50% Negative Equity - opinions on ways to lessen this

B

Brokesville

Guest
Hi Guys / Girls,

Am a first time poster here, it was recommended as a good starting point with my problem.

Basically I bought a 2 bed apartment in a very small quiet town in Kildare at the end of 2007. It was never intended to be somewhere I'd live for a very long time, I had thought 4/5 years and then I'd try move a little closer to Dublin again. Of course with the way things are now that hasn't happened. It was a rash stupid buy with not enough thought put into it. I am 28 years old and the town is way too quiet for me, there is nowhere for any element of socialising etc. I also commute to Dublin for work daily and the petrol costs are massive. When I originally bought my partner at the time lived with me and we also worked together and shared petrol costs etc but now I'm by myself again so costs are high.

Basically the apartments now have an Asking Price of €115k less than I paid. I am in a major panic over the massive amount of negative equity that I have over my head. If it were a house that I could live in forever I would be ok with it but it's a 2 bed ground floor apartment in an area that I am growing to hate never mind just not really like.

I get paid a decent wage and recently gota bit of a rise. I have been thinking of trying to up my mortgage repayments to try pay off a bit more of my mortgage each month or something. My other thought was to move home for a few years and rent it out. The rent won't cover the mortgage at all but I would have an extra few hundred euro a month to throw at the mortgage if I did.

Has anyone done anything similar that can offer me any advice? Would I be better to pay higher monthly payments or save and pay occasional bulk payments? I have a meeting with the bank tomorrow to see if my tracker would be affected by any of this as if it is I'm not letting it go!

Any help greatly appreciated!
 
Did you buy on your own ? Is your former partner not liable for half the mortgage ? I'm guessing you bought on your own. You don't mention what your repayments are monthly or what the potential rent is. How about trying the rental route by getting a local agency to look after it for you ? If this halves your payments then it may be worth a punt of hanging on for a few years and either lowering the NE or possible better economic circumstances. I'd be very reluctant to tell your bank that you are thinking of renting out though. Maybe mention to them that if they were to give some credit to the tracker to get a personal loan at a good rate for the NE differance in selling. Of course the problem here is you don't know how much you would get for the property until you try selling. Most places seem to be overly optimistic at the moment.
 
Sorry I left out a few key details!

Yep I bought on my own - in a way although it was less hassle at the time now I wish I had someone to half the debt with!!

My repayments are totally affordable for me, my issue is more that I want to do something productive to lower the NE. At the moment my mortgage is 700 but I would lose my interest relief if I rent out so it would go up to 800. Rent will be 550 so there is a deficit of 250. I'd also need to factor in a little bit of savings each month for the tax I have to declare at the end of the year. But if I moved home I would be able to pay about an extra 400 (possible 450) a month off the mortgage. While it sounds a fair bit said like that, it's only 4800 euro a year so not all that great.

Can I ask why you say I shouldn't tell the banks I'm thinking of renting it out? Is it in case there's a clause in my mortgage saying I'd lose my tracker if I rent out?

I can't see them helping me out in any way like with a personal loan with my negative equity being over 100k. I'm not all that savvy with this kinda stuff either so should probably try get some independant financial advise from somewhere but again wouldn't know where to start!
 
You could rent the other room out while continuing to live there. If you charge E250 per month thats E3000 per year. You could use it to chip away at the mortgage.
 
Thanks homeowner, I had thought of that and did advertise for it but there's zero demand for it in the area, I didn't even get one call. Also advertised it in hospitals etc to try get someone in that way but no luck!

Had my meeting with the bank and they reckon I'd lose my tracker anyway, she has to clarify but if that's the case I definitely won't be going down the rental route!
 
For the moment I think you should save rather than pay extra off the mortgage, if you decide to but somewhere else in a couple of years you'll need to build up some cash for legal fees and to deal with other costs. Saving keeps the option open to pay a lump sum off your mortgage in a couple of years or if banks allow negative equity mortgages it means you could have a deposit if that was needed for the deal
 
Thanks for that millieforbes... Have been thinking about it all day and think that's what I'll do. I obviously can't save as much if I can't rent it out but can still save a couple of hundred each month so will just get started doing that and see how things lie in another few years. I'm lucky in that I've got a Dublin base in my mam's so can stay there a couple of nights a week- save on petrol costs etc. And in the meantime will just keep advertising to rent the spare room out.
 
