Double Mortgage f*&% up - Help needed

Regy

I have possibly the strangest mortgage application story that i need help on. My grandfather died and let his house to my dad and uncle. I was promised the house at a good price from them but was in college. I began living there and paying a small sum of rent to my uncle and father for a year or so when i was in college.

All fine to this point, now its gets complicated. My uncle wanted half the money for the house asap, i was in no position to buy the house and as i was living there myself and my father didnt want to sell. So my father took out a mortgage on the house. The house was valued at 175,000 euro as is, 40 yr old mid terraced house with no central heating, insulation, mod cons, etc so he wanted a 200,000 euro mortgage to renovate the house, pay my uncle and have his money aswell. he could not get a mortgage for more than the value of the house so he re-mortgaged his own,aswell as getting a mortgage for the second house. 130,000 on this house and 70,000 on his own. I was to then buy the house for 200,000 with all work done.

Property values dropped so even though the house is renovated she now only holds a value of 180,000 euro. i got a full time job 2 years ago and could only qet a mortgage for 130,000 euro. So having no choice i took it over 30 yrs but still have my fathers other mortgage of 70,000e that i am also paying(even tho it is on his own house). Problem is, his mortgage is over 15years because of his age, and is more monthly than my own mortgage for 130000.

I have nearly 18 months paid with my current bank paying my own mortgage and my fathers. I have 2 tenants also living with me and have 2 jobs. 1 full time and 1 part time weekends etc. My house is worth 180,000 and according to the banks i only have a mortgage of 130,000. so i have equity of 50,000.

Before i go into the banks and shoot myself in the foot i just want to know what options i have? i want to get one mortgage of 180,000e in my name with repayments of 600-700e monthly instead of 1100e monthly which i am paying now.

Is it possible to release equity, or top up my mortgage for the purpose of home improvements? If i pay off my fathers mortgage in one go is there penalties or tax issues? or is the best thing to do just sell the house, pay my dad his money and pay the bank theres?

Sorry for the long thread, its a fubar situation that needs to be sorted!

Cheers in advance

seamus

I don't see why you're paying your Dad's €70k mortgage tbh.

Your Dad effectively paid €200k for the house which has since devalued. That devaluation is his problem, not yours, since the house did not belong to you when he bought it.

Work it out this way: At the time that you bought into this house, it was worth €200k and you bought €130k of it. That means that 65% of the house belongs to you and the other 35% belongs to your father. The house is now worth €180k, which means that your stake is worth €117k and your father's stake is worth €63k.

In order to buy your father out therefore, you need to increase your mortgage by €63k. The shortfall between €63k and your father's mortgage is your father's problem, not yours. Presumably he has a lot more money than you do, so this should be no problem for him.

You should be able to get an equity release mortgage from your bank if you can afford it, but they will probably only give you about 90% of the house value, or another €32k.

Your other option is to talk to the bank about buying a €63k stake in your father's house, rather than trying to screw around with your own house. This means that you'll have two mortgages effectively, but they will both have reasonable payments and you should be able to secure the entire sum instead of only €32k.

am i bovvered

seamus wrote: »

I don't see why you're paying your Dad's €70k mortgage tbh.

Your Dad effectively paid €200k for the house which has since devalued. That devaluation is his problem, not yours, since the house did not belong to you when he bought it.

A little harsh.

OP did you agree to this deal before your Father got the morgage on the house and remorgaged his home ?

No one here can answer whether the banks will allow an equity release or not, its funny times. If the mortgage is a tracker you may have some leeway.

If the 70k is a fixed rate you will usually have to pay a penalty if you pay off a lump sum.

The best bet may be to appeal to your Dad that things are tough, and could he help you in some way with the 70k

Good Luck

D3PO

Regy wrote: »

I . So my father took out a mortgage on the house. The house was valued at 175,000 euro as is, 40 yr old mid terraced house with no central heating, insulation, mod cons, etc so he wanted a 200,000 euro mortgage to renovate the house, pay my uncle and have his money aswell.

sorry can you clarify this please.

The hosue was worth 175k so your uncle was due 87.5k

So are you telling me it cost your oul lad 112,5k to renovate the house ? Those numbers dont add up.

Can you clarify this please. Also can you clarify who is actually on the deeds right now.

If you got a mortgage on the house of 130k as I understand it and are paying the 70k seperatly there could be a tax issue here.

Your oul lad basically would have underpaid CGT / inheritance tax. On the flip you would also be knackering youself for 2 reasons

1) you wouldnt be getitng the full value of your TRS
2) you are going to end up with a bigger CGT payment to make when you sell as you will be paying any profit on 130k and not any profit made on 200k

Regy

my uncle got 85k and my father got 85k the work done to the house was 30k, granted he should have used some of his money to renovate but he didnt, little i can do about it now he had a few debs he wanted to sort.

the deeds are in my name now.

I didnt realise about the payment on profit, would this be much? as it seems i will make no profit, i aim to finish a few renovations on the house and sell it for 185, 190 ish if value goes up, pay my fathers balance and clear my mortgage, and try and get a mortgage myself for another house without my fathers intervention!

D3PO

Regy wrote: »

my uncle got 85k and my father got 85k the work done to the house was 30k, granted he should have used some of his money to renovate but he didnt, little i can do about it now he had a few debs he wanted to sort.

the deeds are in my name now.

I didnt realise about the payment on profit, would this be much? as it seems i will make no profit, i aim to finish a few renovations on the house and sell it for 185, 190 ish if value goes up, pay my fathers balance and clear my mortgage, and try and get a mortgage myself for another house without my fathers intervention!

Your going to be libel for CGT then Im afraid. For tax purposes you paid 130k for the house if you sell for 185 or 190 then your going to have to pay CGT on that profit

lets assume you sell for 190k your deemed then to have made 60k profit CGT would be 25% of this so you would owe the taxman 15 grand

so you are losing out on tax relief at source and then your going to have to pay capital gains aswell.

you had better look into it and have a word with your old man because your losing out big time here whilst hes saved nicely on tax himself.

Not saying he intentionally screwed you but you have come out a distant second in this deal !!

Little Miss Cutie

Surely as the OP is living in the house he has principal private residence staus and would be exempt from CGt gains?

Janey Mack

D3PO wrote: »

you had better look into it and have a word with your old man because your losing out big time here whilst hes saved nicely on tax himself.

Not saying he intentionally screwed you but you have come out a distant second in this deal !!

His dad would only be liable for inheritance tax if he had inherited over €400+k.

He might be liable for capital gains for the amount it appreciated in value (less the cost of improvements) between the time he bought his brother out and sold it to his son but I doubt that would be very much.

The op agreed to the purchase price but was unable to qualify for the full mortgage - his father was simply funding the shortfall in the mortgage with his own loan. Given that the property has only dropped by 10% from the original purchase price 18 mths ago it doesn't sound like he paid over the market value at the time. I don't think he's been screwed by his dad at all - just by the property market.

I don't think if the property is his primary residence that he will be liable to any tax on the book profit he would be making.

Perhaps the op was railroaded into the deal because of a sentimental attachment to the property or the pressure from his dad to get on the 'property ladder' or he may have bought in the expectation that prices would rise.

If the plan is to sell and buy elsewhere op should look at the figures closely. He won't be a first time buyer and if he is moving from a tracker it could be more expensive or he may find it harder to get a mortgage. He could of course stay clear of property ownership for a while he might find he sleeps better.

Get some financial advice and talk to your dad about the situation as there may be a shortfall if the house is sold.

D3PO

Little Miss Cutie wrote: »

Surely as the OP is living in the house he has principal private residence staus and would be exempt from CGt gains?

sorry I read that he was renting it out. Must have missed the part that said he was also living there. Ignore my ramblings so

Victor

I would suggest you talk to a solicitior to see if you or your father have an unexpected tax liability.

Regy

Janey Mack wrote: »

His dad would only be liable for inheritance tax if he had inherited over €400+k.

He might be liable for capital gains for the amount it appreciated in value (less the cost of improvements) between the time he bought his brother out and sold it to his son but I doubt that would be very much.

The op agreed to the purchase price but was unable to qualify for the full mortgage - his father was simply funding the shortfall in the mortgage with his own loan. Given that the property has only dropped by 10% from the original purchase price 18 mths ago it doesn't sound like he paid over the market value at the time. I don't think he's been screwed by his dad at all - just by the property market.

I don't think if the property is his primary residence that he will be liable to any tax on the book profit he would be making.

Perhaps the op was railroaded into the deal because of a sentimental attachment to the property or the pressure from his dad to get on the 'property ladder' or he may have bought in the expectation that prices would rise.

If the plan is to sell and buy elsewhere op should look at the figures closely. He won't be a first time buyer and if he is moving from a tracker it could be more expensive or he may find it harder to get a mortgage. He could of course stay clear of property ownership for a while he might find he sleeps better.

Get some financial advice and talk to your dad about the situation as there may be a shortfall if the house is sold.

well that's good news about the cgt anyway, yes i have a sentimental attachment to the house, its been in the family for 40+ years. I have been living here for nearly 5 now, but only bought it last year.

i dont really want to sell, just thought it would be my best option to clear both mortgages. If i could clear some debt and get some savings i would be in a position to apply for part ownership of my parents house and take over his mortgage, if it was over 30years and not 15, the repayments would be more manageable. Im paying 520e a month on the 70k and 470 ish on the 130k. if it was bundled together on a fixed rate of 5.5% it would be 700/750 a month, saving me 60/70 a week.. thats one less tenant or more savings...

how long do i have to live in the house to be exempt from cgt? and if i got another mortgage on my parents house how would this affect my tax??

sorry for all the questions

The_Conductor

Regy wrote: »

how long do i have to live in the house to be exempt from cgt? and if i got another mortgage on my parents house how would this affect my tax??

sorry for all the questions

1. You would have to be permanently living in the property 4 years in order to claim a CGT exemption.

2. You cannot legally get a mortgage on your parents house, as you are deemed to not have a beneficial interest in the property. Your father could get another mortgage- but your finances would get into more of a quagmire than they are in at present.

You can't mortgage something you do not own. The only way for you to get a mortgage on your parents home, is if they transfer the ownership of the property to you.

Regy

this issue has arisen again due to increased interest rates and cuts in my wages, the two mortgages are getting too much to cope with, now at 1180e a month with a tennant wanting to move out

the longer i wait the less chance i have of getting another loan as my outgoings are increasing and wages decreasing.

so what are my options? I cant sell until i have it in my name for 4 years or i will be caught for cgt, so 2 more years, how do i lessen the burden, my own mortgage is 5.5% variable at the mo, 670e a month, on 130k over 33yrs.

My dads is 5.5% variable at 510e a month on 70k over 13years,

can i get my name put onto his mortgage now that he is unemplyed, and increase the term of the loan to match my loan using the equity in my house as colateral, this would put my monthly repayments lower so that i could survive, maybe build up a nest egg and sell in 2years time when the cgt wont affect me and also the value may have stopped falling?

Or is there any organisations around that would allow me to take out a 40-50k loan to use to pay my fathers mortgage out (most of it) and have it over 30 years?

there must be something i can do!!

Any help appreciated..

The Rooster

D3PO wrote: »

Your going to be libel for CGT then Im afraid. For tax purposes you paid 130k for the house if you sell for 185 or 190 then your going to have to pay CGT on that profit

lets assume you sell for 190k your deemed then to have made 60k profit CGT would be 25% of this so you would owe the taxman 15 grand

smccarrick wrote: »

1. You would have to be permanently living in the property 4 years in order to claim a CGT exemption.

Regy wrote: »

so what are my options? I cant sell until i have it in my name for 4 years or i will be caught for cgt, so 2 more years,

Just on the CGT issue, you've been fed plenty of nonsense on this thread to date so far.

Firstly, and less importantly, your CGT base cost is more likely to be €200k than €130k as some have said. You paid €130k to your Dad and took over his €70k mortgage in return for buying the house - therefore total consideration paid by you is €200k.

