Renting your house back from the Bank?

silverharp

I have a relative that is an insurance broker, anyway I heard indirectly that he is coming across cases where the banks are repossessing but renting the house back to the previous owners

Has anyone come across this? I'll try find out more information next weekend but just curious is it the start of a trend? I can see the logic from the banks point of view as dumping houses on the current market will be a loser, and for all I know there could be political pressure on the banks to do this.

jetski

If they cant afford the mortgage how can they afford the rent?

El Stuntman

jetski wrote: »

If they cant afford the mortgage how can they afford the rent?

just check most areas on daft to see that renting is generally much cheaper than buying

an example:

to buy = ~€2600pm (25 year mortgage, 90% LTV)

to rent = €1700pm

a rather massive premium (~50%) for the 'privilege' of
renting your own gaff from the bank rather from Joe Landlord, wouldn't you agree?

another reason why house prices have a long, long way to fall

DublinDilbert

Well an interest only mortgage is basically renting from the bank....

The bank doesn't want an asset back, which they can't sell... so would rather get some money in, rather than none.

In most cases people would be happy to stay in their house and not get made homeless....

asdasd

I dont understand why Banks are so uppity about enforcing repayments ( unless they think the thing can never be repaid). why not let people have up to 2 years free if they are in trouble i.e. have been unemployed in the hope that things come good when the economy recovers. Add that to the end with accumulated interest penalties. From their point of view a mortage is a greater asset than the underlying asset when prices fal. It is worth more.

DublinDilbert

asdasd wrote: »

I dont understand why Banks are so uppity about enforcing repayments ( unless they think the thing can never be repaid). why not let people have up to 2 years free if they are in trouble i.e. have been unemployed in the hope that things come good when the economy recovers. Add that to the end with accumulated interest penalties. From their point of view a mortage is a greater asset than the underlying asset when prices fal. It is worth more.

I know the cheek of them looking for their money back

What happens if they give someone a 2 year payment break (they live there free for 2 years) then they turn around and say ummm i still can't pay my mortgage... now the bank is left with an asset that is worth even less money...

The banks in ireland are very slow to fore-close, as they don't want to burst the bubble they helped create! They are not doing it from the goodness of their hearts...

El Stuntman

DublinDilbert wrote: »

The banks in ireland are very slow to fore-close, as they don't want to burst the bubble they helped create!

newsflash to banks: too late!

asdasd

What happens if they give someone a 2 year payment break (they live there free for 2 years) then they turn around and say ummm i still can't pay my mortgage... now the bank is left with an asset that is worth even less money...

yeah, that's true. Imagine however a guy in a skilled job is unemployed during a recession. And it looks like he will become a high earner when the recession is over. Since his mortgage is worth more than his house ( much more including the replayments) it makes sense to keep him on the books.

You are right. Foreclosing is not just a loss on the loan, but can cause a downward spiral for the rest of their loans by pushing prices down.

astrofool

El Stuntman wrote: »

just check most areas on daft to see that renting is generally much cheaper than buying

an example:

to buy = ~€2600pm (25 year mortgage, 90% LTV)

to rent = €1700pm

a rather massive premium (~50%) for the 'privilege' of
renting your own gaff from the bank rather from Joe Landlord, wouldn't you agree?

another reason why house prices have a long, long way to fall

If you're going to use figures comparing how someone HAS to now rent vs. the cost of their mortgage, then you have to use the longest term mortgage of 35 or 40 years. This reduces the difference to about 500 a month. Make that interest only (€1787), and include TRS, and you'd be saving money on renting.

I'd guess in the scenario above, the renter is renting at a below market rate, otherwise, there are better alternatives.

asdasd

If you're going to use figures comparing how someone HAS to now rent vs. the cost of their mortgage, then you have to use the longest term mortgage of 35 or 40 years. This reduces the difference to about 500 a month. Make that interest only (€1787), and include TRS, and you'd be saving money on renting.

It is like 2006 again!

Pleny of people in the rental sector can afford 25 year loans - they just choose not to. me, for instance. In fact I share ( and I dont have to) to save money to eventually buy, however I would clearly be mad to buy right now.

As for making it interest only - at a time when prices are falling to just pay interest rent on a depreciating asset - tell me it aint so Joe.

No idea what TRS is.

astrofool

This is someone who owns a home, cannot make the repayments to the bank, so the bank does a deal with them to rent the house, with the bank taking back it's asset.

For the figures given by El Stuntman to work, the person would have to have been in dire straits, gone to their bank, worked out whether a 35/40 year mortgage would allow them to make the repayments, then check to see if interest only for a couple of years would work, and then as a last resort, rent the house (rather than the bank having to sell in a falling market).

For those figures to work, the rent needs to be below market rate.

