Sell house in negative equity and cut my losses?

F

fast

Registered User
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Common story I'm sure...
Bought a decent large house with my sister at the height of the boom, wasn't offered and didn't know about tracker mortgages so we have a variable rate.

Even with the house rented we both have to contribute a minimum of 300 per month each towards the mortgage.

Can't live there so pay rent on top of this, which in Dublin, isn't cheap.

So is selling up for a loss an option? If we sold could we pay off most of the mortgage and just pay the remainder on the original schedule which would cost very little, say 80 per month. If the bank didn't allow this we could take a personal loan and pay the remainder with that.

I feel I'd be better off putting any money I have into savings instead of into a property that is worth about 90k less than the price paid.

Or am I being short sighted?

Thanks
 
Income details
Net monthly 2500 private sector
Income history: permanent full time in steady industry
Net monthly income partner/spouse: public sector teacher

Brother (35) and Sister (33) co-purchased in 2007.
Neither of us live there anymore, I'm renting @ 750 per month.
Both of us contribute a minimum of 300 per month to cover shortfall after rental income.

Home loan
Lender: EBS
Amount outstanding: 350k
Value of home: 315k (and increasing)
Interest rate: SVR
Monthly repayment: 1850
Amount in arrears: 0
Remaining: 27 years

No discussion with the bank

Credit Union
Amount of shares: 280

Other loans and creditors - delete those which don't apply to you
Credit Card - amount outstanding: 3k
Credit Card - monthly amount you are paying: 90

Other savings and investments
None

Do you expect any lump sums in the medium term future?
No

How important is retaining the family home to you? I don't care about keeping this property.


What is your preferred realistic outcome?
Paying the mortgage will cost more money than can be realised by selling. Should I continue to pay mortgage or try to sell?
 
What you are in effect asking is "Is it worthwhile retaining this property on the basis that the negative equity will dilute over time"? This is something both your sister and yourself will have to discuss. Location and recent sales should give you some indication. The important infortmation you have not included in your post is the current value of the BTL property and mortgage outstanding. I'm assuming that its' in negative equity!
 
44brendan, the figures he posted are for the buy to let, he doesn't have another house.

Fast, between the shortfall you make up every month, the costs of running the house and the tax on the rental income, it sounds like you would be in a much better position if you sold the house (if the bank allow).

The savings in one year would pay off your credit card debt (which I suspect you are paying a high interest rate on).

Are you hoping to buy a house to live in? If so, you've to weigh the potential loss of the increase in value in the rented house against the potential increase in the value of houses you'd like to buy. While you continue to hold the rented house, you aren't in position to save towards a deposit.
 
Hi fast

You should first read this Key Post to give you a framework for understanding the decision better

Should I sell my home in negative equity or rent it out?

To work out whether or not this is a profitable investment, you need to look at the interest paid and not the actual repayments.

The interest is €1,300 per month. As the repayments are €1,850, it means that €550 each month is going towards reducing the balance. That is not far from the €300 per month each of you is paying. So this investment looks as if it's breaking even at the moment, and not losing you €600 per month.

A loan of €35k for the shortfall will have to be repaid. The interest will be around €1,600 a year, so not that different from your current situation.

So the key factor is your take on house prices in the area and the hassle of renting.

If you don't already own a house, it's probably right to hold onto the property as it gives you a stake in the property market. Your best chance of buying a house to live in is if the value of this property rises.

Brendan
 
Brother (35) and Sister (33) co-purchased in 2007.
Neither of us live there anymore, I'm renting @ 750 per month.
Both of us contribute a minimum of 300 per month to cover shortfall after rental income.

Monthly repayment: 1850
Click to expand...

I don't understand your figures.
750 + (2 * 300) = 1350.
That's 500 short of the monthly repayment, before event taking tax into account ?
 
I would think he is paying rent of €750 himself for his own accommodation, and that the owned house is being rented out for €1250 = (1850 - 2 * 300)
 
Fast can you confirm the rent is €1250.

Can you confim your actual interest rate.

Your mortgage is 1850, you and your sister pay 600 and the reminder is paid by the rent.

In essence the interest is being paid by the tenant and you and your sister are paying down the capital and property prices you say are rising. Where are you getting the property value from?

Your negative equity is only 35K and decreasing on two fronts, the capital payments and the property price rises. So the gap is narrowing.

