Case Study 2 – PAYE Employee/Landlord


Who

Here our clients are a married couple both in PAYE employment and over a number of years accumulated 5 residential investment properties (RIPs’). The properties were acquired over a 10 year period and the last of which was acquired in 2006. The properties were in good locations and rented well even through the recession.

The Lending

All of the RIPs’ were acquired with mortgages ranging from 75% to 95% loan financing. Loan repayments included both interest and capital. The initial interest rates were very low “teaser rates” increasing after a 3-5 year period. At the time of the clients requesting our assistance some of the loans were going into arrears.

The Problem

Two problems arose initially. Firstly, as the recession took hold though the properties continued to be rented the rents began to fall and eventually fell by 35% from a high in 2007 to a low in 2011. The second problem was that the “teaser” interest rates began to run out and some of the loan interest was doubling. Sustaining mortgage payments became impossible. The clients began to use up savings and supplement the repayment shortfall from their salaries. This situation was not sustainable in the long term.

 

The NEO Plan

When we were engaged we reviewed all information and all loan documentation to ensure they were in order. After the review we contacted the banks in question, confirmed our appointment and immediately agreed reduced loan repayments until the completion of our review and presentation of a proposal to address the issues.

The Solution

We presented a detailed proposal which included property valuations, confirmation of income and a revised repayment schedule which included reduction in interest rates, warehousing of part of the debt and a partial disposal plan as and when the market conditions improved.

Timing

As with most of the debt restructuring cases they do not get resolved quickly. However, during the restructuring process the stress was taken completely from the clients and repayments were reduced (by agreement with the banks) to ensure they were sustainable while negotiations were ongoing. The whole process took seven months to complete and agree.