This is nothing to do with a current renter, looking to buy.

Did you even read the thread?

El Stuntman

astrofool wrote: »

For the figures given by El Stuntman to work, the person would have to have been in dire straits, gone to their bank, worked out whether a 35/40 year mortgage would allow them to make the repayments, then check to see if interest only for a couple of years would work, and then as a last resort, rent the house (rather than the bank having to sell in a falling market).

on an almostly completely tangential note, anyone who goes to a bank looking for a 35 or 40 year mortgage (whether on an interest-only basis or not) to buy their PPR should be referred immediately to a mental heath specialist :pac:

it's nuts, 25 year mortgage terms should be the absolute max allowed. Another reason why the best paid Central Banker in Europe should be sacked without pension. :mad:

The_Conductor

astrofool wrote: »

If you're going to use figures comparing how someone HAS to now rent vs. the cost of their mortgage, then you have to use the longest term mortgage of 35 or 40 years. This reduces the difference to about 500 a month. Make that interest only (€1787), and include TRS, and you'd be saving money on renting.

I'd guess in the scenario above, the renter is renting at a below market rate, otherwise, there are better alternatives.

Do the sums again.

the interest only component of the mortgage is @5.5% APR (quite conservative) EUR2,295 per month- or just shy of 28k per annum

Assuming its a single person who is a First Time Buyer- their mortgage interest relief is on a max of 10k- at the lower rate (i.e. 2k in total). On a monthly basis this is EUR167

Actual interest only repayments are then reduced to EUR2,128 a month.

This is EUR428 more than it would cost to rent it.......

astrofool

This is coming straight from mortgages.ie using their mortgage calculator and TRS calculator:

http://www.mortgages.ie/index.cfm/spKey/first_time_buyers.mortgage_payments_calculator.html?mode=basic&amt=441000&status=Married&buyer_type=First+Time+Buyer&house_price=490000&rateid=767&term=40&product=-1&go=go&lender=-1

I'd say you're mad if you go for anything but a 35 year mortgage at the start, you can always repay faster if you want, but have the safety valve of lower repayments if you need them.

gurramok

Don't know what your trying to preach Astrofool, but trying to make a 35yr term to be the 'norm' for a buyer is just misleading.

Never mind the term but the cost factor over a 25yr term is enormous. Standard terms before about 2003 was about 25yrs before the banks went super mad with their lending.

If your trying to say use a 35yr term as a start, it confirms that the mortgage is unaffordable to the purchaser. And then you might reply and say the purchaser can overpay to shorten the term but they cannot overpay by much if the mortgage is unaffordable in the first place.
Prudent lending should be based on affordability, not to strangle the purchaser.

Based on the OP, renting from the banks has been happening in the UK, i read it before on the BBC news website.

The_Conductor

astrofool wrote: »

This is coming straight from mortgages.ie using their mortgage calculator and TRS calculator:

http://www.mortgages.ie/index.cfm/spKey/first_time_buyers.mortgage_payments_calculator.html?mode=basic&amt=441000&status=Married&buyer_type=First+Time+Buyer&house_price=490000&rateid=767&term=40&product=-1&go=go&lender=-1

I'd say you're mad if you go for anything but a 35 year mortgage at the start, you can always repay faster if you want, but have the safety valve of lower repayments if you need them.

Its a loan amount of 441k (i.e. 90% of the 490- I was pricing the full 490k), assuming the purchasers (plr) are married (i.e. double TRS) and on an introductory rate of 5.25% (I had factored 5.5% into my equation).

The scenario I chose was more accurate I feel?

astrofool

That 5.25% doesn't mention anything of being an introductory rate, and even then, even on a single person's TRS (would a singleton afford €490,000 in the first place), would still bring the repayments close to renting.

I was poking hole's in El Stuntman's example (using 25 years, at a higher interest %, not factoring in TRS) more than anything.

On the 35 years, as I've said gurramok, from a personal point of view, if you are offered a longer term to pay back the same amount as you can afford over 25 years, then taking it gives an in built safety valve if anything goes wrong, and, should not be used to extend your borrowing level. Taking 25 years straight off can leave you with little wiggle room.

But, wow, it doesn't take much for some people to start preaching catchphrases of the falling market, which is exactly what happened on the way up (get a foot on the ladder, never a better time to buy).

bangersandmash

astrofool wrote: »

I was poking hole's in El Stuntman's example (using 25 years, at a higher interest %, not factoring in TRS) more than anything.

Also probably want to factor in the management fee. To be very pedantic you could add maintenance too.

Of course this example is also based on the assumption of a young couple having a 49k deposit on hand.

Tbh "renting is cheaper than buying" is no more or less of a catchphrase than "buying is cheaper than renting".