Negative Eq but have to move - opinions please

Hi, long time reader but first time poster.

My situation is that I'm living in a Co Kildare town and bought my house in mid 2006. I paid 320,000 for it. It is now worth half that (hopefully??). But the market does not seem to be moving at all. My wife is due our second child in August and our little girl is currently just over 1 year old.

We are both public sector workers so thankfully our employment is (relatively?) secure. Our joint gross income is approximately 90,000. We have a tracker of ECB +1.1% and pay 514 euro fortnightly. Our outstanding balance is 293,000 with 30 years remaining.

We are in our 30's and are frugal non smokers & non drinkers. We have one car which is 10 years old and when we travel we fly ryanair and stay in hostels. As a result of this we have savings of 143,000 which is in various on demand accounts with interest rates of 3%.

We really need to move. For reasons of health, which I'd rather not elaborate on, we have to move location. But we're not very financially savvy and can't see how to achieve this.

We're reluctant to put too much money towards the mortgage at this stage as we're worried that we'd miss the boat on any debt forgiveness policies that may be implemented. (By debt forgiveness I don't mean debt erasing - I'm committed to paying the amount I borrowed but if a mechanism is introduced to temporarily 'park' negative equity debt to allow selling at loss then we'd miss out on this).

We're reluctant to become landlords. I don't want the stress of trying to locate tenants and maintain a property that might be a distance away. I'm not cut out for it.

Will people ever start buying property again ? (Rhetorical question! I don't want to break guidelines by discussing property prices). Should the banks be encouraged (forced?) to provide negative equity products for cases that qualify?

What would you do in my situation ?

AsI 've said many times in posts before, people like you are not actually in negative equity. You have 143K savings which if used against your mortgage debt will bring you out of negative equity. If you think our bankrupt banks and taxpayers will ignore these savings and give you debt forgiveness then you are assuming very wrong in my opinion. If there ever is any form of debt forgiveness you will have to show all your financial details and basically prove that you cannot pay. Two public sector workers earning 90K per annum with 143K currently in savings will NOT fall into this category.

So, in my opinion when you are deciding what to do you shouldn't be worried about losing out on debt forgiveness as it definitely won't be applicable to you!

I don't think that you will get any debt forgiveness in the sense that your mortgage will simply be written down because it is in negative equity. You can easily afford your mortgage repayments, so you won't get debt forgiveness based on this, in the unlikely event that it was introduced.

You do have a valuable contract to borrow €300k for the next 30 years at below market rates. It's possible that some other lenders may follow the PTSB's lead and give you a bonus for paying part of your mortgage early. So, if you pay €140k, you might get credit of €14k for it.

Which is your lender?
Most likely: Bank of Scotland - they want out of Ireland
Possible: AIB, BoI, EBS, Irish Nationwide - they want to deleverage
Very unlikely: the rest of the lenders -under no pressure

I would put family issues ahead of financial issues - you can afford to.
Put the house on the market. If you get a good offer take it.

If the lender subsequently introduces a bonus for early repayment, tough.

An alternative for you is to stay where you are longer than you want to, but I have no sense of the urgency of your move. Even in the PTSB case, there was a clawback if you sell within 6 months. Others may have a longer clawback.

Another alternative is to rent out your home and wait for a deal to be offered. This would be worth doing, if there was a definite prospect of some inducement being offered, but there is no such inducement.

If you do decide to sell, before you do so, contact your bank and ask for a deal. It is unlikely that you will get a deal, but you may as well try.

Brendan

goingforgold said:

If you think our bankrupt banks and taxpayers will ignore these savings and give you debt forgiveness then you are assuming very wrong in my opinion. If there ever is any form of debt forgiveness you will have to show all your financial details and basically prove that you cannot pay...

So, in my opinion when you are deciding what to do you shouldn't be worried about losing out on debt forgiveness as it definitely won't be applicable to you!

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I think my definition of 'debt forgiveness' might be misinformed. I mean the temporary forgiveness of my debt by the bank to allow me to sell my house at a loss, buy a similar/cheaper house and continue to pay back the full amount of money that I borrowed from the bank. Its purely for social mobility rather than economic reasons. The bank won't lose a penny. I am reluctant to put all my savings into clearing the neg eq since it will not leave us with any safety net - which is something we do need, as alluded to in my original post.