But that's not really important. What is important is that since you acquired the house, it has been your principal private residence. Therefore, any gain you make when you sell is exempt from CGT. There is no 4 year rule!!

Therefore, selling the house is definitely an option you have now (although as you know sales arent easy to come by!)

Two other options as I see it re the banking situation.

1. Go to your bank and see will they give you additional funding on the same terms as your existing mortgage to pay off the balance owing to your father (which is how I'd word it rather than saying you want to pay off his mortgage - and its true, you'd be giving the money to your Dad in full settlement of the amount you owe him, what he does with it is not your concern, but presumably he'd pay off the €70k mortgage as you would no longer be obliged to pay it).

- Success will depend on what the bank thinks the property is worth. Its worth a shot but I wouldnt fancy your chances.

2. Ask your father to go to this bank and seek to renegotiate the terms of the €70k mortgage as he's now unemployed. You could go along to the meeting and I don't think there would be any harm in telling them that you pay the mortgage on behalf of your parents (no need to get into the "why").

- I think this is more likely to succeed than 1

EoghanConway

CGT is a red herring, you have been living there since college and you pay the mortgage therefore it is your primary residence and you are exempt. So don't worry about having to pay tax if selling. I think The Roosters suggestions are good, if the bank is sympathetic you could get the balance on the same terms as your own current mortgage. This would bring down your monthly repayments. If I were you, I would only sell if the repayments were crucifying, otherwise you will have no house, no tenant income, possibly 10s of thousands of outstanding debt and you'll still need to find somewhere to live.

The_Conductor

EoghanConway wrote: »

CGT is a red herring, you have been living there since college and you pay the mortgage therefore it is your primary residence and you are exempt. So don't worry about having to pay tax if selling. I think The Roosters suggestions are good, if the bank is sympathetic you could get the balance on the same terms as your own current mortgage. This would bring down your monthly repayments. If I were you, I would only sell if the repayments were crucifying, otherwise you will have no house, no tenant income, possibly 10s of thousands of outstanding debt and you'll still need to find somewhere to live.

Just a little clarification- even if the house is the only sole property the OP owns, and has been his PPR- a partial relief on CGT is granted, if rental income from rooms exceeds the limits set for the rent-a-room scheme.

A full exemption from CGT is granted if the property has not been let, is the PPR of the owner and if one or more rooms are let to tenants, but in keeping with the terms of the rent-a-room scheme.

The letting of rooms may be an issue in this case (it sounds probable that the gross income generated by this activity may exceed the scheme limits- however its up to the OP to clarify this).

OP- current lending rules (admittedly these are changing almost on a daily basis) appear to be:

• Mortgage to a max of 80% of the fair market value for a house or 70% for an apartment
• Mortgage to a max of 30% of net income- as determined from the previous year's P60
• Mortgage to max of 4 times gross income for a single person or 4 times larger and twice smaller for a couple (if both currently working).

Max mortgage- the smaller of the above calculations.

You need to check this out. Contact different lending institutions yourself- the mortgage brokers have pretty much been frozen out of the market by the lenders- so you will need to shop around.

S.

D3PO

The Rooster wrote: »

Just on the CGT issue, you've been fed plenty of nonsense on this thread to date so far.

Firstly, and less importantly, your CGT base cost is more likely to be €200k than €130k as some have said. You paid €130k to your Dad and took over his €70k mortgage in return for buying the house - therefore total consideration paid by you is €200k.

But that's not really important. What is important is that since you acquired the house, it has been your principal private residence. Therefore, any gain you make when you sell is exempt from CGT. There is no 4 year rule!!
1

Firstly dont be such a smart arse calling other peoples posts nonsense. Attack the post not the poster.

Secondly read it again the 70k mortgage is still in his fathers name. It doesnt matter that he is paying it. Its not in his name so for tax purposes 130k is the figure.

Thirdly as was already corrected in the thread. Hes not libel for CGT as an investment property as he is also living there. That information re CGT was on the basis of it being an investment property that was due to me misreading the first post.

