Joint Mortgage - Amount of Risk Being Carried

mlocmcgash

Hi,

I bought an apartment with a sibling in 2009 and the property is now in negative equity (stating the obvious I hear you say).

I am since married with children and would like to get another mortgage, but when I look for a quote I am told that I carry the full mortgage risk as opposed to half it (as does my sibling).

This means that I in effect have a ~400K mortage on my shoulders even though I actually only pay on ~200K of it.

This leaves me in a position that financially I could afford another mortgage (with my wife) but risk wise the numbers don't stack up for the banks.

I don't remember being told this (that I'd carry the full risk/amount until paid off) when I got the mortgage (and I probably didn't ask), I would think it's something I'd have questioned at the time as it seems unreasonable (from a consumer perspective).

Is there any way out of this do you know so that the mortgage is effectively split into 2 so I am only tied to 'my half'?
Anyone ever got themselves out of a situation like this (maybe that full explanation wasn't given, I'm thinking like how PPI was mis-sold etc)?

I have no problem carrying the negative equity on my own half of the mistake, but being lumbered with the other half is what's stopping me getting a mortgage for my family.

Thanks very much in advance for any help.

Eldarion

What you're referring to is the term "Joint and Several Liability". This is very much standard practice on joint mortgages and you are very much fully liable for the outstanding amount for the duration of the mortgage.

mlocmcgash

Thanks Eldarion - so there is no way out of it through discussions with the bank (or do you know the answer to this)?

Also, is it correct for the bank to use this liability against me when applying for another mortgage (neither of us in the joint mortgage have missed a payment ever and are in 'stable' jobs) - as per my post, financially I'd be fine but they're refusing me (or the numbers don't add up) based on the (perceived) risk.

Thanks again.

The_Morrigan

mlocmcgash wrote: »

Thanks Eldarion - so there is no way out of it through discussions with the bank (or do you know the answer to this)?

Also, is it correct for the bank to use this liability against me when applying for another mortgage (neither of us in the joint mortgage have missed a payment ever and are in 'stable' jobs) - as per my post, financially I'd be fine but they're refusing me (or the numbers don't add up) based on the (perceived) risk.

Thanks again.

The only person who can answer those questions for you is the mortgage officer/risk officer of the bank you currently have your mortgage with.

As fair as I recall from my property law lectures there is a legal way of having a split liability, but you would really have had to set up the deeds in that way from the outset, nothing stopping you from seeking legal advice on how to amend the existing mortgage/deeds to reflect this. You need to seek that advice from a solr and it isn't going to be straight forward. There is also no guarantee that the bank will agree to it either.

The numbers may add up in your head, but what happens if your sibling is unable to make the payments? You are solely responsible for the short fall until they can resume the payments again. There is a reason why the banks are including the full mortgage amount in their risk assessment of you.

Your direct options here are to sell and take the negative hit with you in the form of a loan or let your sibling buy you out if possible.

Eldarion

mlocmcgash wrote: »

Thanks Eldarion - so there is no way out of it through discussions with the bank (or do you know the answer to this)?

Also, is it correct for the bank to use this liability against me when applying for another mortgage (neither of us in the joint mortgage have missed a payment ever and are in 'stable' jobs) - as per my post, financially I'd be fine but they're refusing me (or the numbers don't add up) based on the (perceived) risk.

Thanks again.

It's just a cold, hard numbers game to the bank. It's an algorithm that determines the yay or nay. And I imagine a 400k outstanding loan is gonna land you heavily in the nay no matter the impeccable repayment history.

There's a couple of plays you can make here but they'd involve you and/or your sibling taking a hit. Your first play could be to 'realise' the loss by selling, it would be a tough sell to the bank but this might reduce your outstanding loan enough for them to consider granting a mortgage for the new property and add the outstanding balance to it. If it's at all possible for you to come clean with a combination of selling + using savings to cover the outstanding then this would be your best bet.

Second would be to get your sibling to 'buy' you out of the existing property. Now that would be an interesting one since it's in NE you'd actually have to pay your sibling to 'buy' you out. You'd achieve this by taking the outstanding loan amount minus the market value of the house and divide it by two. That's how much you'd fairly have to pay your sibling to buy your liability. For clarity with numbers: Outstanding loan €400k, current house price €300k giving a current NE of €100k divided by 2 for an even €50k.

