Tuesday 24 October 2017

I can't afford mortgage - should I move to the UK to go bankrupt?


I invested badly in a number of buy-to-lets in 2006 and while they are rented out and I still have a small self-employed income I can't afford to support the mortgage payments on these units and am in arrears. The pressure from the bank is intense. Should I consider relocating to the UK and declare bankruptcy as it would be possible to run my business from there?

I understand your panic, but you're suggesting something of a nuclear option. It is highly unlikely that any lending institution wants to crystallise its liabilities by selling the properties in the event of bankruptcy or a forced sale.

The new Personal Insolvency Bill is due by early Autumn and provides a number of options for people like you.

Barry Lyons of Lyons Kenny Solicitors says you should hold off. "Continue making what payments you can and keep communication lines open with your bank. If they are insisting on a sale, they may appoint a receiver or seek to get judgment.

"If you have a substantial income, the bank may attempt to attach that income so that a portion of it is paid to them. Ultimately they can seek to have you adjudicated a bankrupt here but it's very expensive, and unlikely to yield any more money for them".

The new Bill will allow full scale judicial bankruptcy on a much reduced timescale (three years instead of 12), but there are interim measures such as a Personal Insolvency Agreement or a Debt Settlement Agreement which may suit you and the bank better. Both allow you to have some debts written off over time.

"Bankruptcy in the UK requires you to live there for six months", says Lyons. "Irish banks will immediately sell any asset you have, including the family home.

"It will be difficult to get credit in the future. Your circumstances are extremely common and I believe that generally so long as banks are getting what they can from borrowers in terms of revenue from properties they will generally be relatively happy in the short to medium term".

Hold fire for a few months and see what emerges here. You may well benefit from the new legislation.

I received a letter from my bank asking me to confirm my house is a principal private residence. They are threatening to cancel my tracker mortgage unless I can prove this. When I got the mortgage I was living there, but couldn't afford it, so I rented it out and moved back in with my parents. I had been in arrears, but I've paid those. What's the problem?

This is really nasty but not at all unusual. While some banks have the view that they're grateful to be getting paid at all, others are taking an increasingly hard line over trackers.

Essentially tracker rates on some contracts only apply while the borrower is living in his Primary Residence -- i.e. his home. If he has moved out, and rents out the property, the bank treats him as an investor. Many banks don't allow tracker mortgages on investment properties.

The reason you have done so is economic, and I'm sure you don't feel like an investor, but you are, indeed, a landlord. Sometimes, though, you have to play hardball back.

Noeline Blackwell of the Free Legal Advice Centre (FLAC) says such incidences are on the rise.

"According to the Code of Conduct on Mortgage Arrears (CCMA), "Primary Residence: means a property which is (i) the residential property which the borrower occupies as his/her primary residence in this State, or (ii) a residential property in this State which is the only residential property owned by the borrower", she says.

But a letter written by the Head of Consumer Protection Codes Dept. of the Central Bank last December amended the definition to include people who own one residential property (in total) "but has not, or currently does not, reside in the property" for specific reasons.

Blackwell says you fall firmly into this category which she says includes, "Borrowers who emigrate for work, or purchased a property but never moved into it because they could not afford the repayments or borrowers who purchased a property, lived in it for a time, but have now moved home to live with relatives in order to earn rental income to assist with the mortgage repayments".

She adds, "The definition of "primary residence" has been worded in this way in order to apply the protections of the CCMA to borrowers who are making efforts to maximise their income in order to help meet their mortgage payments. Thus, you should fall squarely into the second part of the definition, provided you don't own another residence and have moved out of this one to maximise income for repayment".

Write a letter to your bank outlining your circumstances. Tell them you're engaging FLAC to give you advice and see if they back off.

By the way, the Government won't be so accommodating. The house will be treated as a "second home" for the purposes of the Non-Principal Private Residence charge of €200 which was introduced in 2009.

If you haven't made payments, the penalties are punishing -- at €20 per month. Do check this out with your local authority.

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