It was duely corrected however and the OP saw that correction so no need for the snide comments.

EoghanConway

smccarrick wrote: »

Just a little clarification- even if the house is the only sole property the OP owns, and has been his PPR- a partial relief on CGT is granted, if rental income from rooms exceeds the limits set for the rent-a-room scheme.

This is true, I am working on the assumption that the OP is receiving less than €10k p.a. from his two tenants and that it is his primary residence. Of course this varies a lot depending on location and how bills are paid for.

Regy

The net income from tenants is less than 10000 euro a year and as a live in landlord I have to declare this but am tax exempt. I'm delighted that cgt does not affect me so at least I have an "out" if I really need it, obviously I am going to try and keep the house until the markets go up and I can break even, the fact that my father is unemployed and emigrating mite help with a negotiating a deal with the bank to allow me to extend his loan and have me help out, only way I can see of resolving this unless I win 70k and use it to pay my dads loan.

Wish I didn't buy now but back in 2006 things seemed great! And I'm not one of these fellas who intentionally overspent, thank god,

Would I legally have to be put down as part owner of my parents house in order to get a chance of a mortgage on it or help my dads one?

The_Conductor

Regy- under the rent-a-room scheme, its the gross income from the tenants- not the net.
Any contributions towards bills etc- gets counted towards the 10k limit.

You have to declare the lot annually, and if the *gross* income is less than 10k, you have no tax liability on it, if the *gross*, inclusive of all billshares etc is 10k or greater- you pay tax on the lot (and have a diminished CGT exemption).

loyatemu

sounds like a real mess but one point - if the house was worth 175K 2+ years ago, no amount of renovation is going to make it worth 180K now - you need to factor a realistic selling price into your calculations...

Godge

Regy wrote: »

The net income from tenants is less than 10000 euro a year and as a live in landlord I have to declare this but am tax exempt. I'm delighted that cgt does not affect me so at least I have an "out" if I really need it, obviously I am going to try and keep the house until the markets go up and I can break even, the fact that my father is unemployed and emigrating mite help with a negotiating a deal with the bank to allow me to extend his loan and have me help out, only way I can see of resolving this unless I win 70k and use it to pay my dads loan.

Wish I didn't buy now but back in 2006 things seemed great! And I'm not one of these fellas who intentionally overspent, thank god,

Would I legally have to be put down as part owner of my parents house in order to get a chance of a mortgage on it or help my dads one?

Is your father selling his house when he emigrates? If so, the bank will have first charge on any proceeds to be put towards the 70k mortgage. It doesn't matter that you are paying it, it is secured on his house and is in his name. From your point of view that may be the best solution. The 70k mortgage will be paid off and your father will presumably accept whatever monthly payment you can afford to make. However, don't expect him to be completely happy with this situation.

The_Conductor

Godge wrote: »

Is your father selling his house when he emigrates? If so, the bank will have first charge on any proceeds to be put towards the 70k mortgage. It doesn't matter that you are paying it, it is secured on his house and is in his name. From your point of view that may be the best solution. The 70k mortgage will be paid off and your father will presumably accept whatever monthly payment you can afford to make. However, don't expect him to be completely happy with this situation.

OP- to be perfectly honest- you need to sit down with your dad and discuss all this in detail. You then need to have a proper document drawn up- detailing your respective rights and obligations. I would not be suggesting shafting your dad- as per above- simply that you need to put a formal structure in place, satisfactory to all parties- including the bank.

Regy

My fathers not selling his house as my mother is staying here , she is too sick to travel, I was going to move home to save money on bills and mortgage but then I would be liable for cgt and need to b registered as a landlord on my house. I contacted the bank concerning equity release and all I could get based on my equity is 16k and it needs to be 25k minimum. I was going to use this to take a chunk out of my dads mortgage and thus lowering repayments.

My only plan now is to reduce all other loans enough to save some money so I can renegotiate my mortgage next yr, hopefully prices will level out a bit and banks will be lending. An idea I had was for myself and my 2 brothers to jointly apply for a loan on the 70k, over a longer period and we would get ownership on my parents house, but I would pay..

