Where will I live when the debts on the Celtic Tiger loans come home to happen?

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July 5, 2022

Where will I live when the debts on the Celtic Tiger loans come home to happen?

I'm 54 with a reasonably good job. My mortgage was € 400,000 with PTSB in 2007 and the crash came. They sold my failed loan to Pepper and a deal was made.

I now pay € 750.00 per month and have been doing so for the last four years or so. But when the final payment falls due in 12 years, they will demand that I pay € 197,000 to pay off the loan in full or otherwise hand over the house. This is very worrying to me, as I'm sure you can imagine.

I have no assets as such, only a few bobsleighs at the bank and a very small pension. Is there anything I can do now to try to prevent this from happening?

Mr TD, email

This is a story that is being replicated around the state. Thousands of people who were in a generally very good financial position ended up in financial distress either because they had survived 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 real estate prices) have bounced back, there is still a significant cohort of people who were so stuck in debt that there was no chance they would ride that wave of recovery.

It is one thing to grab real estate investments and to try to move on and put it behind you at whatever cost to your finances; it is completely different when the property being pulled under is your own home.

It's not just bad news. In this case, you have managed to reach an agreement with Pepper which sees that you deal with the mortgage issue and continue to live in your home.

And you also have some time on your side.

Of course, in our 50s, we hope that we will be reasonably comfortable financially and be able to focus on strengthening things like our pensions so that we have a secure and sufficient pension income. But at least – if your health allows – you have another 12 or 13 years to organize your financial affairs.

Depending on your job, it may be even longer.

As you say, you clearly have a fairly well-paid job: your mortgage payments account for a smaller part of it than they do for many homeowners, even though I do not post the salary bill here for privacy reasons.

I obviously do not know what other debts and financial commitments you have, but on the surface there is room to fulfill your daily commitments with little room left.

With that said, € 197,000 is a scary lump sum to have to find – even in 12 years. You say you have very little in the form of savings or other assets.

You can try to invest in that amount, but you would look at valuations of cryptocurrency to get there within the available time frame and I would never consider it sensible to invest.

Before all crypto fans fall on me, I do not say that there is no room for crypto investments in people's personal finances, but as the decline in value this year after the rise in nosebleeds until November last year shows, crypto is a high-risk game best played with money you are happy you can afford to lose. This is not the situation this reader is in.

You would need to invest € 1,000 a month every month for the next 12 years with a steady return of 5 percent throughout the period to deliver the kind of money you would need to meet the lump sum.

Even if you had room to spend so much, which does not seem likely, the current market turbulence and concerns about the effects of rising inflation, interest rates and even recession mean that there is little room for comfort. And a 12-year window would give you valuable little time to compensate for the hiccups in the investment.

So if you can not reliably save or invest towards your goal, what are your options?

You can increase your monthly mortgage payments to reduce the amount of the lump sum that threatens towards the end of the road, but again, it is highly unlikely that you will be able to pay it down enough to leave a manageable lump sum.

The best option may be to look at the property again. You can have a cutting edge in the long run in 12 years, but until then you have control and that is the best way to calm yourself.

You do not say what the property is now worth, but this house had a mortgage of 400,000 € before any arrears were built up in the crash. Even assuming a 100% mortgage – remember them – the recovery in property prices after the crash means it should be worth it and it could be significantly more if you had paid a decent deposit.

Yes, you will owe € 197,000 in 12 years but only if you have not paid the debt 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 number is likely to rise over the next decade or so, given the current supply pressure on real estate – although it will also make the price of any alternative real estate you would like to buy.

Reduction sometime between now and the time the debt falls due seems to be a credible option for you. It may not be the home you loved and struggled to keep, but it would be a home – and a debt-free and therefore largely worry-free.

You would need to move comfortably before the deadline for the lump sum because these things take longer than expected but you still have plenty of time to organize.

On top of that, instead of using some extra financial hassle that you now have to pay down this debt or invest in general, I would argue that you should replenish your pension.

Firstly, the tax relief on pension contributions is second to none – at least for us in the PAYE world. It increases your investment potential, giving you the opportunity when it's time for a more comfortable retirement income.

Alternatively, it will strengthen your pension fund and the tax-free lump sum you can take from it can be useful in bridging any gaps between the surplus in the sale of your existing indebted home and the property you hope to buy debt-free.

But I am not a qualified financial advisor and I would suggest that you see one, especially in relation to the pension proposal before deciding on an approach.

  • Send your questions 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

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