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Published on: doddl News

Our property finance expert answers your questions – Sep ’21

Question

My tenant sought a derogation from rent due to Covid. In fairness, he was out of work and I had no option but to agree. He works in the hospitality industry and I know for a fact his restaurant is now back open, but he hasn’t returned to work. I suspect he doesn’t want to and now I want to progress eviction proceedings. Can I do this?

 

Answer

There were strict rules brought in during the pandemic restricting landlord rights in this area.

I asked the Residential Tenancies Board for the updated position and a spokesperson said: “The rise in unemployment has had an adverse impact on the ability of some tenants to meet their obligations to pay rent due, as well as on those landlords who rely on rental income as their sole source of income.

“Landlords were encouraged to show forbearance during this period and potentially look at entering into informal agreements for reducing rents or entering into payment plans to tackle rent arrears wherever possible.”

There are seven permitted grounds for ending a tenancy after six months, including a breach of the tenant’s obligations in not paying rent.

“Since 1 August 2020, there have been changes to how to validly end a tenancy for rent arrears. New legislation called the Planning and Development and Residential Tenancies Act, 2020 (PDRTA) was introduced to help protect those most vulnerable during Covid — tenants who have been financially impacted by Covid-19, in rent arrears and at risk of losing their tenancy.

“To avail of the protections under the PDRTA, the tenant must meet the following criteria and must serve a Self-Declaration form on their landlord:

“If between 1 August 2020 to 12 January 2022, a tenant is in receipt of (or entitled to receive) any social welfare payment or State support paid as a result of loss of earnings due to Covid-19 (including the rent supplement or a supplementary welfare allowance), and as a result, is at significant risk of losing his or her tenancy, and if they comply with the required steps outlined in the PDRTA, they cannot be made to leave their rental accommodation until after 12 January 2022 or see an increase in rent until after 12 January 2022.”

The spokesperson added: “The RTB takes illegal eviction very seriously as it can potentially leave a tenant homeless.”

Question

I have two mortgages. The first is on my family home (value €550,000, mortgage €320,000) and the second on an ill-advised investment property I bought in 2007 which is even now in negative equity.

It’s an apartment valued at €260,000 with a loan of €310,000 still outstanding). I’m trying to find the best solution for both.

Is there any merit in selling the apartment and amalgamating the loans? The interest on the rental is 5.5pc, while the home loan is 3.1pc. The whole situation is stressing me out.

 

Answer

You have two options: hold the buy to let, continue paying it down with the hope of getting it to a neutral position to allow for sale without shortfall, or to sell now and crystallise the loss. Both options are difficult and no doubt made more stressful by being in a negative equity position on the investment property.

Martina Hennessy of doddl.ie says: “If you look to sell you would need to approach your current mortgage lender to get consent while in negative equity and consider how any shortfall would be addressed.

“If both loans are with the same lender then you could potentially seek agreement to absorb the negative equity into your home loan mortgage, but this is not always allowable as essentially you would be taking an equity release and topping up your home mortgage and lenders are strict on the purpose of such a top up on a family home.

“If the mortgages are with different banks, then you could approach your home loan lender to ask if they would release equity for the purpose of clearing the existing mortgage. If so, a full new application would need to be made. Be mindful however that you are then carrying additional debt secured on your home.”

Assessing the buy to let, Ms Hennessy adds: “If we take a balance of €310,000 at 5.5pc — a high rate by the way — and assume a term of 20 years remaining, then repayments would be €2,132. On this basis if you held the property for another 5 years then the balance outstanding then would be €274,000 so lower to the current value.

“If you do hold the property, I would revisit the rate with the lender. Fixed rates are lower and better value.”

Get more than one opinion from an agent on value as the market currently is strong. You will need to speak to your current mortgage lender as to the potential for equity release to clear the negative equity on sale as this might ultimately be the deciding factor as to whether you can proceed to sale now or not.

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