A couple who made €950,000 in repayments under a €1.127 million credit facility taken out to purchase three buy-to-let properties to fund their retirement, but who still owe €1.4 million under the arrangement, have failed to stop a fund getting court orders permitting it to sell the properties.
The Co Dublin residences – an apartment in Swords, and three-bedroom houses in Malahide and Clarehall – are advertised for sale for a total €1.16 million. This means that Helen McKenny and Stephen Reid, who live in Portmarnock, could still owe some €250,000 to Pepper Finance after the sale, the High Court’s Mr Justice Michael Twomey said.
This was, he said, “one of the many unfortunate cases” heard by the courts in recent years dealing with people who borrowed money to buy property but were unable to repay the loan in full.
The couple now face the “harsh realisation” that, in persuading IIB Homeloans Ltd to loan them €1.127 million in 2007, they had to grant it “very extensive” powers to sell the properties if they did not meet their repayments. Their loan was later acquired by Pepper.
While having considerable sympathy for the couple, the judge said he could not make decisions on sympathy and must make them on the law and contractual terms of the 30-year credit facility.
The facility letter clearly stated the amount of credit advanced was €1.127 million but, on foot of that, the “total amount repayable” was €2.252 million. The cost of the credit was €1.125 million, the difference between the two amounts.
The mathematics of applying an interest rate of 5.41 per cent on a large sum over a long period means paying back “a multiple” of the amount owed, he said.
During most of the years since the facility issued, the couple were unable to meet the repayments, even when they were interest only, the judge said. Monthly interest-only repayments were some €5,562 in 2015 and rose to some €10,000 from 2020.
The inability to repay was for reasons including the 2007/08 property crash, reduction in rents, loss of tenants, the Covid-19 pandemic and one of them losing employment.
In her witness statement, Ms McKenny said “it appears that all our repayments since 2007 are in effect useless if this application succeeds”.
This “would be unjust for the reasons of having spent all of our income to retain the properties for our old age and retirement”, she said. “In succinct language we borrowed €1.15m. We have repaid €950,000. Our current balance is circa €1.4m. Had we placed our money into a pension scheme we would be in a far better position.”
It was difficult, the judge said, not to feel considerable sympathy for the couple, particularly in light of the honest approach of Ms McKenny to their obligations.
The fact they were not strategic defaulters was illustrated by them always using whatever rent they got to pay off the mortgage every month and continuing to pay off their loan obligations even after a receiver was appointed over the properties by Pepper in late 2021, he said.
A factor in their falling into arrears was rent freeze restrictions in 2016 and Ms McKenny had implied rent increases could have reduced or eliminated their arrears.
The couple, he said, could have sold the properties in 2016 when it was estimated the sale would have discharged the entire loan but Ms McKenny indicated they wished to hold on to them at that time.
The reason for these proceedings to enforce Pepper’s security was that after the company appointed a receiver, Mr Reid entered one of the properties and changed the locks, the judge said.
There was no basis for a counterclaim for damages for financial loss advanced by the couple, he further held.
