Mortgage options now we have clarity from CB

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Gordon Gekko

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Hello

I have an apartment that is in negative equity.

I don't live there.

The mortgage is at a crazy tracker rate but is with a bank that has left Ireland.

Can someone clarify our position in the context of the new rules?

Many thanks.
 
To get proper advice, you should provide full information

VAlue of property
Lender
Amount of mortgage
Interest rate
Marital status and kids
Salary
Other loans
Other assets

Brendan
 
If you want to buy a home for yourself, you will be a second time buyer, and will require a deposit of 20%.

The banks can make exceptions in 15% of cases.

Brendan
The rule above as quoted by Brendan is pretty clear and references your circumstances. If you feel that your specific financial circumstances should qualify you as an exceptional case then you will need to make that case to your bank. However, while we are not in a position as yet to assess how individual banks will assess "exception" cases my feeling is that they will be based on strong repayment capacity primarily. I.e. granting higher LTV loans to those with high LTI's plus low other borrowings.
 
To get proper advice, you should provide full information

VAlue of property
Lender
Amount of mortgage
Interest rate
Marital status and kids
Salary
Other loans
Other assets

Brendan

Hi Brendan

- Value of apartment is €225k
- Lender is Danske
- €232k outstanding
- Rate is 0.55% (ECB + 0.5 Tracker) with €1,200 repayment
- Married with two kids
- Basic salaries are €120k (me) and €60k (wife - public sector)
- Cash bonus for me typically €30k
- Shares worth circa €50k usually awarded but delayed
- Unvested share options worth circa €100k net of tax currently
- AVCs maxed for me
- Two loans - BOI €13k €570 per month & CU €25k €520 per month
- Apartment in the Algarve worth circa €150k - Debt free
- Rental income is €1,800 per month (€1,300 + €500)
- Crèche €1,200 per month
- Cash of circa €20k as "emergency fund"
- Rent is €1,800 per month
- Can save €2k a month (ish)

What should we do?

Thank you.
 
Hi Gordon

This is exactly the case which the Central Bank rules is designed to curb. You are very wealthy and have plenty of assets. The CB does not want lenders throwing even more money at you which will push up the prices of houses for everyone.

If you were with one of the living lenders, you could transfer your tracker to another property, but you can't do that as you are with Danske. It's a great investment because of the lifetime cheap tracker, so hold onto it.

1) Sell the apartment in the Algarve: €150k
2) You can borrow up to 4 times the value = €600k
3) You can borrow up to 3.5 times your income of €180k : €630k ( Oddly enough, the CB does not insist that this is reduced by your existing debt of €270k)

Alternatively, if you want to hold onto the Algarve, wait a while until your various share options vest.
In the meantime, stop maxing your AVCs, as you need cash.
Consider using your emergency fund to pay off your very expensive credit union loan. That would certainly be a better use of the money you are putting into the AVCs.

Alternatively, check if the lender will lend you more as one of the 15% exceptions. But to be fair, I think that you and they should keep this 15% for more needy cases.

Brendan
 
Gordon,

I do not believe the CBI rules require you to stump up a 20% deposit. I have inserted a reference from page 9 of the CBI rules below. All it requires to avail of the NE exemption is that you are a borrower in NE on a current property seeking a housing loan (note if does not state "negative equity loan" which is a term specifically defined in the rules) to finance a new property. There is no mention of a need to sell the NE property. There is no mention of assessing status post drawdown of the new mortgage - this may be relevant because your situation after receiving a 2nd mortgage and paying a 10% deposit may be that you are no longer in NE overall even if you are still NE on your initial property.

Obviously the CBI rules are subject to each bank's own policies which may be stricter than the CBI rules.


"Exemptions to the LTV limits
There are certain exemptions from these limits. The exemptions below do
not count towards the total value of mortgages within the scope or the
percentage limit and so are excluded from both the numerator and
denominator in calculating compliance with the proportionate cap.
1. Negative equity borrowers: Borrowers in negative equity on a current
property who are seeking a housing loan to finance a new property are
out of scope of the LTV limits. "
 
1. Negative equity borrowers: Borrowers in negative equity on a current
property who are seeking a housing loan to finance a new property are
out of scope of the LTV limits. "

Sorry. My New Year's Resolution is to learn more about finance but I don't get this. Does it mean that you don't need the 20% deposit? Or what does it mean?
 
Yes, if you have a Negative Equity mortgage at present, the lender is not restricted by the 20% deposit rule. However, the 3.5 times Loan to Income does apply.
 
Oh right. Well that makes sense because otherwise in theory they would be able to lend 100% mortgages, wouldn't they?
 
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