Waiting to go bang. The need for new forbearance.

We have seen a new type of potential mortgage problem that hasn’t shown up on the radar as of yet, it’s with larger residential investors (typically 15+ properties).

The issue has started to show as a problem that will be a 2013 onwards one and it hasn’t begun to kick in due to low interest rates and ongoing interest only agreements which if changed will cause instant insolvency in the borrowers.

Take the following example, it’s very like a real case we just worked on.

Mr X has 20 properties, for the sake of ease I made the main sums consistent with the facts but averaged everything else to show how it works.

Currently it looks like a cash cow, in one of our recent cases it is because the person has section 23 properties that reduce the tax liability, but that puts them against a cash cliff in 2014 when it runs out. Put the s23 aside, the taxation of this portfolio would be approximately as follows:

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