Selling when in negative equity

Marianne S

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Age: 27
Partner's age: 28
Annual gross income from employment or profession: 40K
Annual gross income of spouse: ~30k

Type of employment: Me permanent HSE employee, him self-employed

In general are you spending more than you earn or are you saving? Saving

Rough estimate of value of home: 300K

Amount outstanding on your mortgage: 300K. We've been paying it off for a year and a half now, initially LTV was 92% but prices have dropped

What interest rate are you paying? 5.1% tracker, 5.35% from Thursday if Jean Claude Trichet gets his way

Other borrowings: Partner has a car loan, 4 years left, fixed rate

Do you pay off your full credit card balance each month? Yes

Savings and investments:I save €500/month, he saves slightly less, we have 14K currently in high yield deposit accounts

Do you have a pension scheme? Both of us have, mine through work his is a private pension

Do you own any investment or other property? No

Ages of children: None

Life insurance: Level term


What specific question do you have or what issues are of concern to you?
We are generally very prudent with money and have done fine so far. Our main issues are saving to get married (next year hopefully) and moving to a bigger house. What we'd like to know is if we are in negative equity when we go to sell eg house is worth 250K but we owe 300K how does it work? We won't be able to clear the mortgage on property A with the proceeds from its sale so how do we buy property B and come up with a deposit? It will not be feasible to continue living in the 2 bed house we are in now when we start having children, it might be ok with one small baby but we will need a larger house in the next few years.
 
I personally think you should sit tight (3-5 yrs)and possibly extend if you need more room. whats the rush ? 3-5 years will pass very quickly and if you focus on getting married and having that child and live your life . Now is not the time to sell. People who have gone into negative equity only feel the pain if they sell .Once you can pay your mortgage and pay the bills and throw in the odd holiday your sailing.Take the long view and you will be fine ,and you might even make a profit when you do sell.
 
If the area is nice and your happy with it, then Id aggree with GOBBStopper. Extend stay the course. Dont sell.
 
Thanks for your replies, it's good advice. Unfortunately extending isn't an option, even if we could afford to. It is definitely a starter home and would be extremely cramped with three of us, one of our 2 bedrooms is used as an office for my partner. We will sit tight for as long as we can but I was wondering how the banks treat situations like ours
 
We will sit tight for as long as we can but I was wondering how the banks treat situations like ours

You won't have a choice imo. The bottom line is your house is the bank's security for the loan they gave you to buy it - they won't release that security until all the money is repaid.
 
=GOBSTOPPER;661124 People who have gone into negative equity only feel the pain if they sell .

The reality is, unless you can come up with the difference between what you owe on the property and what you get for selling it, you won't be in a position to sell in the first place.
 
Hi Marianne

I think that you will have to accept that moving will not be an option for you for some time - probably at least 5 years.

Two things must happen.
1) You will need to get rid of the negative equity.
2) You will need to save up the deposit on the new house.

Start by paying your savings off against your mortgage if the interest rate you are paying is higher than the interest rate you are receiving.

Your partner should also suspend making any payments into his pension fund. Getting rid of the negative equity should be a priority. Apart from anything else, it will be very psychologically satisfying to get rid of it.

But the main point is that you will be waiting at least 5 years and you might have to plan your family on that basis.

Brendan
 
What we'd like to know is if we are in negative equity when we go to sell eg house is worth 250K but we owe 300K how does it work?

Just to answer the question - what would happen is you would sell the house for 250k and you would be indebted to the bank for the remaining 50k which you would have to pay off

We won't be able to clear the mortgage on property A with the proceeds from its sale so how do we buy property B and come up with a deposit?

Simple answer is you can't unless your financial circumstances change dramatically.
 
The only potential option I can see for you is to rent another property while renting out your exisiting one.
This is not without its risks however and potential financial pitfalls

  • Would the rent on the existing property meet your mortgage repayments?
  • Would you be able to afford rental voids, where no rent comes in put the mortgage still must be paid?
  • would you be comfortable raising a family in a place you are renting?
  • How would you feel about getting calls from a tenant if/when a tap leaks etc?


Just one more option to throw into the mix - I am not advocating that you go this route, but just that you may not have thought of it as an option
 
The above advice re not selling now is bang on. Simply the bank won't release the deeds to your house until they are paid in full. The advice for your partner to pay against the mortgage rather than into his personal pension is a good one. Also putting a good proportion of your savings against the mortgage is worth doing.
On a practical note though if you start a family you could get away for about 3 years having the baby/toddler in your room if you've room for a cot/small bed. That plus pregnancy will give you 4 years plus (add on a bit for trying!). Not quite financial advice but just wanted to say the picture isn't all that black.
 