On this, arent the banks offering to knock lump sums off peoples mortages for going off trackers back to variables?? It might be possible to knock 20 - 30k off your mortage for doing this. I think it was PTSB were doing this.

If thats the case why not do this, then rent out for the €550 per month, add on your additional €450 and you will be knocking 10k off a year. Im afraid you can only hope that the markets rise 5 - 10% to get you back into positive equite within the next 4-5 years.
 
If you can't rent a room now, what makes you think you can rent the full apartment. There is actually no issue here with the negative equity, you can afford it, you can also afford to overpay.

Do not rely on what the bank told you in relation to the tracker, that reply sounds wishy washy. What is the term and condition of your mortgage in relation to the tracker (you can post it up here if you want, taking out your personal details). You can in any case rent and not tell the bank.

I would not assume there will be tax to pay should you rent. You should do out the full figures on renting to get an idea on that, post them on here so they can be double checked and have a look at all the threads on renting on here and on sites like landlord.ie etc.

As you have a tracker, it may be worth your while putting the extra into a high paying savings account and when the tracker ends putting those savings off the mortgage. If you are not good at savings then I recommend you overpay the mortgage (with the banks consent). Every bit counts and don't think it doesn't, it might not seem like much at the beginning but it will start to chip away at it. Mortgages are always toughest at the beginning.

You are exceedingly lucky you bought alone. One less of a nightmare for you. I recommend you do the money makeover if you want more concrete advice.

Re petrol costs, is there no bus or rail service from Kildare, do you need a car?
 
zenga said:
On this, arent the banks offering to knock lump sums off peoples mortages for going off trackers back to variables?? It might be possible to knock 20 - 30k off your mortage for doing this. I think it was PTSB were doing this..
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I hadn't heard of or got any correspondance saying anything like that from TSB. I did get a letter saying that if I paid a bulk payment of say 10k that they would put off 10% to make it 11k but I don't have any bulk sums like that to pay off. I will call them to enquire about the option of a pay off for the tracker but I'm just loath to lose that tracker when all the advice says not to!
 
Bronte said:
If you can't rent a room now, what makes you think you can rent the full apartment. There is actually no issue here with the negative equity, you can afford it, you can also afford to overpay.

Do not rely on what the bank told you in relation to the tracker, that reply sounds wishy washy. What is the term and condition of your mortgage in relation to the tracker (you can post it up here if you want, taking out your personal details). You can in any case rent and not tell the bank.

I would not assume there will be tax to pay should you rent. You should do out the full figures on renting to get an idea on that, post them on here so they can be double checked and have a look at all the threads on renting on here and on sites like landlord.ie etc.

As you have a tracker, it may be worth your while putting the extra into a high paying savings account and when the tracker ends putting those savings off the mortgage. If you are not good at savings then I recommend you overpay the mortgage (with the banks consent). Every bit counts and don't think it doesn't, it might not seem like much at the beginning but it will start to chip away at it. Mortgages are always toughest at the beginning.

You are exceedingly lucky you bought alone. One less of a nightmare for you. I recommend you do the money makeover if you want more concrete advice.

Re petrol costs, is there no bus or rail service from Kildare, do you need a car?
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Apparently there is no demand for just a room, the only demand in the area is couples who are going through the social housing. I guess with there being no colleges or any big town in immediate distance you wouldn't get much demand for just a room.

Re the negative equity - just because I can afford to pay it does that mean it's not an issue? My issue is that I can't get out of that place due to the massive amount of NE that I have.

I've asked the bank to look into the loss of the tracker if I choose to rent it out and said I want a copy of where it says that they can change the mortgage etc so I'll hear back on that next week. While I'm sure they covered ther backs I'm keeping fingers and toes crossed.

To be honest, if I rented and didn't tell the bank I'd be terrified that the Revenue would then find out somehow and they'd do me for the TRS that I'd still be getting. And if I stop the TRS surely the bank would cop that?

