Advice on buying a longterm family home considering we own a neg equity apt currently

flattea2

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Hi

I would be appreciative of any advice on our situation. I have taken the questions posed in the 'sticky' and answer accordingly. Apologies that the post is long but taking the cue from previous incomplete situations outlined, I am being as full as I can with the details so save any contributors time on revising their suggestions.

The background is that we bought a 2 bed apartment in 2005 in Dublin. We now have kids and would like a family home. We were informally offered ptsb's negative equity mover package but I am holding off fully applying for it as having given consideration to it I wonder if applying for a second mortgage is a better option.

So we are considering the following application for a second mortgage as follows:

Is this a single or joint application.
Joint

Type of Property. 2/3 bedroom house/apartment.
3 bed house
Value of Property: 300,000 (approx)
Amount of Mortgage 270,000 (approx)
Term of Mortgage. 30 years

Amount of savings and over how many years. Zero

Is there a lump sum from any other source? Yes 30k from one set of parents, up to another 10k from the other set to help with moving expenses

Age of Applicants. 34, 35

Employment situation. Accountant, private sector, Nurse Manager, Public sector

How long are you in current position and are you permanent. Both permanent - Accountant 6 years, Nurse Manager 13 years

Have you any children. 2

Have you any court orders or Judgements. No

Have you any other loans and if so full details of amount/period/% rate and repayment amounts. 1 Car loan, balance 2000-ish, will clear in September. 1 personal loan, balance 1500, will clear in August

Cr. Card situation? 1 credit card each, both balances of Zero. Both limits are €650

Have any of your existing loan or credit card monthly repayments been paid late over the past twelve months, even if you made the repayment in full a few days later? If so, how many times in the past twelve months? No, all ok

Any previous negative Cr. history by either applicant. No

Are your savings and rent clearly visible and identified as such in your bank accounts each month. Rent yes, Savings no.

Have you gone over your overdraft limit in the past six months, even if only for a day or two? If so, how many times in the past six months?

Yes, around payday perhaps 4 or 5 times for small amounts due to timings of bills eg phones. This is on my account only as generally I transfer the the bulk of my wages to my wifes account and sometimes miscalculate what I need to keep in my own account to cover any debits eg vhi, phones etc. Why do I transfer my wages to my wifes account? - She is better at managing cashflow in general.

If you have been refused a mortgage please give exact reason of why and address why you think you should not have been.

Not formally, some informal discussions. AIB (current banker for both applicants), they have asked to see some savings over the next few months (they said 1500 a month over the next few months) and at that stage would be receptive to a mortgage of approx 330k. This was a phone conversation - I'm not sure what weight we should apply to it as the figure of 1500 a month seemed a bit excessive plus the way the adviser said it - he literally said put 1500 a month into an account for the next few months? Seemed strange.

Did you use a Mortgage broker or are you applying directly?. Direct conversations at the moment
Any other relevant information. Yes, I will elaborate below.
What reason has the bank given to you for refusing you? No formal application so far, AIB said they would like to see some savings but my elaboration below gives further information

Have you checked your ICB record to make sure it's clean?* Yes both clean
Which bank(s) have you applied to? None formally, just informal discussions


Further info:

We bought a 2 bed apt in Dublin in 2005. Original mortgage on this was 230k, purchase price was 290k, balance financed largely by a gift from parents. Tracker mortgage of +1.68% over ECB rate (therefore 1.93% at the moment). No missed payments ever, repayment approx 850 per month at the moment.

In 2012 we had twins and decided to move out of apartment and move to Cavan. Since then (and currently) we rent in Cavan at 775 per month. My wife took extended maternity and parental leave and has recently returned to work. I have now taken some parental leave until September when the children will enter creche at 1700 per month.

We both work in Dublin and want to return in September when my leave is up. I have only just commenced my leave.

Income:
58k gross and 57k gross, (netting approx 5900 per month)
Child Benefit: 390 per month
Both have pensions.

The apartment in Dublin is rented now at 1100 per month. The value of this apt is 120k. The balance on the mortgage is 188k.

Ptsb informally were agreeable to the negative equity mover mortgage which adds 1% to the tracker mortgage over the remaining term (21 years).

