do so. It has a contractual position in place which makes both borrowers liable in the event of a default and as the bank is run as a business, there is no incentive for the bank to change this.

The rules around lending have changed significantly since this mortgage was drawn down. Central Bank rules now dictate that the loan facilitated must be within three-and-a-half times the borrower's income. This may be a significant hurdle for your daughter in securing a loan in her name only.

Exceptions can be allowed but this is the general framework which banks are working to. As mentioned, there is little incentive for her current lender to engage here while the repayment terms of the contract are being met.

It would be advisable for her to start engaging with other lenders to find out if any of them are prepared to offer her a new loan facility to replace the existing joint mortgage. Consulting with an experienced mortgage broker would be a good first step to ensure her case is displayed most effectively.

Having bank records of mortgage repayments over the past 10 years will be beneficial. This shows any lender that she can support herself financially and proves her ability to repay a loan independently.

State pension gap

Q I will retire at 65 years in 2023 from the workplace, but I will not be entitled to a State pension until 67 years of age. Currently, when you retire at 65 years, you go on Jobseeker's Allowance for 12 months and then you receive the State pension at 66 years of age. Is there any legislation going through at present to allow people to obtain 24 months of Jobseeker's Allowance from 2021?

John, Dublin

The contributory State pension is paid to people from the age of 66 who have enough Irish social insurance contributions. Currently, the full contributory State pension is €248.30 per week, but the Jobseeker's benefit is significantly lower at €203 per week.

In recent years, the State pension age has been revised and this is likely to be addressed further in future years.

Currently, you are entitled to the State pension at the age of 66 in 2018, at the age of 67 in 2021, and the age of 68 in 2028. In 2014, the pension age rose to age 66 from age 65 and to bridge the gap for those retiring at 65, the Jobseeker's benefit was provided with special provisions to differentiate a 65-year-old from a younger worker.

The Government says: "People over 65 who are claiming Jobseeker's benefit, and who have at least 156 PRSI contributions, can continue to receive Jobseeker's benefit until their 66th birthday - even if their claim is due to end before that date. This particular provision extends the duration of Jobseeker's benefit for people aged 65 and over and aims to support the transition of older workers from the labour force into retirement."

With the change in 2021 to age 67, current legislation leaves a gap of one year of funding for those in your situation. Jobseeker's benefit is currently defined as being applicable between the ages of 18 and 66. Citizens Information, when contacted, informed my business that it is aware of this situation but that no legislation is currently being worked on ahead of the change to the State pension age in 2021. This however may change closer to 2021.

Pension options

Q I will celebrate my 60th birthday in April and will qualify for a defined benefit pension from my previous employment. I have received the relevant documents from my ex-employer and have the option of taking a Bank Staff Pension Fund (BSPF) annual pension of €44,565; or a retirement lump sum of €131,446 - plus a reduced annual BSPF of €35,796. What's the best option for me?

Noreen, Co Cork

The first option is to take the higher regular payment; this equates to an increased annual payment of €8,769.This would be the more conservative option for you and would focus on your income alone. The main benefit is that you will have an annual income of €44,565 for the rest of your life with no investment risk. It would be important to clarify though if this payment is index-linked and also if there is a continual partial payment on your death.

The second option effectively gives you 20pc of the annual pension as a 15-year forward payment now. The lump sum payment of €131,446 would be immediately separated from the pension, therefore you can control how this is used such as to clear debt, for reinvestment or for estate planning.

A pension is taxable income in retirement so both regular income options presented to you will be taxable within normal limits and I am assuming that the lump sum available now is a tax-free amount.

To answer your question more thoroughly though, more detail would be required. For example, are you in good health? If not, taking the lump sum now would probably be the better option.

Do you have dependants? If so, are they reliant on your post-retirement income? This would be a consideration.

You have just turned 60 and this pension relates to a previous job. Are you going to continue to work or is this your sole income in retirement? If continuing to work, this benefit is supplementary to your earned income, so it is not your sole income. You may have different requirements for your retirement income.

Email your questions to  lmcbride@independent.ie or write to 'Your Questions,  Sunday Independent Business, 27-32 Talbot Street, Dublin 1'.

While we will endeavour to place your questions with the most appropriate expert for your query, this column is not intended to replace professional advice.

Patrick McGettigan - Principal of McGettigan Financial Planning (mcgettiganfp.ie)

Sunday Indo Business

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