There has to b options..

dearg lady

you guys seem to have complicated the situatio massively. I don't fully understand, the house was left to your dad and you were promised you'd get a good deal on buying it. But soemhow you paying back a mortgage of 200,000, on a house that was only valued at 175,000 anyway, am I right? How is that a good deal.

I really think you need to speak to a solicitor, and get the mortgage consolidated into one loan, over the longer period, at a decent rate. Is the house in your name now?

The Rooster

D3PO wrote: »

Secondly read it again the 70k mortgage is still in his fathers name. It doesnt matter that he is paying it. Its not in his name so for tax purposes 130k is the figure.

That's wrong.

Legal title isnt the key for tax, its beneficial title.

The OP will have evidence that since they bought the house, payments on the 70k mortgage have been made from their bank account. If then when the house is sold, the proceeds are used to pay off the 70k loan, the evidence will be clearcut that part of the consideration to buy the house was taking over the €70k loan, therefore base cost for tax purposes is €200k.

Which is only right and fair, given the OP will have paid €200k for the house.

Regy

The Rooster wrote: »

That's wrong.

Legal title isnt the key for tax, its beneficial title.

The OP will have evidence that since they bought the house, payments on the 70k mortgage have been made from their bank account. If then when the house is sold, the proceeds are used to pay off the 70k loan, the evidence will be clearcut that part of the consideration to buy the house was taking over the €70k loan, therefore base cost for tax purposes is €200k.

Which is only right and fair, given the OP will have paid €200k for the house.

rooster can you explain this to me sorry for my ignorance,

The Rooster

Regy wrote: »

rooster can you explain this to me sorry for my ignorance,

First of all, if from the date you bought it, the house has been your main residence, then there would be no CGT on the disposal.

If however, you rented it (or part of it) out for a period between buying it and selling it, then a part of any gain made could be subject to CGT.

If the house cost you €130k, then its possible you could make a gain. If the house cost you €200k, then its highly unlikely you'll have any gain (in this decade anyway).

In my view, the house cost you €200k, as I think taking over the €70k loan forms part of the consideration paid to your father. This is on the basis that since the purchase you have made all the repayments on this loan, and your father has made none. And on a sale you immediately pay off the balance of the €70k loan. That would be clear evidence that you took over the €70k loan as part of the original acquisition, despite the fact that it remained in your father's name.

But of course I don't have all the information. Was there a written agreement between you and what did it say? Did you pay stamp duty when you acquired the house, if so based on what value? Did your father declare the sale of the house in his tax return, and what value did he use?

But to reiterate, all of the stuff about your base cost would be irrelevant if the house has been in use as your main residence since the date you bought it.

Regy

i said i would give a small update on this. Currently i still have 2 people living with me with gross income not more than 10,000k, i have secured a new job in cork and need to commute everyday as if i move out the house will not be my ppr and if i get someone to replace me in my house i will be receiving more than 10k gross income, so I'm screwed there too, but i don't mind the commute and i am not spending much.

I have managed to save some money and i am hoping to get to the bank in the next few weeks and sit down with them to see how we can fix this issue. My father has not left the country yet but will be by xmass. my new idea is:

Get my dad to contact the bank officially saying he is having trouble with the mortgage and he needs a moratorium and that i have been helping him out(they will see this in my payments). Continue this trend for a few months (saving me some money) and i will go in with my father before he leaves and offer to help out my parents with their mortgage.

I would legally have to become part owner of the house, as my parents would have the majority of the mortgage paid since they bought it. I am not asking for a new mortgage or any cash payout, just to change the term of my dads mortgage to match mine and allow me to help them out.

This is better for the banks as they have a more secure mortgage, on 2 houses both in positive equity, over a longer period, where they make more money. I intend on selling my house eventually as i do not wish to live there with a family. When it is sold i will pay off mod/if not all of both mortgages.

So, what do ye think? I know that banks are not doing anything now but if i organize a meeting, going the route of my dad would be best? or will i just save up 10-20% of my dads mortgage and try and buy it?