Brendan Burgess said:

You do have a valuable contract to borrow €300k for the next 30 years at below market rates. It's possible that some other lenders may follow the PTSB's lead and give you a bonus for paying part of your mortgage early. So, if you pay €140k, you might get credit of €14k for it.

Which is your lender?
Most likely: Bank of Scotland - they want out of Ireland
Possible: AIB, BoI, EBS, Irish Nationwide - they want to deleverage
Very unlikely: the rest of the lenders -under no pressure

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AIB is my lender.

Brendan Burgess said:

I would put family issues ahead of financial issues - you can afford to.
Put the house on the market. If you get a good offer take it.

If the lender subsequently introduces a bonus for early repayment, tough.

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This is the bit that would worry me - trying to do everything 'by the book' for my family but taking huge financial hits due to timing. It's a bit of a tangent but I think that an awful lot of people caught by neg eq are just unlucky to have been at the 'buying a family home' stage of life when this crisis was unfolding. Were I 5 years older or 5 years younger I would (possibly?) have none of these problems.

Brendan Burgess said:

Another alternative is to rent out your home and wait for a deal to be offered. This would be worth doing, if there was a definite prospect of some inducement being offered, but there is no such inducement.

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The work involved in being a landlord is not something we'd consider. We trying to simplify our life! But I do take on your suggestion.

Brendan Burgess said:

If you do decide to sell, before you do so, contact your bank and ask for a deal. It is unlikely that you will get a deal, but you may as well try.

Brendan

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Yes. This is something I would be mad not to do.

I have raised this with the local FG TD to see what the Govt intend to do about this predicament. The uncertainty is the problem. A strong statement of their intentions would bring clarity to the proceedings. Instead there is a drip, drip of possibilities. Some decisive action - akin to the Jobs Budget - would be welcomed.

I'm not looking for a hand out but just for the structures to be put in place to allow me (and thousands others) to help get our lives moving again.

Am I living with my head in the clouds ?

As an alternative to being a 'reluctant landlord' you could get an agency to deal with your rental matters. Perhaps mention that thread to your local TD. You would be probably losing money on the transaction i.e. rent not covering mortgage but it would be damage limitation and may be a means of getting your money back in the long term. You need to balance the loss over a few years while renting out versus the chances of the property to return to nearer buying price. It would at least be a start providing you could get another mortgage if you need it to make up the difference in your savings and the price of your new house.

elcato said:

As an alternative to being a 'reluctant landlord' you could get an agency to deal with your rental matters.... You would be probably losing money on the transaction i.e. rent not covering mortgage but it would be damage limitation and may be a means of getting your money back in the long term. You need to balance the loss over a few years while renting out versus the chances of the property to return to nearer buying price. It would at least be a start providing you could get another mortgage if you need it to make up the difference in your savings and the price of your new house.

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On the renting front... I've spoken with my lender (anonymously ) and have been told, in no uncertain terms, that if I were to rent out my property I would lose my tracker rate and be put on their BTL variable...which is 4.2% compared to my current tracker of ECB +1.1% ie 2.35%.

So, if I were to rent out my PPR I would be looking at repayments of:

290,000 @ 4.2% = monthly payment of 1,418

rather than the current

290,000 @ 2.35% = monthly 1,123

The higher mortgage rate is an additional 3,540 per year (ignoring the loss of TRS). Plus I'd presumably be facing additional rental costs.. vacant periods, wear & tear, tax implications (of which I know nothing about), PRTB, potential bad tenants and malicious damage... and probably more that I haven't considered. I am aware that the ECB will probably go up in July and continue upwards but this will obviously impact on both the Tracker Rate and the BTL Variable Rate.

So, if Renting seems costly prohibitive and selling is not an option, due to the market & extent of negative equity, where does that leave me ? Here are some options that I came up with, what do you think:

Option 1: Leave PPR vacant. Rent a property in preferred location. Take the hit for paying additional rental costs.

PRO's:
1) Savings of 140,000 are left intact should unforeseen circumstances prevail. Also possible to earn ~3% on these savings
2) PPR is retained as 'investment' should any value return to the market and also remains an option to move back in.
3) If incentives are introduced to pay tracker down early this could be availed off
4) If negative equity mortgages are introduced this could be availed of
5) Would be living in preferred location
6) Would continue to receive TRS on mortgage interest paid (I presume?)