Essentially if we went with this. the new details would be as follows:
Part A: Current debt of 188k would move to 1000 per month (give or take a few cent) over 21 years.
Part B: 150,000 (taking account of purchase price and deposit mentioned above) at a repayment of 994 approx over 30 years.
Total repayment €1993.

Other info: We have for a few years (foolishly I know), have overdrafts on our current accounts - (accountant at 2200, nurse manager at 1800) which we consistently use right up to the limit every month. As mentioned above on one account there has been some referral fees on this occasionally (going maybe 50-100 euro over it from time to time around payday - see question above about have you gone over your overdraft). The only mitigation I can offer to this is that we have been on one wage since the kids were born so this made things tighter plus we also focused on clearing our car loan and my person loan which both end in the summer. Full monthly salaries commence in September.

We must move back to Dublin in September, its pretty much non-negotiable as we cannot both commute from Cavan (and we like Dublin so that is where we want to live)

Options:
1) proceed with ptsb negative mover mortgage. This involves adding 1% to current cheap tracker, crystallising loss in apartment but getting a family home at approx 2k per month.

2) keep apt and proceed with a second mortgage. Apartment rents easily therefore apart from an occasional empty month between lettings, its not going to be a drain on us. A mortgage of 270k on a second house as outlined above will be approx 1400 per month.

3) I am concerned that our overdrafts and lack of savings will count against us in a mortgage application at the moment. Therefore do we rent in Dublin from September at about 1300 per month and try to clear off overdrafts and build up some savings and revisit the issue in September of next year.

Our profile: we are risk neutral, not interested in building up a property portfolio whatsoever but concerned whether this informal offer from ptsb is not really good for us long term. The upheaval and stress of moving/ not knowing where we will live long term is difficult too.

I'd like a family home in Dublin for us is settle in, I want the security of this in terms of picking schools etc for the kids and having a house and locality they can call home and be happy.

Again apologies for the length of post, I wanted to be as complete as possible before drawing on your time.

How do I currently feel? I am leaning towards a second mortgage however to get this I wonder will I need to resolve the overdrafts and look at it again later in 2015, not knowing what house prices will be then (I'm aware of the ban on house price speculation on AAM)

Thanks
 
I suppose the bank will look to see a married couple with no kids earning €5,900 per month net with a modest monthly repayment should have serious savings.

Take out the time of one income child costs did you have monthly surplus. If not then the bank are going to be concerned. You now have a cost of €1,700 for Childcare and associated costs and you have an extra repayment on your mortgage.

If possible I think you should be trying to keep you apartment a good rent and a cheap tracker is a good deal. I imagine that the rent would take care of the service charge, insurance, repairs and mortgage repayments. You will need to pay the income tax PRSI USC from your other income. I'd estimate about €4,000 per annum. This assumes that you can keep the tracker if renting the house.

Going the other way your paying €7,000 per annum to service the negative equity part of the loan and you will only have the single property at the end.
 
Income 5900 + 390 = 6290

Creche 1700
Rent 1300
Living expenses?


Don't understand why you said at one stage a mortgage would cost 1400 a month, but at another you said it would cost 2000? Can you explain the part A and part B. Also what exactly is the NE mover mortgage? Do you have to sell the apartment for this?

Agree with the statement that owning is more stable than renting. Plus rents in Dublin are rising. In addition the rent is nearly the same price as a mortgage so it's a no brainer.

Rental Property

What is it's current value. The rate is really good, and the rent is more than covering it, though there is a cost to it, taking Joe90's figure of 4K.

Even if the rate went up 1% I recon that's only another 2300 a year, but 75% of that is tax deductable.

Overdraft

Better money management skills needed here. Personally I think that overdrafts should be avoided for ordinary people (ie not business people). They are very costly, and can go out of control easily.

Deposit from parents

This is apparently the second time, from both parents. Combined with the lack of savings, is there an issue here on too much reliance financially on parents rather than leaving to save for what is required?
 
Given your current summary of your financial position, taking on a 2nd mortgage would be a daft decision and with creche expenses also coming up and no savings record, you are lilely to end up with financial problems. I can't see any bank supporting an additional mortgage request based on the info given above. there is some merit in looking at the negative equity mortgage and selling the apartment. In my view this is the only realistic option open to you!
 
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