Plan for purchase of family home whilst in negative equity

A

Aini

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My husband & I are seeking to purchase a new family home of approximately €450,000. We would like advice on how best to achieve this preferably within 18 months but within 4 years.

Currently we both own properties purchased before we were married.

Property 1: This is our PPR
Current Mortgage €348,000
Current Value: €305,000
Mortgage: Ulster Bank, Tracker ECB +1.15%
Monthly repayment: €1,035
Potential rental income: €1,400

Property 2: Co-owned by husband & friend and currently rented
Current Mortgage: €200,000
Current value: €165,000
Mortgage: PTSB, SVR 4.5%
Monthly repayment: €1,100
Rental Income: €800

Combined income €128,000. Deposit €20,000 and currently saving €1600 pm. Further deposit of €30,000 available from parents if required.

Options we have considered include renting both properties, selling one or both properties, negative equity tracker mover mortgage, waiting for positive equity.

Any advice appreciated!
 
Interesting how the hypothetical new property is a "family home" as opposed to the "properties" you currently own. I'm not looking to criticize or pry, but I wonder if it speaks to your state of mind. Keep in mind that children benefit from financial and emotional stability more than square footage.

You've got a net worth of -50k. It's not the position from which to spend 450k on a house. Yes, your income is great today but in the lifespan of a mortgage you will have bad years. They will be terrible years if your name is on a heap of property you can't afford. Be patient, get out of this hole before digging a new one. If you need more space in the mean time, rent it.

Any idea how property2's co-owner is disposed toward the property? I imagine his/her circumstances and plans will have a major bearing on your options there?

Best of luck,
Captain Buzzkill
 
1) Your husband must extract himself from Property no 2. That will take some time and ptsb may not allow him to take his name off the mortgage. So begin discussions with the joint owner now with a view to selling it. He will probably want to wait until the NE is eliminated. The value will have to increase by 20% or you will have to pay down the NE.

2) On a salary of €128k you should not own a property of €305 and a property of €450k with borrowings of €800k for the reasons outlined by trasneoir. So you will have to apply for a tracker mover product. Based on current values you will need to borrow
Cost of new house: €450k
Negative equity mortgage: €40k
Add NE on investment: €40k
Less cash: €20k
Les family parents:€30k
Total borrowings: c. 460k

That is 3.6 times your income which is at the very limit of the Central Bank guidelines.

Given that the bulk of this will be at the 2.3% for the first 5 years, it's probably ok, but it's risky.
 
Thanks for replies. Duely noted Trasneoir not to get emotionally involved!

Husband & co owner are currently overpaying mortgage on property 2 to reduce the negative equity but will take your advice & see can we progress this further.

Brendan, thanks for clarifying negative equity tracker mover is the best option. Pretty much what we thought. Hoping that if we continue saving and paying off capital on tracker mortgage that our net negative equity will reduce significantly within couple years making new mortgage less risky.
 
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