The bank would also have to agree to the second, which isn't guaranteed and you might have to sweeten the deal nicer than €50k as your sibling now has double the repayments to make.

mlocmcgash

Thanks, I appreciate the input. Guess I'll have to speak to a solicitor to know the options and bring one of them to the bank if I ever want to own my own home (as opposed to property).

In terms of sole responsibility, I would think I'd have questioned that if it had been explained to me at the time (but it's a long time ago now and it wasn't something to be worried about in the boom - hence where we are), but regardless, if my sibling can't pay then it won't get paid would be my stance - I couldn't afford it as I pay 1400e in rent at the moment on top of my portion of the 'shared' mortgage.

Thanks again.

The_Morrigan

mlocmcgash wrote: »

In terms of sole responsibility, I would think I'd have questioned that if it had been explained to me at the time (but it's a long time ago now and it wasn't something to be worried about in the boom - hence where we are), but regardless, if my sibling can't pay then it won't get paid would be my stance - I couldn't afford it as I pay 1400e in rent at the moment on top of my portion of the 'shared' mortgage.

Thanks again.

Unfortunately, you signed the mortgage document which stipulates this, if neither of you can't/won't pay then the arrears start and the bank can go after both of you or either of you. They don't care that you're paying rent on top of your mortgage obligations....and this is the crux of the matter. Why should a bank increase their exposure to you if this is your stance on your current obligations?

johnnyskeleton

mlocmcgash wrote: »

Thanks, I appreciate the input. Guess I'll have to speak to a solicitor to know the options and bring one of them to the bank if I ever want to own my own home (as opposed to property).

In terms of sole responsibility, I would think I'd have questioned that if it had been explained to me at the time (but it's a long time ago now and it wasn't something to be worried about in the boom - hence where we are), but regardless, if my sibling can't pay then it won't get paid would be my stance - I couldn't afford it as I pay 1400e in rent at the moment on top of my portion of the 'shared' mortgage.

Thanks again.

It was almost certainly set out in the mortgage documentation that you were jointly signing up to the full mortgage and indeed the application form signed by you specified a joint mortgage of €400k rather than two separate €200k mortgages. You would also have been told to get independent legal advice and must surely have had a solicitor to answer any questions or to explain the situation to you.

Im not trying to be unduly harsh but i dont think you can realistically say that you werent aware of it.

phormium

To be honest that info re joint and several liability is in the mortgage docs and probably the t&cs on the application but no one reads that stuff. Not the bank's fault that you didn't read it either with them or on the loan offer with your solicitor.

No one wants a mortgage, they want the house and the mortgage is just an unfortunate side effect so no one is interested in reading the small print, would it really have stopped you buying a house jointly with anyone? It will be the same if you manage to buy one with your wife, you will again be 100% responsible for all payments.

JimsAlterEgo

phormium wrote: »

To be honest that info re joint and several liability is in the mortgage docs and probably the t&cs on the application but no one reads that stuff. Not the bank's fault that you didn't read it either with them or on the loan offer with your solicitor.

No one wants a mortgage, they want the house and the mortgage is just an unfortunate side effect so no one is interested in reading the small print, would it really have stopped you buying a house jointly with anyone? It will be the same if you manage to buy one with your wife, you will again be 100% responsible for all payments.

any beef you would have would be with your solicitor at the time for not explaining it properly

mlocmcgash

I'm being throwaway in my comment about not paying obviously but there are plenty of people who can't pay their mortgage out there so it's not unreasonable to think this would be an issue for many who currently can (pay half).
Also, I suppose my thinking is that in the grand scheme of defaulting and 'deals' that someone who would be keeping up their mortgage repayments but just looking for the risk to be reduced so they can continue with their life is a small thing (especially since the repayments on the other half are also being kept up - though I accept from the banks perspective that's just for now).

Anyway, thanks for the help.

Eldarion

mlocmcgash wrote: »

I'm being throwaway in my comment about not paying obviously but there are plenty of people who can't pay their mortgage out there so it's not unreasonable to think this would be an issue for many who currently can (pay half).
Also, I suppose my thinking is that in the grand scheme of defaulting and 'deals' that someone who would be keeping up their mortgage repayments but just looking for the risk to be reduced so they can continue with their life is a small thing (especially since the repayments on the other half are also being kept up - though I accept from the banks perspective that's just for now).

Anyway, thanks for the help.

Plenty of people strategically choosing not to pay their mortgages too. All that can be said though is that nobody was forced into taking out a mortgage, everybody entered their agreements willing and under no duress.