2nd mortgage with negative equity

[kkmaan]

Owe 300k on current mortgage, with house valued at 220k. 80 k neg equity.
wife and i have combined income of 130k, 2 kids
looking at purchasing another house, asking price 310k.
we have savings to cover deposit and fees.
approved for the 310k mortgage on selling our current house
we are thinking of approaching the bank to see can we purchase, then sell our original house at a later date. makes more sense with house prices on the rise, and saves us the hassle of selling, then renting until something suitable comes along.
anyone have experience or advice on this?

 

[oysterman]

You can always ask the bank but suddenly you would have combined mortgage debt of nearly 5x income. Unless you see yourself as becoming a professional property investor I would urge you to think long and hard about this.

The reason you are thinking of further leveraging your property holding (i.e. taking your borrowings from approx 2x to 5x income) is to deal with the negative equity you are currently in. So you would be betting bigger to cover previous losses...that's a questionable strategy; ask any ex-gambler.

There is a long-established principle on AAM that we don't discuss likely asset price movements because it's no better than guessing and because we subscribe to efficient markets theory i.e. that the current market price already factors in market beliefs as to future price trends. So rising prices today are no indication of rising future prices.

Ask yourself the following question: If I didn't currently own a house and was about to buy the new one, would I also buy my current one to further expose me to risk?

 

[44brendan]

You can approach the Bank certainly but you will not be successful. Without wishing to preach, you do need to have some grasp of why we got into this crisis and the folly of borrowing money to speculate on the property market!!

 

[kkmaan]

You can approach the Bank certainly but you will not be successful. Without wishing to preach, you do need to have some grasp of why we got into this crisis and the folly of borrowing money to speculate on the property market!!

Thanks for advice, but I am not "investing" in a second property for financial gain or betting on rising prices, I have to move to another county due to personal circumstances and I am contemplating the best way to do this.
Option 1: Try to sell current house, and hopefully the house we are looking at will still be on the market - if not we end up renting and waiting for a suitable house while house prices are potentially rising. The scenario could be that we sell at the bottom of the market, then purchasing in a rising market thus costing us more.
Option 2:Buy the house we are looking at if posible, then sell the original house in a potentially rising market. No disruption to family etc and we possibly get the house we want.

 

[oysterman]

Thanks for advice, but I am not "investing" in a second property for financial gain or betting on rising prices, I have to move to another county due to personal circumstances and I am contemplating the best way to do this.
Option 1: Try to sell current house, and hopefully the house we are looking at will still be on the market - if not we end up renting and waiting for a suitable house while house prices are potentially rising. The scenario could be that we sell at the bottom of the market, then purchasing in a rising market thus costing us more.
Option 2:Buy the house we are looking at if posible, then sell the original house in a potentially rising market. No disruption to family etc and we possibly get the house we want.

In fairness, your original post was ambiguous in that both 44brendan and I interpreted the sale "at a later date" as indicating you intended holding on to the existing house to catch the capital gain from a rising market.

Now it seems you want to buy the new one and sell the existing one once you've moved into the new one, partly as a matter of convenience. Frankly, you've even less chance of persuading a bank of this. You'd be generating no revenue from the first house (because you wouldn't be renting it out) and would need bridging finance to finance your shortfall; ask away but, unless you have non-housing assets to secure that borrowing against, you'll have no chance...remember that your current loan is substantially underwater so that house would not be collateral on those borrowings.

 

[44brendan]

From the bank's perspective I concur with the above post by Oysterman. You will not be faclilitated by any Bank with this proposal as the associated risks are too high!

 

[Billo]

Thanks for advice, but I am not "investing" in a second property for financial gain or betting on rising prices, I have to move to another county due to personal circumstances and I am contemplating the best way to do this.
Option 1: Try to sell current house, and hopefully the house we are looking at will still be on the market - if not we end up renting and waiting for a suitable house while house prices are potentially rising. The scenario could be that we sell at the bottom of the market, then purchasing in a rising market thus costing us more.
Option 2:Buy the house we are looking at if posible, then sell the original house in a potentially rising market. No disruption to family etc and we possibly get the house we want.

Note the use of the words "potentially rising " on two occasions and no mention of potentially falling.