Short term loan to downsize home for retired couple

Tigger

hi
a friend of mine is retired and his wife is also retired, she has a public services pension and he has a state pension they have a home that was recently valued at €265k and they have savings of approx €110k
They want to buy a smaller home that has an asking price of €140k so they thought it would be possaible to borrow the €30k needed to make up the shortfall and then they could sell their family home and once sold they could move into the new smaller home and have a cheaper to heat and run home and a couple of hundred liquidity for their golden years.
they went to the TSB with this idea and were told there was no product available to them.
is this right? cant one of the two houses be used as security?thier house that was valued at €265 is in my opinion very nice (three bed detached in a very good location) and they would have circa €400k worth of property and only this €30k loan and a small car loan >10k

phormium

It's probably age and income that is going against them. The value of the existing house is not that awfully relevant as a lender main criteria is ability to repay and not security, that comes second.

To remortgage their existing house would be an expensive option with legal fees and the amount is probably below the minimum mortgage in most banks.

Do they have a credit union account? This sounds more like something a credit union would look at based on the back story.

Tigger

phormium wrote: »

It's probably age and income that is going against them. The value of the existing house is not that awfully relevant as a lender main criteria is ability to repay and not security, that comes second.

To remortgage their existing house would be an expensive option with legal fees and the amount is probably below the minimum mortgage in most banks.

Do they have a credit union account? This sounds more like something a credit union would look at based on the back story.

they need 30k
credit union would only give this much for home improvements which needs all sorts of quotes and invoices and stuff apparently. i'd have thought there was a bridging loan or something similar
ability to pay is important but wouldn't the fact that they have listed the home house for sale and would be getting far more than 30k for it cover this i mean if the loan was over five years it would only be €635 a month.

phormium

Credit Unions differ, unfortunately so their one does not do the type of loan they need, any other credit unions they are eligible to join? Bigger ones should be able to at least look at this sort of proposal.

Bridging loans kind of went out the window years ago, you can't guarantee a property will sell no matter how good it is and banks just won't take chances like that.

Only €635 per month! I consider that quite a lot, usual lending criteria would mean that not more than 35% or so of net monthly income should be going on all loans including any existing borrowing and at stress tested rates. Would they fit under that on their pension income?

Tigger

phormium wrote: »

Credit Unions differ, unfortunately so their one does not do the type of loan they need, any other credit unions they are eligible to join? Bigger ones should be able to at least look at this sort of proposal.

Bridging loans kind of went out the window years ago, you can't guarantee a property will sell no matter how good it is and banks just won't take chances like that.

ok so the banks would be worried that the property wouldn't sell and they don't really do that any more. good to know.

Only €635 per month! I consider that quite a lot, usual lending criteria would mean that not more than 35% or so of net monthly income should be going on all loans including any existing borrowing and at stress tested rates. Would they fit under that on their pension income?

how do i calculate for stress testing
i don't know their income i'd guess at around 2.5kpm so thats probably not enough with a car loan on top. i'll have to ask but i'd assume that with the bank's refusal they didn't pass.

i'm quite surprised that a retired couple looking to downsize would have to sell first and then buy in order to do it but i suppose that there is still a large degree of uncertainty in the market
their credit union would be the biggest around (Sligo credit union) so do they try to form a chain secure a buyer and then put an offer on a house and hope nothing falls through? it looks to me that a lot of houses go "sale agreed" and then go back up for sale so this would be tricky

thanks for the help and if you or anyone else has any advice i'm all ears

Spanish Eyes

Sell first then rent, then buy.

Sorry but that seems the most sensible solution to this. And you'd never know, whilst they are renting they could see other locations and bargains, and no pressure!!

Kristopherus

Spanish Eyes wrote: »

Sell first then rent, then buy.

Sorry but that seems the most sensible solution to this. And you'd never know, whilst they are renting they could see other locations and bargains, and no pressure!!

And defo would not have to spend 30k on rent.

Tigger

Spanish Eyes wrote: »

Sell first then rent, then buy.

this would mean moving twice and having no security, renting is very hard ,i rented myself for over 20 years and while i had two nice long positive terms of approx 7 years each the rest of it was a mess. i don't think i could recommend it to this particular couple and if they decide themselves to do it that's their business.

Tigger

Kristopherus wrote: »

And defo would not have to spend 30k on rent.

There is no spending the 30k they have 110 and need the 30 to make up the shortfall for the time it takes to sell their existing home
They would be able to clear the loan
My other question was going to be whether you can get a 30k loan with no penalty for early repayment but I think that the answers will be no that's a bridging loan they don't do those and, go to the credit union

phormium

Looks like selling first is the only option.

Have they tried other banks?

It really hinges on income and to a lesser extent age which decides the length of the loan and that is probably too short to come under the income criteria.

The car loan won't help either but if they were younger the advice would be clear that from the savings and just borrow the extra needed for the house which would normally be over a much longer term, eg if car loan was 10k then clear that and borrow 40k for house but in their case this is unlikely to help as the 40k loan is probably not much longer term than the 10k so won't reduce the payments sufficiently to get within criteria.

Most loans will be repayable early without penalty assuming they went for a straightforward variable rate term loan, they would have to pay monthly payments until it was cleared off so this is why they need to fit the criteria. Open ended interest only bridging loan like they need just doesn't happen anymore.

Tigger

phormium wrote: »

Looks like selling first is the only option.

Have they tried other banks?

It really hinges on income and to a lesser extent age which decides the length of the loan and that is probably too short to come under the income criteria.

The car loan won't help either but if they were younger the advice would be clear that from the savings and just borrow the extra needed for the house which would normally be over a much longer term, eg if car loan was 10k then clear that and borrow 40k for house but in their case this is unlikely to help as the 40k loan is probably not much longer term than the 10k so won't reduce the payments sufficiently to get within criteria.

Most loans will be repayable early without penalty assuming they went for a straightforward variable rate term loan, they would have to pay monthly payments until it was cleared off so this is why they need to fit the criteria. Open ended interest only bridging loan like they need just doesn't happen anymore.

Thank you this is very clear
What length of loan would a couple aged 63f and 66m be eligible for
They were told two years by a bank today (just talking to them) so this would be the reason that they are not fitting the income criteria
How are stress test calculated
Thanks again

phormium

Term will vary with each bank's own policy and at oldest age 66 their options are severely limited. Stress testing is usually adding 2% on to the rate being charges for mortgages anyway, banks might do it differently if treating as term loan but either way 30k over a couple of years is practically impossible on normal pension income.

Tigger

phormium wrote: »

Term will vary with each bank's own policy and at oldest age 66 their options are severely limited. Stress testing is usually adding 2% on to the rate being charges for mortgages anyway, banks might do it differently if treating as term loan but either way 30k over a couple of years is practically impossible on normal pension income.

Thanks for all this I'm going to have to sit them down and ask them how much info they are willing to give me about their finances and explain that they may need to make a few tough decisions
Do you know if this is a wide issue I hear a lot of noise on the radio about older couples in big houses while younger families are in small ones and that the older ones should downsize but without bridging loans how can the older couple downsize. Particularly in Dublin where renting seems very hard .

phormium

Not next nor near Dublin so don't know if it is a common problem up there. It's no different to any person wanting to move house and in fact they are in a much better position as they almost have enough to buy the other house. In the normal run of events if they required a mortgage for the new house it would have a condition in it that signed contracts for sale of original house would have to be in place before the new mortgage was drawn down. So everyone moving has the same issues.