In the past week, at least five people contacted me looking for advice in relation to their mortgage. The predicament they found themselves in was exactly the sam. The bank – which was not the same in all instances – was asking for more money than they could afford to give them each month.
So, their question was: what should they do?
Before I tell you what I thought they should do, let me put their question into context by providing a very brief background on all of them, and one in particular, because it’s important.
Everyone who contacted me is in full-time employment earning above average incomes; all are in negative equity averaging about €80,000; all had been making interest-only payments for the past 12 months; four out of the five have young families.
Let me tell you about one of them in particular and let’s call him Cian (not his real name).
Cian went to his bank about 10 months ago because of a reduction in his salary and the fact that his partner had lost her job.
They didn’t have the ability to repay their mortgage in full each month, so they did the proactive thing by looking for help.
After two or three months of back and forth with the bank, they eventually agreed to an interest-only facility for a period of six months. This was a relief as it would get them through Christmas etc. Without fail they paid the revised amount at the end of the month as promised.
They carefully budgeted their money each week to make sure they would have the amount as they didn’t want to let their bank down.
But fast-forward to last week when the bank sent them a letter to say their six months was now up and they were going back on interest and capital repayments.Their monthly repayment for February was going to go from €950 per month back up to €1,700.
They went back to the bank immediately and spoke with a person who had been appointed to them (who had no authority to do anything, by the way – all they were doing was gathering information and sending it back to their head office for consideration).
They told this person that their circumstances had not changed in the past six months. They showed him bank statements and payslips, and said there was no way they could afford to pay €1,700 every month.
The bank’s representative said he thought they could – and Cian told me it was a bit like “the bank’s way or no way.”
He couldn’t believe the aggressive stance they adopted. He asked them to explain how they expected him to come up with an extra €750 every month when he clearly couldn’t.
What Cian was looking for was more time. His partner was looking for a new job and was hopeful that she would find one soon but having this cloud hang over her head was making the job search much more stressful than it needed to be.
When your mind is on something else, something that is coming between you and your night’s sleep, it obviously has an impact on what you say and how you look. It simply knocks the confidence out of you and people can see that.
Cian and his partner want to pay his mortgage in full and if his partner gets a new job then they will be able to, it will be a struggle but they will do it.
So, why is his bank putting him under so much pressure? Why could they see that six months ago he needed a break, which in fairness they gave him, but six months on when he needs an extension to that break, they won’t give it to him?
I can’t speak for this bank so I can’t give you any logical reason why they would say no, but my advice to Cian was this.
He had two choices: he could either pay them €1,700 per month as they were demanding or he could refuse and continue to pay them €950 as he had been for the previous six months.
He clearly could not pay them €1,700, so we spoke about it and after we did, he wrote a letter to his bank and said – you know what, I don’t agree with you, I can’t pay you €1,700 so I am going to either give you €0 or €950. I am proposing to give you €950 and I will do so even if I don’t hear from you. If and when my partner is back working and earning an income we will let you know – and we might then be in a position to give you €1,700. But until then you are getting €950.
The bank have yet to respond and hopefully when someone senior gets to see Cian’s reply, and reviews his finances, they will see that they were absolutely wrong to demand anything more from this young family.
Cian’s options were and are limited. He doesn’t want to go down the insolvency route and be drawn into a process where the bank has the ultimate say anyway. His lender isn’t offering any alternative options to him like interest rate reductions or split mortgages and he doesn’t want to declare himself bankrupt.
I have met with more people like Cian recently, home owners with mortgages situation hasn’t improved in the last 12 months and may not in the short term either.
What is worrying is how banks are dealing with the likes of Cian and how aggressive and unaccommodating they have become in a very short space of time.
How, as I said, it seems to be their way or no way.
Well maybe the only way of dealing with them is to be a bigger pain in the ass than they are and say, I will pay you what I can afford to pay you and what you were happy to accept last month, so there is a third way and it’s my way. And is that worse than paying them nothing at all?
I will let you know how the bank responds to Cian’s letter.