Negative equity into positive equity

Hi,

We are buying a new house (2nd time buyers) and our current property is in negative equity of approx €24k. Out current mortgage is with PTSB so we have the option of either:

1. Selling our current property and taking a negative equity mortgage to carry our tracker which is ECB+2.25%, requires a 10% deposit

2. Rent our current property and take out a 2nd mortgage on the new property, requires a 20% deposit.

We are leaning more to the first option as we would prefer not to rent our current property, however the term remaining on our mortgage is 24 years and we are not being given the option to extend the term of this mortgage therefore the repayments are alot higher than option 2 where we could take a longer term.

Outstanding Mortgage €259k
AMV of current property €235k
Negative Equity €24k
Purchase Price of New Property €260k
10% deposit €26k
New Mortgage amount €234k
Plus Negative equity of €24k = €258k
Current value of new property €280k

If we were to take the Negative Equity/Tracker Portability mortgage, based on the figures above our new property would not be in negative equity as we have had a recent valuation on this property of €280k. Therefore, would we have an option of switching to another bank? I understand we cant move with negative equity but as the new property would be in positive equity would this be possible, and can you extend the term of the mortgage when you switch banks?

Thanks in advance,
HH1

It's unlikely that you'd be able to switch to another lender until you've an LTV below 80%. Even with your current valuation you have 92%.

Once you switch it's a new mortgage, so term will be subject to that banks normal underwriting.

Also, bear in mind monthly repayments at 2.25% over 24 years are pretty much the same as at 3.1% over 30 years.

Hi

Thanks for your reply.

If we take the tracker portability our tracker will increase by 1% so our rate will be 3.25% over 24 yrs.

If we stay with PTSB is there any possibility that we could extend the term of the mortgage once we are no longer dealing with negative equity?

Ah, I missed the +1% in my calculation.

I'm not familiar enough with PTSB options, but you can be sure it'll result in losing your tracker, and their rates are pretty dismal, particularly for existing customers (it'll be over 4%).

By the way, was your tracker always +2.25%?

Yes we fixed for 2 yrs when we took out our mortgage and were then offered a tracker of 2.25%.

Would you suggest any options we should consider that we may not have thought of?

Thanks
HH1

househunter1 said:

Yes we fixed for 2 yrs when we took out our mortgage and were then offered a tracker of 2.25%.

Would you suggest any options we should consider that we may not have thought of?

Thanks
HH1

Click to expand...

Hi,

So, after looking around, I may have been incorrect when I said you'd need to get to <80% LTV to switch. It looks like not all banks have that criteria, but you'd need to look around to check (switcher / refinance are not subject to Central Bank limits, so it's up to the Banks underwriting policy).

Take a look at the best buys discussions to see what rates are being offered - with other lenders offering cashback you'll have your legal fees covered, and might be able to schedule over a longer term at a better rate.

I'd suggest that you'd still need to have <90% LTV for most banks, and banks may look at your actual purchase price rather than an updated valuation so soon after purchase.

And remember, if you refinance, you will be giving up your tracker rate and you're open to bank discretion on how they change rates, so don't take that choice lightly.

Just make sure to keep your credit record in order over the next while as switching will go through a full underwriting.

Best of luck.