CON's:
1) Accommodation costs would be very high
2) Unlikely to add to savings while having such an outlay
3) PPR would be vacant and not earning anything

Option 2: Pay sizeable chunk (100,000) off 290,000 mortgage. Leave PPR vacant. Rent a property in preferred location.

PRO's:
1) Mortgage payment would be reduced to 736 per month
2) 40,000 retained for unforeseen future circumstances
3) Would be living in preferred location
4) Accommodation costs would be similar to current costs of paying mortgage on 290,000
5) TRS would be retained albeit on lower interest payments

CON's:
1) Might have missed opportunity to avail of incentive to pay down tracker
2) Might miss opportunity to avail of negative equity mortgage
3) Lose the access to the full 140,000
4) Lose the interest accrued on the full 140,000

Are these viable options ? Any other options that you can think of ?

Whether the house is let out or not does not determine whether it is your PPR, so if you choose either of these options it will have an impact on your trs and possibly mortgage rate and will become liable to NPPR tax.

Did you actually check your mortgage documentation yourself? It may not mention PPR so you may not lose the tracker. I wouldn't just go by a phonecall to the bank, especially when you didn't ask them to check your mortgage documentation either.

Is the mortgage in both your names.

There is also Option 3 as Brendan stated above which I think you should explore. Have you tried contacting your local authority asking them are they buying prooperty in your area ? Also get on to your lender to see if they would be willing to do a deal on the tracker.

I would put family issues ahead of financial issues - you can afford to.
Put the house on the market. If you get a good offer take it.

If the lender subsequently introduces a bonus for early repayment, tough.

An alternative for you is to stay where you are longer than you want to, but I have no sense of the urgency of your move. Even in the PTSB case, there was a clawback if you sell within 6 months. Others may have a longer clawback.

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Thanks for opinons so far...

Mrs Vimes said:

Whether the house is let out or not does not determine whether it is your PPR, so if you choose either of these options it will have an impact on your trs and possibly mortgage rate and will become liable to NPPR tax.

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Oh, I guess then that if the house is left vacant then it will also lose status as a PPR. What happens if a person leaves the country and rents out their PPR ?

Mrs Vimes said:

Did you actually check your mortgage documentation yourself? It may not mention PPR so you may not lose the tracker. I wouldn't just go by a phonecall to the bank, especially when you didn't ask them to check your mortgage documentation either.

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A very valid point. I must read through my documentation properly. The official on the line seemed very sure that I would lose the tracker... perhaps a little too sure....

Ivers57 said:

Is the mortgage in both your names.

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It is. Why, what significance do you add to this ?

elcato said:

There is also Option 3 as Brendan stated above which I think you should explore. Have you tried contacting your local authority asking them are they buying prooperty in your area ?

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I have spoken with the LA and they are running schemes of long term leasing of suitable properties. Their building budget for social housing has been slashed so they envisage needing a sizeable number of suitable properties. However they would pay below market rate for rents - but guarantee occupancy for several years and maintain the property. I would still be in the scenario of losing my tracker as it would then be a BTL. (Pending examination of my mort docs as advised by MrVimes.)

elcato said:

Also get on to your lender to see if they would be willing to do a deal on the tracker.

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What would be the best way to approach lender about a discount for paying off early ? Do they (AIB) not have to have a policy in place to allow this to happen before being able to negotiate with customers ? I would have thought that a 'solo run' by an individual bank official would be frowned upon...

confusedude said:

Oh, I guess then that if the house is left vacant then it will also lose status as a PPR. What happens if a person leaves the country and rents out their PPR ?

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Basically, PPR is the house you live in. If you don't live in the house then where you do live isn't really relevant.

Mrs Vimes said:

Did you actually check your mortgage documentation yourself? It may not mention PPR so you may not lose the tracker. I wouldn't just go by a phonecall to the bank, especially when you didn't ask them to check your mortgage documentation either.

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On this point... I have dug out mortgage documentation. It's a copy of the 'Offer of Mortgage Loan' doc that AIB give to customers. I remember getting a few versions of same as I borrowed a slightly lessor amount than originally requested. I can't find the original signed copy (is this something that the solicitor retains ??)...

Anyways having read through the doc I can't find any mention of Owner Occupier dependent tracker rates... the interest rate description is 'Tracker Home Mortgage Ln > 250k' and it details the margin as being 1.1%.

Special conditions include the provision of Mortgage Protection cover nothing else..

Under general terms & conditions there is a sub section called Interest Rates. But this just covers the fact that rates aren't guaranteed to drawdown, mentions something about fixed rate options and the early breakage of same... the specific bit then about Tracker Interest Rate Mortgage Loan:

3.6.1 The tracker interest rate is made up of two parts:

a) the ECB main refinancing operations minimum bid rate which is variable
b) the Tracker Margin as stated in Part 1 of the Particulars of Offer of Mortgage Loan, subject to 3.6.3 below

3.6.2 The tracker interest rate applicable at any time will change within 5 working days of a change in the ECB Rate.

3.6.3
a) The Bank may adjust the Tracker Margin upwards if:

i) the Mortgage Loan is not drawn down within 45 days of the date of Offer, or
ii) the Valuation Report values the property at less than the Property Price/Estimate Value shown in the Particulars of Offer of Mortgage Loan.

The Bank will notify the Customer in writing of the new Tracker Margin.

b) The Customer may at any time convert a tracker interest rate Mortgage Loan to a fixed interest rate Mortgage Loan or a variable interest rate Mortgage Loan at the Bank's then prevailing rates appropriate to the Mortgage Loan. However, the Customer may not convert the tracker interest rate Mortgage Loan directly or indirectly from one tracker interest rate to another tracker interest rate in order to avail of a lower prevailing Tracker Margin.

So, again, no mention of Tracker Rate being lost if the property is rented out. Are there any AIB customers out there who can pin point where in their paperwork such a clause is stipulated ?

The obvious question is for me to approach AIB and ask but I don't want to draw any attention to myself at this stage in case there is a grey area that I can operate in - (to my benefit!)

All help gratefully accepted.

OP, have you talked to your bank about your options? It seems you may be guessing what they will think based on rumour and what others who might not be in as strong a financial position as you. As others have pointed out, you have secure jobs, you have a great savings record and you are up to date on your mortgage with no other borrowings.

This is what I would do:
- Find a house you are interested in or one that would meet your needs - Have a look in an estate agent's or the paper, pick a property in the size / location / price range etc,
- go to the bank with this information and your best estimate of what your house is worth
- outline some options to the bank to roll the negative equity from the first house to the second.
- expect that you will have to pay all legal costs, stamp duty etc and budget for this from your savings,
- expect to also pay a deposit on the new property from your savings, budget for this to be a minimum of 20% but a higher deposit will obviously work in your favour
- now assume you sell your first home and calculate the short fall - add this negative equity amount to the amount of the new loan - ie rolling over the negative equity, meaning you have a new loan also in negative equity but crucially from the bank's point of view you have lowered the risk because your Loan to Value is lower overall (providing the second property is worth at least as much as the first)

Try a couple of different options on numbers eg a larger deposit and see if you could be happy with some of them. I don't think you say the maximum amount of your savings you would be willing to use - but you need to sit down and realistically work that out. Are you holding on the deposits for something in particular or just as a safety net?

Once you have decided all this talk to your bank and see if they would be interested in any of the options - eg they might play ball with a large deposit on the new property or they might be willing to accept some of the deposits as security - obviously this would impact the availability of the deposits to you in a "rainy day" scenario so you need to have a clear idea of your minimum level of deposits.

You are lucky enough to be in a different position to most of the people writing here looking for advice so you should be walking into your bank having a very different conversation with them

This story has become quite complicated when it actually is quite simple. You sell your house for what you can using up your savings to pay the negative equity. You rent somewhere better for about a year and if happy in the location you purchase there. 90K in permanant jobs buys a very nice house. It certainly does in these hard times.

Bronte said:

This story has become quite complicated when it actually is quite simple. You sell your house for what you can using up your savings to pay the negative equity. You rent somewhere better for about a year and if happy in the location you purchase there. 90K in permanant jobs buys a very nice house. It certainly does in these hard times.

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I should have made it clearer that I can't put all savings against the neg equity. The max would be 100K. It is too risky to leave my family with no safety net. We are in particular need of this safety net for reasons I'd rather not elaborate on.

It's very interesting to hear everyones perspective on this. Thanks again and keep it coming!

Thanks again for all the advice, particularly millieforbes! (I'm most thankful for the advice that I like to hear ). I have not spoken to my bank on the topic (yet) as you suggested. There are 2 main reasons for this:

1) I don't think I'm financially savvy enough to negotiate with them. They do this for a living whereas I'm like the guy on the bus in the TV ad that didn't know what a tracker mortgage was!
2) I don't want to draw attention to myself in case it would go against me if I decide to take a different strategy - kind of like playing my cards close to my chest. I'm very worried about making the wrong move and reducing my chances of a successful outcome.

Incidentally, I raised the question about the provision of negative equity mortgages with the Minister for Finance's office. They sent me a very prompt and thorough reply for which I was very grateful. It was quite interesting as I was unaware of the facts. I've paraphrased it below. (I didn't want to paste it verbatim as I thought that might be unfair to the civil servant who drafted the email.)

In February 2010 the Expert Group on Mortgage Arrears and Personal Debt was established. This Group was tasked with making recommendations on options for improving the current situation for families with mortgage arrears on their principal private residence and with personal debt.

The Group's Report contained the following recommendation:

"The Group notes that, for some mortgage holders, who are in negative equity, trading down would produce a reduction in the mortgage debt and more affordable monthly payments. The Group recommends that further consideration should be given by lenders to facilitating trading down by borrowers in this situation. Such options would have to meet relevant prudential standards, with appropriate controls in place, and be made in the customers ' best interest".

Trading down means selling a current property and buying a cheaper one. Trading down may be an option to reduce the level of mortgage repayments, resulting in more affordable monthly repayments.

This recommendation is aimed at helping mortgage holders remain as homeowners while reducing their level of repayments. It may also help mortgage holders who are in negative equity and who may wish to move home, for example, to take up new employment opportunities. There is merit in facilitating house moves by those in negative equity in certain situations and subject to certain criteria set down by the Central Bank.

Ultimately, these are matters for lenders and for the Central Bank to decide upon. Any lender planning to provide a negative equity type product must notify the Central Bank in advance to ensure that appropriate measures are taken and proper controls are put in place. The Central Bank must be satisfied that such a product meets relevant prudential standards and does not lead to consumers being over exposed.

My reading of the above is that banks won't offer negative mortgages unless approval is granted for such a product from the Central Bank. But I presume the Central Bank is not going to be involved in a case by case assessment of what is a 'prudential standard' ergo no negative equity mortgages will be available....

Do others get the same understanding from the above?

Confused dude - This thread has made very interesting reading. I find myself in very similar circumstances, although I only wish I have 140k in savings ( we only have 30k at present). I too have been searching for a solution over the last year and the problem is, that there is not actually a solution.

Reading other threads and forums, you might want to look at your options around renting off the books, so to speak. It's pretty typical of this country to have normal, law abiding citizens hands tied, so they are forced into a corner. The only solution may not be above board, but if it is the only solution, then it is the only solution. Isn't it?

I find myself in a similar situation to yourself and have to rent out what was our home for 5 years as we are moving counties for new jobs. Also have very similar mortgage with AIB. Did you ever get confirmation re your interest rate increasing due to property becoming a rental?

belinda said:

I find myself in a similar situation to yourself and have to rent out what was our home for 5 years as we are moving counties for new jobs. Also have very similar mortgage with AIB. Did you ever get confirmation re your interest rate increasing due to property becoming a rental?

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AIB did once again restate that the property would revert to a BTL rate. However I doubt the validity of this claim. But I never followed it up because I decided the best course of action would be to sell.

I put my house on the market and achieved a very painless sell. I priced it well and secured an interested buyer. Needless to say it sold at a loss but I am now living (renting) in a desired location and looking to buy again in the short to medium term and from all my transactions I have 30,000 in my back pocket.

Thanks to all for their insights and advice. It was interesting to hear all the differing opinions and it helped me formulate the appropriate plan of action for my situation.

Glad to hear it worked out for you. I learned a lot from this thread as I am in a similar position with neg eq and savings. Thanks for sharing. Can I ask: did you ask the bank to write off some of the mortgage seeing as how you were giving up a tracker and they were saving money by "getting rid of you"?