KBC Negative equity mortgage, best options.

What would you do?

Salary 1 €62,200 full time private sector
Salary 2 €57, 500 full time private sector
After tax about €6500 p/month

Savings €30k
No loans or credit card debt
2 children

Mortgage KBC balance €320k, property worth approx. €200k
Monthly payment €1700 no arrears variable rate
Property is currently rented out for €1200 p/m and we add difference of €500 plus management fees of €125p/m (€625 p/m)

We bought this 3 bed duplex property in 2007, unfortunately the area went completely downhill. Our next door neighbour was dealing drugs, constant parties in the apartment underneath and anti-social behaviour on the estate it hasn't change much since we moved.

We rented the property out and luckily have had no problems with tenants since. We rented another home in a nice estate but landlord looked to up rent from 1300 p/month to 1600 p/month we decided this wasn’t manageable and moved out in July 2014 with a view to buying again.

We have been living rent free with my parents since July in 2 rooms, but the accommodation now is just too small, it’s a small terrace 3 bed house and there just isn’t the room for 2 families anymore.

We have been in a position to clear all loans and credit cards debt and save €30k while we have been here. We have mortgage approval with AIB for a property of €300k. We just can’t seem to get a house we are constantly out bid, our approval will run out in May and we won’t be able to buy if we need a 20% deposit.
We are considering offering our current tenant’s compensation to break lease due to end in October and move back to apartment. Our eldest starts school in Sep and we want to be settled by the time she starts.

We are trying to decide if we should move back to apartment and forget about buying again or rent again?? We have approached KBC about selling the apartment and they will not allow it. We are keen to keep our credit rating. any other suggestions what we can do with this property?

Possibly stupid question... but is there any way to change the term\type of mortgage you have on the property you are renting out so that the rent will cover the repayment amount? e.g. change it to buy to let?

odyssey06 said:

Possibly stupid question... but is there any way to change the term\type of mortgage you have on the property you are renting out so that the rent will cover the repayment amount? e.g. change it to buy to let?

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KBC have hinted this is something they could do if we had a new family home mortgage otherwise they say we can fully afford payment top up

Are you on a tracker rate? If so it will be more cost effective to hold on to the Apt then selling and trying to deal with the residual balance over a relatively short timeframe! You should be in a position to force KBC to allow you to sell, however they will require you to put forward an acceptable solution for dealing with the residual debt. This will not be a long term agreement. Re-examine your finances re taking out a new 300K mortgage. This will put you in a very high debt position and while you both have good salaries, I reckon you will be overstressed at this level of borrowings. You're currently getting a good rental return on what is a 200K investment. Selling the duplex will not improve your financial position.

I think you are better off trying to hold onto the duplex, sounds like you have good tenant.

Whether to buy or rent... I think a lot of it comes down to your age... unlikely to get mortgage past age of 65. If you can afford to wait until you have built up more savings \ equity in duplex, rent somewhere nice, and then revisit things, that seems better than rushing to buy now.
Assuming you will still be able to save at same rate that is, so that you can build up a 20% deposit.

If you are pushing up to 65 - 20 years ... then there is more of an urgency on you to buy sooner rather than later.

We are 34 & 35 years old. Unfortunately on variable rate with KBC 4.3%.

olivia56 said:

We have mortgage approval with AIB for a property of €300k. We just can’t seem to get a house we are constantly out bid, our approval will run out in May and we won’t be able to buy if we need a 20% deposit.

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Have you asked KBC for a Negative Equity loan? Sell your house and add the NE to your new loan

Negative equity: €120k
New house: €300k
Less savings : €30k
Total mortgage €390k
Earnings €120k
Loan to Income: 3.25
Negative equity: 90k , compared to €120k at present, so KBC should go for it.

Brendan

I asked KBC over the phone for a negative equity mortgage and they said no. The most they could give for new property would be €185. Maybe we need to book an appointment and sit in front of them Brendan putting the figures out make sense. We have never wanted to be landlords one mortgage is all we want.

€185k sounds very low.

Try them again.

Brendan

I can update you once we I get something in writing but we have just applied to KBC for a negative equity trade up mortgage. Having gone through the numbers with them over the phone, they indicated that there shouldn't be a problem. Our situation is:

Negative equity: Difficult to estimate but in the region of 40-60K
New house: €350k
Less savings : €55k
Total mortgage ~€350k
Earnings €100k

Just back from meeting with KBC max negative equity they will allow us to carry is €75k.
If we sell for €200k that leaves negative equity of €120. We would need to have deposit of €50k to buy a home for €300k.

It's looking like a new mortgage from AIB which we have approval for is best option then working with KBC on 'second home' as a rental if we want to move home.
I think it would take us 4 years to save another €20k.

Hi Olivia

I wonder where the €75k figure came from. Did they show you how they arrived at that figure?

I have found the brochure for the KBC Negative Equity mortgage. Are you seeking to buy in a non-urban location? If so, they require a 20% deposit.

Here are my figures

No buying in Dublin Brendan will go over paperwork they gave me when I get home and repost.

Many thanks

The figures you need would put the LTV on the Negative Equity Mortgage above the limits allowed, max allowable is 125%, that could be the problem from the bank's perspective.

Don't forget if you are looking at this option you need to have the funds to pay for a solicitor for both the sale of the duplex and the purchase of a new property and you need to allow for estate agent fees on the sale of the duplex. You'll also have stamp duty on the new property.

So in affect your savings of €30,000 will need to cover possibly €10,000 of sale and purchase expenses.