I am 54 with a reasonably good job. My mortgage was €400,000 with PTSB back in 2007 and the crash came. They sold my non-performing loan to Pepper and a deal was made.
I’m now paying €750.00 per month and doing so for the last four years or so. However, when the final payment falls due in 12 years’ time, they will request that I pay €197,000 to clear the loan in full or else surrender the house. This is very worrying for me, as I’m sure you can imagine.
I do not have any assets as such, just a few bob in the bank and a very small pension. Is there anything I can start to do now to try to avoid such occurring?
Mr T.D., email
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This is a story replicated around the State. Thousands of people who were in a generally very good economic position found themselves in financial distress either because they had overleveraged themselves in playing the property game or because they lost all or part of their income in the crash.
And while everyone likes to talk about how the economy (and property prices) have bounced back, there remains a significant cohort of people who found themselves so mired in debt that there was no chance of them riding that wave to recovery.
It is one thing to take a hit on property investments and to try to move on and put it behind you at whatever cost to your finances; it is quite another when the property dragged under is your own home.
It’s not all bad news. In this case, you have managed to come to an arrangement with Pepper that sees you address the mortgage issue and continue to live in your home.
And you also have some time on your side.
For sure, in our 50s, we hope to be reasonably comfortable financially and able to focus on beefing up things like our pensions so that we have a secure and adequate retirement income. But, at a minimum — health allowing — you have another 12 or 13 years to sort your financial affairs.
Depending on your job, it might be even longer.
As you say, you are clearly in a reasonably well-paying job: your mortgage payments account for a smaller chunk of that than they do for many homeowners, though for reasons of privacy, I’m not putting the salary figure out here.
Clearly, I don’t know what other debt and financial commitments you have but, on the surface, there is scope to meet your day-to-day commitments with some room to spare.
Having said that, €197,000 is an intimidating lump sum to have to find — even 12 years from now. You say you have very little in the way of savings or other assets.
You could try to invest your way to that sum but you’d be looking at cryptocurrency-type bounces in valuation to get you there in the timeframe available and I would never consider that sensible investing.
Before all the crypto fans descend on me, I’m not saying there is no room for crypto investment in people’s personal finances but, as the slump in value this year after the nosebleed ascent up to last November shows, crypto is a high-risk game best played with money you are satisfied you can afford to lose. That is not the position in which this reader finds themselves.
You’d need to be investing €1,000 a month every month for the next 12 years at a steady return of 5 per cent over the whole period to deliver the sort of money you would need to meet the lump sum payment.
Even if you had the wriggle room to put that much away, which does not seem likely, the current market turbulence and concerns about the impact of rising inflation, interest rates, and even recession mean there is little room for comfort. And a 12-year window would give you precious little time to make up for hiccups in the investment.
So if you cannot reliably save or invest yourself towards your goal, what are your options?
You could increase your monthly mortgage payments to reduce the scale of the lump sum looming at the end of the road but, again, you are most unlikely to be able to pay it down sufficiently to leave a manageable lump sum.
Your best option may be to look again at the property. You may have a cliff edge looming in 12 years’ time but, up to then, you are in control and that is the best way to reassure yourself.
You don’t say what the property is now worth but this home had a mortgage of €400,000 before any arrears built up in the crash. Even assuming a 100 per cent mortgage — remember those — the post-crash recovery in property prices means it should be worth around that and it could be significantly more if you had paid a decent deposit.
Yes, you are going to owe €197,000 in 12 years’ time but only if you have not paid the debt by then. If you sell the property, it seems likely that you would have a surplus of at least €200,000-€300,000 even now after paying Pepper.
That figure will likely rise over the next decade or so, given the current supply squeeze on property — although so too will the price of any alternative property you would look to buy.
Downsizing at some point between now and the time the debt falls due seems to be a credible alternative for you. It may not be the home you loved and fought to keep but it would be a home — and a debt-free and therefore largely worry-free one at that.
You would need to move comfortably ahead of the lump sum payment deadline as these things take longer than anticipated but you still have plenty of time to organise.
Alongside that, instead of using any additional financial wriggle room you now have to pay down this debt or invest generally, I would argue that you should top up your pension.
First up, the tax relief available on pension contributions is second to none — at least for those of us in the PAYE world. That supersizes your investment potential, giving you the option when the time comes for a more comfortable income in retirement.
Alternatively, it will boost your retirement fund and the tax-free lump sum you could take from it might be useful in bridging any gap between the surplus on the sale of your existing indebted home and the property you would hope to buy debt-free.
But I’m not a qualified financial adviser and I would suggest you see one, especially in relation to the pension proposal before deciding on a course of action.
- Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street Dublin 2, or by email to dominic.coyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice
