Advice - negative equity mortgage or 2nd mortgage

Stuffin

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Just looking for some advice here and opinions on what you would do in my situation.

I purchased an apartment with a friend in 2007. Lived there until 2011 when we both moved out and we are now renting the apartment out.

Mortgage balance remaining of 245k. Repayments 870 a month. On a UB tracker. Property worth 140k so about 100k negative equity.
Property costing c.4k a year between us to cover shortfall in mortgage/tax/service charges

Friend is not in a position to purchase the property off me, he is back living in his parents.

I'm now married with kids and the property doesn't suit my needs due to location and size. I am renting a house. We have savings of about €5k.

I am looking at purchasing a new property for c. 320k

Option 1:
Continue to rent and save for a deposit to get a 2nd mortgage with my wife(she would be a FTB). I would need the full 20% deposit of 65k which would be very difficult to save whilst paying rent and would take about 6-7 years. At that stage I would be 40 or so and would only get a 25 year mortgage which would limit amount I could borrow. Who knows what property prices will be like then.

Issues with this option:
Apartment is costing me about €200 a month and is hassle with tenant issues etc.
I will have to wait about 7 years to purchase somewhere - what happens house prices during this time.
Uncertainty in rental market with increase rent/supply of properties/landlords selling up

Advantages
Eventually mortgage will be low say 255k with payments of say 1200.

Option 2.
Get a negative equity mortgage from UB. My friend would come off the mortgage and my wife would take his place. He would pay a contribution of 20k towards the negative equity.

We would be able to get a mortgage of 3.5 times income which would be c. 400k. This would leave us with the ability to purchase a house for €320k.

Issues with this option
80k negative equity/high LTV
Mortgage repayment of c. €1700 for first 5 years and then 1900 a month

Advantages
Get to port tracker + % for first 5 years
Get to buy somewhere now

Any thoughts??
 
OK, this is a very complicated one. But the first thing to understand is how good your actual investment is.

Property costing c.4k a year between us to cover shortfall in mortgage/tax/service charges

You are saying "Rent - repayments - tax - service charges" = loss of €4k

This is not the right way to look at it.

Your rent seems to be around €12,000 a year. You are paying around €2,000 interest. So you are making a profit of €10,000 a year before charges and income tax. Most of your repayments are capital, so you are fairly quickly paying down the negative equity. If I were your friend, I would not be paying €20,000 to exit this. I would pay the €2,000 a year and watch the negative equity evaporate in time.

If your friend is happy to pay the €20,000, then you should first ask UB to allow you to take over the mortgage from him. It's not clear that they will. If they refuse, then you can ask them to allow your wife take over the mortgage from him. Again, it's not clear that they will do so. They might ask for some of the negative equity to be paid down.

What is your wife's income? How much could she borrow as a FTB? Is there any possibility she could buy a home on her own? I presume not.

Overall Option 2 seems the best.

You are in €50k Negative Equity now, so being in €80 NE is not that big an increase.

The 5 years of the tracker will be a help. It will give you time to make a lot of capital repayments before the higher interest rate kicks in.

I assume that renting a house would be a lot more expensive than paying interest on a mortgage to buy that house. Interest rates will fall in the short term but then they will rise in the medium term. It looks as if the shortage of housing and lack of building is going to put up rents.

In conclusion, as you can afford to buy a house, you should probably do so.

Brendan
 
Thanks Brendan for your response.

I too understand the current property is a good investment and in an ideal world I would have 60k saved and get a second mortgage. The reality is though that I don't think I should continue to hold an investment property when I don't have a family home.

My wife's salary is 50k and she would not qualify for a mortgage by herself.

Can I ask why you think I should try transfer apartment mortgage over in my own name and not joint with wife? The negative equity mortgage will be in our joint names anyway which will replace the apartment mortgage.

UB have said they will in theory accept what I have proposed which is a negative equity mortgage in our joint names to replace the old mortgage. I have to go through the process to have it formally approved if I decide to go that route.
 
The reality is though that I don't think I should continue to hold an investment property when I don't have a family home.

I would think it's the exact opposite. If you don't have a family home, it's probably a good idea to have an investment property as it gives you exposure to the property market. The risk you fact if you don't own a home, is that house prices shoot up beyond your reach. By owning a property, you keep a stake in the housing market.

Separately, the investment property is a very good investment because you have such a cheap loan.


UB have said they will in theory accept what I have proposed which is a negative equity mortgage in our joint names to replace the old mortgage.

OK, if they have approved it, then go ahead with it. I was suggesting doing it first to make matters much cleaner and easier to sort out. However, if your wife buys your friend's share of the house, she will pay stamp duty and legal fees. The first thing to do is to sell the investment property as soon as you have UB's written agreement to transfer the shortfall to a new property.

Brendan
 
Thanks Brendan.

I take your point, the issue I have is that renting in the current market offers no long term security when you have kids attending local schools etc. and you want a decent standard of accommodation. if there was this security/guarantee of decent properties I would be happy enough to hold the apartment and rent long term.

The proposed plan with UB is that I maintain current mortgage with friend until I sell apartment, new mortgage for new property is then in joint name with wife.
 
The proposed plan with UB is that I maintain current mortgage with friend until I sell apartment, new mortgage for new property is then in joint name with wife.

Hi Stuffin

Complicated plans like this often fall apart if people try to do too much at the same time. So get Part 1, the sale of the apartment under way immediately.

The risk is that your partner may change his mind or may not accept the price you have been offered and if you have agreed to buy another house, you will not be able to proceed.

By selling the house now, you will have that out of the way, and you will know your budget.

I presume that the UB Approval in Principle is valid for only 6 months after the sale. So you should also start looking at houses.


Brendan
 
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It sure is complicated!

Part of the negative equity mortgage process is you have to buy and sell on the sane day(maybe a few days grace) but this adds another level of difficulty.

I am unsure of process around this, should I put a deposit down for somewhere first and then put my place on market or other way around as apartment could take longer to sell
 
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