PROPERTY INVESTOR

Investors in trouble should seek expert advice as there are many ways to ease financial stress

MANY BUY-TO-LET investors in Dublin’s residential market are struggling to pay their mortgages because of a sharp fall-off in demand from renters. With ever more overseas workers moving back home as the economy slows down, there is a considerable surplus of rental properties lying empty around Dublin, partly because many of the homes which failed to sell last year are also being leased out until the market recovers.

And if that isn’t bad enough, some of the builders are also helping to flood the market by leasing out newly completed apartments they could not shift.

All this has inevitably meant that rents have slipped quite significantly in some areas while the letting market as a whole has become quite price-sensitive.

It can be difficult to get any more than €1,000 a month for a one-bedroom apartment in the city unless it is an exceptional property in a top class location.

The fall-off in new lettings has obviously made it difficult for some investors to keep up their mortgage repayments either because they are unable to let the property or, worse still, they have lost their job.

All the lending institutions advise clients who have run into trouble against the head-in-the-sand approach, suggesting instead that they should come in and discuss their predicament. Some banks are more understanding than others.

Ulster Bank has been particularly proactive in this area, being the first to give lenders the option of a six-month mortgage moratorium before they will consider repossession.

The bank also offers other mortgage payment breaks, term extensions and the choice of interest-only payments.

However, borrowers in deep trouble might well need the services of a debt management expert, such as John Lowe of The Money Doctor agency in Dublin. He has immense experience in helping borrowers to get out of trouble.

For a fee, he will carry out a full review of the borrower’s finances, outgoings and debts and the options open to them, short of selling off the property at a huge loss in the present market. He says people unable to pay their mortgages have two choices – cut costs or earn more money. One way of cutting costs is to get the bank to agree to interest-only repayments until the rental property is let.

The bank might also agree to a three-month moratorium and a further review after that period.

Lowe says borrowers should also consider trading in their tracker mortgages – something that should appeal to the banks – in exchange for additional borrowings on a standard variable rate.

Tracker mortgages were generally 0.5 per cent to 1 per cent over the ECB rate (currently 2 per cent) and were expensive for the banks to operate. Lowe is strongly in favour of holding on to property at all costs rather than selling in the present depressed climate. “It is a bad market out there. Those selling will have to offer a huge discount . . . they then crystallise their loss.”

He says there are other options available. For example, a couple with a €300,000 holiday home in, say, Portugal, and unable to meet their repayments, might consider turning it into a part-ownership property. Under the arrangement, five other families could buy in at a cost of €50,000 each, enabling them to have the use of the house for two months per year on a rotating basis. This would give the original owners €250,000 back, allow them to retain an interest in the property and avoid making a huge loss.

Lowe says that on the positive side, interest rates are likely to fall again and lenders are becoming more amenable because they do not want to end up with hundreds of repossessed homes they cannot sell.

While lenders are generally willing to negotiate with borrowers in trouble, sometimes it takes an expert to identify the best solution.

Meanwhile, the Money Advice and Budgeting Service (MABS) reports a 35 per cent increase in the number of people seeking financial advice. Of the 100 people using the help line each day, about one-third of them have mortgage problems as part of their difficulties.

Michael Culloty of MABS says that handing back the key of a property is not a panacea for solving financial problems.

They would still have to pay their debts as well as legal costs. People in trouble needed to think long and hard and get independent advice.

MABS helpline is 1890 283 438.