Only problem I can see is that you don't mention other property costs. Are you declaring the rental income to revenue? You're paying a lot of interest and if all is not above board you're losing out on the 75% of interest that can be deducted. One a rent roll of 15K and 75% interest at 11,250 you are very close to not having to pay any tax. Get that in order if you haven't already done so.
 
I agree with the advice so far, and I hope it helps the OP decide what it best.

To answer one question from the OP in the original post

You will not be allowed to keep a 27 year mortgage for the shortfall. You probably would get a personal loan for €35K, however, not with a term of 27 years.

If you get a 5 year loan, the repayments are likely to be the same and the shortfall you are currently paying so your cash flow will not improve at all.
Also, the personal loan is likely to be at a higher interest rate than the current mortgage.

I just checked the PTSB calculator. A 5 year loan of 35K has a monthly repayment of €725.

I am no expert on current lending policies on personal loans and interest rates, but you need to do the figures on what this will cost you before deciding if it is a better option than your current situation.
 
Thanks everyone for the help, it's very, very much appreciated

Bronte said:
Fast can you confirm the rent is €1250.

Can you confim your actual interest rate.

In essence the interest is being paid by the tenant and you and your sister are paying down the capital and property prices you say are rising. Where are you getting the property value from?
Click to expand...

Yes, to clarify...

I'm not living in the house and pay 750 per month for my own accommodation.

The actual rent from the house is 1400 per month and after tax its 1240. 75% of the mortgage interest is 1012 per month.

I don't know the interest rate offhand, but its the current EBS SVR.

The 600 myself and my sister pay the bare minimum just to cover the mortgage costs. Repairs, insurance, and all the other costs around being a landlord were not included for the sake of brevity.

The estimated property value is based off figures in the property price register. Obviously I won't speculate except to say there's steady amount of activity in the area and sale prices have been trending upward
 
Bronte said:
Are you referring to TRS (tax relief at source)?
Click to expand...

Once we get into tax this is where I start to get confused!
1400 is the income from rent per month. The tax refers to the amount I pay the revenue

As far as I know, I now longer qualify for TRS/Mortgage Interest Relief as the I'm over the 7th year of repayments.

Could I be missing something here?
 
Bare essentials if you sell and a bank will give you an unsecured loan for 35k (not in itself an easy ask)

Loan €35,000
Interest Rate 10%
Number of payments 60
Payment €743/month

So it looks like if you try and sell, on top of probably 3-4k in costs, you will be left with a monthly payment of €743 with no asset. €370 per month for you instead of €300.

I would wait until the property price is 5k above the loan if you really want to be clear of it. It will be easier to convince bank to sell and you wont make a loss.
 
In line with the earlier post by Brendan B, I would agree that your best option is to continue with the current arrangement. Obviously hoping for a continuation of a rise in the market is a risk, but currently your level of negative equity does appear low and it may be worthwhile allowing some further time for market improvement. Earlier poster stated that 35K residual after sale balance would be restructured over an acceptable term by the lender (which would not be extensive) and repayments on this would be likely to exceed the 600 you are currently paying. If it were my decision, I would hold fire for at least another 12 months. You will be reducing your negaitve equity through capital repayments and also allow for some potential increase in the value of the property!
 
I am starting to agree. The alternative would not solve the cashflow problems and, as you say, there would be no asset at the end of paying off the balance after the sale.
 
fast said:
Once we get into tax this is where I start to get confused!
1400 is the income from rent per month.
Click to expand...

So is it rent of 1400 and you reckon after tax you get 1240 ie 160 a month less and therefore tax of 1920 annually?
 
fast said:
Once we get into tax this is where I start to get confused!
1400 is the income from rent per month. The tax refers to the amount I pay the revenue
Click to expand...


Maybe start a fresh thread or read one of the Key Posts to make sure that you understand the correct tax treatment of an investment property?

Brendan
 
Rent: 1400 = 16,800
Mortgage: 1850 = 22,200

Mortgage Interest: 1300 = 15,600 (not confirmed)

Deductions

15,600 X75% = 11,700
Wear and tear?
Repairs?
House insurance?
Life insurance?
Accountant?
Rates/water/bins?
Advertising?


Tax: 1920
Property Tax: ?
 
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