I'm quite good at savings once I have any spare cash and am an excellent budgeter and tend to really stick to it so I know it wouldn't be an issue for me not to dip into savings etc. I think my next step is to look into savings accounts and the interest rates on them.

Also re the train service - it's Monasterevin that I live, there is a train station right there but the train that stops in Monasterevin goes to Dublin City Centre and I work in Parkwest so I'd either need to travel to Newbridge and get the train to Parkwest from there or travel back to Parkwest from City Centre - and I've looked into all the costs and it's no cheaper than petrol to be honest! If they want people to stop using cars so much I think they should make trains etc chearper but that's a whole other issue!
 
To be honest, if I rented and didn't tell the bank I'd be terrified that the Revenue would then find out somehow and they'd do me for the TRS that I'd still be getting. And if I stop the TRS surely the bank would cop that?
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Tha bank does not organise your entitlement to this so they would not even notice this. Definitely do not keep getting TRS if you rent it out. You can be prosecuted/fined for that.
 
elcato said:
Tha bank does not organise your entitlement to this so they would not even notice this. Definitely do not keep getting TRS if you rent it out. You can be prosecuted/fined for that.
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elcato I am not entirley sure u are right here re the loss of TRS
search for rent a room on revenue dot ie and you will find the following text

"Rent a Room Relief

If you let a room (or rooms) in a "qualifying residence" as residential accommodation and the aggregate of the gross rents and any sums for food, laundry or similar goods and services in respect of the letting, ("relevant sums"), does not exceed the annual limit for the tax year (currently €10,000), the profits or losses on the relevant sums are, subject to the exceptions described below, treated as nil for income tax, PRSI and Universal Social Charge (USC) purposes. (For 2010 and prior years, the reference to USC should be read as a reference to the health and income levies).

A "qualifying residence" for a tax year is a residential premises in the State, which you occupy as your sole or main residence during that tax year.

When calculating relevant sums no account is taken of any expenses incurred in respect of the letting or the provision of additional services.

Where more than one individual is entitled to the relevant sums, the annual limit is divided between them.

The relief is not due where the relevant sums are received from your child.

Neither is the relief due where you are an office holder or employee of the person making the payment or of a person connected with the person making the payment or where, in these circumstances, the relevant sums are paid to a person connected to you.

The relief does not affect any entitlement you may have to mortgage interest relief or to capital gains tax exemption on the disposal of a principal private residence.

You can opt out of the relief for a tax year by making an election in your annual tax return on or before the return filing date for the tax year concerned.

If you claim relief you must provide details of the relevant sums on your annual tax return, notwithstanding that the profits or losses are disregarded for income tax purposes."

HTH
 
hastalavista - that only applies if OP rents out a room and still lives there, not if s/he rents out the whole place.
 
Would the bank not have it flagged to them when my TRS stops after I cancel it? I would have thought they'd look out for something like that simply to catch people with my idea!
 
Revenue will know if you stop TRS, because they are the ones that authorise it. If you rent out the apt, you will need to pay tax on the rental income (less all the deductions, plus all the extras, such as increases insurance, PTRB fee, NPPR fee etc.)

I just wanted to clear up the confusion re: mortgage interest relief in the previous post. You will lose TRS if you rent out the whole apartment - the "rent a room" exemption does not apply if you are not living there.

You should do the sums on the situation if you rent out - if you don't have rental costs in Dublin, then you should make money (i.e. be "up" in cash terms) but it's an awful lot of hassle. There are a number of threads summarising the costs of renting out a property so have a search and look through those before you decide.
 
Brokesville said:
Would the bank not have it flagged to them when my TRS stops after I cancel it? I would have thought they'd look out for something like that simply to catch people with my idea!
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No, it is non of the banks business whether you have TRS or not and they cannot ask you about it. It's strickly between you and revenue. If you rent out the full house contact revenue to cancel TRS. The tax relief you get on renting mortgage relief is of much better benefit to you tax wise than TRS.

Incidentally nearly every letter (for rental properties that have no TRS applied) I get about mortgages from my bank mentions TRS but it's just a standard phrase they put in their letters.
 
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