The only potential option I can see for you is to rent another property while renting out your exisiting one.
This is not without its risks however and potential financial pitfalls

  • Would the rent on the existing property meet your mortgage repayments?
  • Would you be able to afford rental voids, where no rent comes in put the mortgage still must be paid?
  • would you be comfortable raising a family in a place you are renting?
  • How would you feel about getting calls from a tenant if/when a tap leaks etc?

Just one more option to throw into the mix - I am not advocating that you go this route, but just that you may not have thought of it as an option

I thought about this too but I dont think rent will cover that kind of morgage. So that is not an option.
 
Tou may be right about that, I don't know. In any case were the op to sell and trade up (wer ethe circumstances to allow), the OP would be faced with increase outgoings.
The question is whether the increased monthly outgoings in the scenario of the OP getting her wish and trading up by selling and buying would be greater or less than renting our current property and taking a lease on a larger property.

So the calculation can be defined as, roughly:

Sell and trade up (not possible, but calculate for theoretical reasons:
(Trade-up house value (inc stamp) - selling house value)/Outstanding mortgage * current mortgage repayments = A

OR

Rent current property out as landlord and rent out larger property as tenant:

Rent Payable + current Mortgage -Rent income *0.75 (allow 25% for voids, maintenance etc) = B

Basically what I am saying is if B is less than A, then regardless of whether the OP could trade up in the traditional manner, she may be better off not doing so.

But option B is still an option in her case and option A is not
 
You just have to stay where you are!! Simple really.

I know plently of people who raised a family in a two bedroom house to start!!

You may have had plans to move on but the situation you find yourself in now is that you can't, so you will have to survive with what you have got.

Bringing up a child is about the care, love and support you give them, as as far as I know this is all free. It's NOT about how big your house is and the number of rooms you have.

I understand you're plans where diffrent to what you now face and that must be disappointing, frustrating etc.

A lot of people have been living a dream but reality is just starting to kick in.
 
I know plently of people who raised a family in a two bedroom house to start!!

People used to raise a dozen children in two bedroom homes.

I don't understand why a toddler needs her own room. Can the baby not just share the office with your partner? Or sleep in your room?
 
People used to raise a dozen children in two bedroom homes.

Are you advocating a return to tenement housing? :) Just because "people used to" doesn't mean they still should

I don't understand why a toddler needs her own room. Can the baby not just share the office with your partner? Or sleep in your room?

There is nothing wrong with someone aspiring to have a comfortable and spacious existence - at least the OP had the good sense to come on here and ask the question before doing anything specific
 
I have to agree with Flax and most of the other posters - in an ideal world we'd all live in 4 bed semi-detached houses then start to raise our kids...looks like people just have to face up to reality at the moment.
I know lots of people living in 2 bedroom houses\apartments with kids ( some more than 1). Granted, its a little crowded at times but its no big deal...life has to go on, regardless of the size of your house.
Life would be a lot more difficult for the family if mammy\daddy are struggling to pay a mortgage every month on their lovely semi-d ;-)
In my opinion, stick with it for a few more years and see how things go.
 
Are you advocating a return to tenement housing? :) Just because "people used to" doesn't mean they still should

No what I was saying was you don't need a bedroom for each child. We've become quite "soft" in Ireland (sorry, don't know a better word for it!) if we are bothered when we can't have the best case scenario.

We should be able to compromise when we can't have the perfect solution.

There is nothing wrong with someone aspiring to have a comfortable and spacious existence - at least the OP had the good sense to come on here and ask the question before doing anything specific

Of course, but she doesn't have to move to a bigger house. Kids don't understand the concept of "oh my god I have to share a room with someone". I shared a room with my brothers and I didn't even notice this was not ideal.
 
one way to definitely realise a loss when the value of your house is below that of the mortgage on it is to sell. in fact, you would need to finance the sale, you can't clear the mortgage at present so you'd have to find funds for that, so the only prudent advice is to sit tight.
 
If you redirect your savings to your mortgage and begin overpaying it, you should be able to erase your negativity equity to at least a zero sum so that you can sell if you need to in a few years. If trading up in the next few years is a real priority for you, you might want to rethink the wedding expense that you have been saving for - try a small wedding and plan a small, low key affair to save money. Also, from the time that my husband and I tried to start a family and the birth of our first child, several years had passed. Sometimes things just dont fall into place as one hopes. So hunker down, work on putting as much money as you can into paying down your mortgage debt, then if you find that you just must move while still in negative equity, perhaps you can rent a larger place and rent out your own smaller home until until such time as you are in a position to purchase again.
 
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