Chances of getting a mortgage on a 2nd property while in negative equity?

My wife bought a house with two of her friends in 2004. The three of them put up money for the deposit, but the house is in my wife's name as the other two already had mortgages and she was able to get the mortgage at the time. They didn't make any formal contract among themselves. The house has been rented constantly in the intervening years, but after running costs, income tax etc are taken into account it generally makes a loss of a few thousand every year. They divide the loss equally between the three of them. They've also had one problem tenant who took 8 months to evict from the property and didn't pay rent in that time. Looking at estate agent websites similar properties are selling for about €45,000 less than the remaining mortgage. My wife deals with most of the practicalities of renting it, paying the mortgage etc so it's also quite a burden on her.

My wife bought the house before we met and we both now work in a different city, so we've been living in a rented house ourselves for the last six years. We're both self-employed and have a combined income of around €70,000. Our rent is €13,000 per year. We'd like to buy our own home but would a bank would consider loaning to us with so much negative equity in the other property? Another thing is that while the problem tenant was being evicted my wife had to suspend the mortgage for 6 months and ended up missing payments - mainly because there were delays with granting the mortgage suspension and mortgage provider lost paperwork etc. The bank said her credit rating would not be affected, but we're not sure if it has been.

If she sold the house now at a loss of €45,000, we could pay off her €15000 share and I think one of the other 'shareholders' would be in the same position, but it's unlikely that that the third person would be able to do that. They're all still on good terms, but my wife hasn't brought up the idea of selling with them.

What are our chances of getting a mortgage while she still owns this property? Does anyone have any suggestions on how we could deal with the situation?

Negative equity would not be a factor in the application process for a new mortgage. However her joint liability on the loan will be a factor and that will accounted for in the assessment process. provided the repayments have been maintained her credit rating should also be fine. You can check this yourself with the Credit Bureau. Assuming that you have funds to meet the Banks requirement for own input towards the purchase price of a new property and your repayment capacity is adequate to meet the existing and new mortgage, then you would be considered for a HL, without the necessity of selling the existing BTL. Unfortunately the fact that your wife bought this property in her own name makes her 100% liable for the mortgage and any voluntary contributions provided by her 2 friends would not be counted. This is your main concern as they are under no legal obligation to meet this liability. There is potential that they either will not or cannot contribute to the mortgage ongoing or any shortfall following a sale. Sorting this out should be your first priority!