should we sell family home given investment property in negative equity

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ski

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I am looking for some advice please.
We currently own two properties, one within 3 miles of Dublin city centre, bought for 385,000k in 2005 with a 100% mortgage and destined at that time to be a family home for a number of years. We are on a tracker mortgage and it is currently rented - the mortgage is 1350K a month and we are subsidising it by 100 euro a month. We currently owe approx 365,000k on it and we get a maximum of 260,000k should we wish to sell it I would estimate.

In 2006 I was transferred West and we purchased a house in Galway city for 420,000K. Prior to that purchase I was lucky enough to sell an apartment in Dublin and made a significant profit so our mortgage on the Galway property was 220,000k. We currently owe 200,000k on this property and our mortgage, another tracker is currently 960 euro a month.

I have a permanent position earning 77,000k pa and my partner earns approx 30,000k (not in a stable sector though so I worry about this income).

We pay 1200 a month in childcare and are both in our mid-30's. We have approx 60k in savings

I am very concerned about impending ECB rate rises which I feel will leave us very exposed with two tracker mortgages. From pervious rate rises I know that the mortgage in Dublin went up to 2080 euro put we were getting about 400 euro more in rent then, my partner was earning approx 25,000k more and I approx 15,000k more & no childcare costs, in short we were in a much better financial position to deal with it.

I am seriously considering selling our home in Galway city - we would get realistically 260,000k for it, a huge drop from what we paid but 60k more than what we owe - we are not in a position to sell Dublin as we would owe the banks almost 100k. I am considering renting for as long as it takes - previous concerns about having a stable longterm house for our children are quickly erased by worries of not being able to manage.

I suppose I wonder am I over-reacting, I just feel very exposed on two tracker mortgages and feel we should cut our losses or should we hang on and use our hard earned savings to supplement both mortgages for as long as we need and hold on to both houses - is that a better use of our savings?
Any feedback greatly appreciated
 
I think you are over-reacting. You should do your sums to see how you'll be able to manage in various "what if" scenarios, but you are generally in a strong position due to large savings and having most of your family's income in the permanent position.

While you worry about your partner's income, it's not very large and she should be able to earn at least something in another job should she lose this one. Also if she stays at home, then at least childcare costs will no longer be incurred and you'll get her tax credits.

You are also in a strong position as both your mortgages are trackers. While they will rise with inevitable ECB rate rises, they won't rise any more than the ECB rate. The ECB rate isn't likely to rise too steeply too quickly. You should be able to cope with initial small rises out of income. By the time rates rise significantly, you hopefully won't have such large childcare costs.

Also when interest rates rise, the rents are likely to rise also (not exactly in tandem but eventually rate rises will very likely affect the rent), so you might be able to receive more rent for your investment property. However, if you sell your family home and rent, and rents then rise, you'll have to pay more in rent then.

There is no risk free course of action, you are either exposed to the interest rates or to the rents and house prices rising. Unless you are planning to go back to Dublin and live in your property there, I think you are risking more selling the family home than staying put.

Also your mortgages are now repayment ones, so you have an extra option to negotiate interest only for a while should you really struggle in future. All in all, selling now simply from worry when you absolutely don't need to would put your family through needless stress for little benefit.
 
Can you do out the figures for the rental property. Mortgage term, interest rate and rent. It is in a good location, judging by the rent and the fact you said it's within 3 miles of city center. Sounds like a good long term investment. You have a tracker so if rates went up 2 to 3 percent how would you be able to cope on this property?

Mortgage 365000
Value: 260000
Rent: 1350
Interest rate:
Cost if interest rate were 2% more etc

The value of the property by one way of looking at things which by one method is 1350 X 12 months X 12 or 15. Plus factoring in Dublin always being higher than elsewhere.

See if the rental property makes sense first.
 
Thanks for your comments, when ECB rates were last at their highest our mortgage in Dublin was 2080 euro on tracker so you can appreciate the saving we are currently making on 1350 euro (well not saving as we still have to supplement by 100 euro) We were getting 1650 euro a month in rent, now only 1250 and as I outlined on personal circumstances have changed workwise / childcare so alot less money (approx 3000 a month less now available than when it was 2080 euro)
I suppose our house in Galway was never meant to be a forever house and we always hoped to move on within 5 years ish - I just feel now given looming interest rates which will put pressure on us unless we start dipping into savings, should we just cut our losses - 3 beds to rent here 750 a month, and while I appreciate rents could rise I can't imagine them catching up with what we would be paying in mortgage repayments should rates start to rise. We really put our heads down and saved for the rainy day for the last couple of years and now it is almost upon us I resent putting our savings into rises repayments! makes no sense I no but just wondering does it make any financial sense
 
What is the realistic market value of your Galway house?

Your negative equity in the Dublin house is €105,000 and you have €60,000 in cash. Can you borrow the extra €45,000 and cut your losses? On your income a €200,000 mortgage and a €45,000 loan (or mortgage top-up) should be manageable.

edited to add: My apologies - you stated that the Galway house has a value of €260,000
 
You can always put your savings off the Galway property to bring down the monthly mortgage amount. With the savings made on that you can then overpay the mortgage if you want or build up your savings again.

It is not advisable tax wise for you to reduce the mortgage on your investment property.

Not exactly sure what you are worring about. If rates go up you have some income for that? Plus your mortgages are reducing each year that goes by plus in a couple of years you're going to have the childcare costs available to you.

Could you do the money makeover thread?
 
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