negative equity mortgage or keep investment

Discussion in 'Mortgages and buying and selling homes' started by finance1233, Dec 8, 2016.

  1. finance1233

    finance1233 Registered User

    Posts:
    23
    hello all

    trying to buy a new property, i have an apartment at the moment in negative equity on a tracker ecb+1.1%. should i take mortgage offer on table, or try to get a negative equity trade up.

    new property
    value-------------------375k
    deposit------------------75k
    mortgage--------------300k
    proposed mortgage---1619 monthly(30 years)

    current property
    value----------------220k
    mortgage-----------320k
    rate 1.1%----------1180 monthly(25 years)
    rental value--------1250

    negative equity trade
    mortgage------------400k
    value-----------------375k
    320K@2.1% + 80k @5.05% 1832 monthly(25 years)



    i have approval in principal with pepper keeping my existing property but rate is 5.05% 1619 monthly. going with pepper as had issues on icb.(part of ptsb redress scheme issues sorted).
    which scenario would be better long term. if i went with pepper i would be hoping to switch to a more attractive rate in 2 years when icb clears up. or should i try to get rid of current property
    and bring negative equity with me?

    any advice appreciated.
    kind regards
     
  2. cremeegg

    cremeegg Frequent Poster

    Posts:
    1,900
    You need to fine tune the figures.

    What you have above is more a back of the envelope effort than a proper basis to make a decision. You need to look at the other expenses associated with renting, and at the tax implications. Also a rental income on a property worth €220k seems a bit low in todays market.

    When you have done all that answer may become clearer.
     
  3. Sarenco

    Sarenco Frequent Poster

    Posts:
    4,168
    At a time of zero inflation, I wouldn't borrow from anybody @5.05%. Full stop.
     
    Gordon Gekko likes this.
  4. finance1233

    finance1233 Registered User

    Posts:
    23
    what would you do sarenco?

    i obviously dont like the rate either. but i am where i am. i can manage the inflated price for 2 years until such a time that i can switch
    to a better one. if i wait 2 years im worried about house prices increasing further and out of reach. i think i would rather keep my apartment
    and have the rent(after taxes+costs) help pay down the negative equity and sell it down the line.

    is this a bad decison? should i take the hit now on the negative equity and try get a switcher?
     
  5. Bronte

    Bronte Frequent Poster

    Posts:
    11,990
    What do you mean you can afford the rate for two years, what happens then if interest rates rise. Are the banks not stress testing you. Are you not looking at this yourself.

    What is your income?

    Can you do a proper rental calculation as Cremeegg asked you. We would like to know if you understand what you are getting into.
     
  6. finance1233

    finance1233 Registered User

    Posts:
    23
    thanks bronte/creme egg

    very new to this and have not engaged an accountant yet which i plan to do.

    myself and my partner have a joint income of 118k. net income of 6800 monthly no dependants.

    the apartment is in my name.

    rental income-------------------15000
    less 75% interest---------------2880
    less professional fees------------400 estimate
    less service charge-------------1050
    less wear and tear---------------900

    taxable income---------------- 9770
    tax liability @43%--------------4201

    income--------------------------15000
    less mortgage------------------14160
    less tax---------------------------4201
    cost to me -----------------------3361 yearly

    does this make sense to do this with the capital being paid of the mortage at 10000 yearly?
    and possible house inflation(trust me i know this works both ways) ideally i would like to sell the house when i can break even
    or should i take the hit now?

    thanks for the help
     
  7. finance1233

    finance1233 Registered User

    Posts:
    23
    would any of you financial wizards have any advice on the above? i need to make a decision and i am very torn as to best approach?
    any advice would be greatly appreciated
     
  8. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    32,805
    Last edited: Dec 17, 2016
    In terms of the interest and rental and tax costs, they are about the same.

    upload_2016-12-17_21-4-21.png

    Of course, from a financial point of view, staying where you are as long as possible is by far the best strategy.

    But if you are determined to trade up...

    Have you been approved for a NE mortgage with ptsb? If so, are you sure that they are charging you 5.05% on the new borrowing? With only €80k at this rate, I wouldn't worry too much about it. But pay it down as quickly as possible in the coming years.

    I appreciate Sarenco's reluctance to borrow at 5.05%, but when you have an equivalent loan at 1.1%, I wouldn't worry hugely about it.

    Keeping the investment property means that you will have over €600k in borrowing which is too much. It leaves you very exposed to interest rate rises.

    Given that you have a bad ICB record, I think you should go for the simplest option with the least borrowing and get your credit record fixed and eliminate the negative equity as quickly as possible.

    But still the best strategy is to stay where you are until your ICB record is clear and you can borrow at 3.5%. Then it might make sense to keep the investment property.




    Brendan
     
    Last edited: Dec 17, 2016
  9. finance1233

    finance1233 Registered User

    Posts:
    23
    thanks for the reply brendan

    i appreciate your advice and it makes sense.

    my icb wont clear up till 2019 and i feel like it is the right time for me to move now i dont know if i can wait.

    do you think interest rates will rise drastically in the next 2 years? do you see any issue taking the pepper mortgage now
    and switching it in 2 years time to a product at 3.5%?

    for someone that has never been in positive equity!! i like the idea of at least having equity in my family home and keeping
    the investment property when its at 1.1%.

    i havnt been approved for negative equity switch, my broker has spoken to someone in the bank who thinks the numbers make sense,
    thats as far as i have taken it. i got the 5% on the 80k off ptsb's website where they explain negative equity trade ups. if that was lower
    it would be great.
     
  10. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    32,805
    Yes, there are a lot of issues. You will still have a buy to let mortgage, so other lenders may not lend to you.

    You will have two big mortgages in the next two years, and you may well go into default again.

    You should not plan things on the assumption that you will be able to switch.



    I wasn't aware that it was so high, but it probably makes sense given that it's a rate for a NE mortgage.

    It takes the shine off the tracker rate. Not a huge issue for you as you are not borrowing much.

    Brendan
     
  11. finance1233

    finance1233 Registered User

    Posts:
    23
    Thank you very much for the advice. I've managed to gather a bit more money together 100k. And I plan to approach ptsb in January about negative equity switcher.

    Do you think the bank will look at this given I got in to trouble with them in the past? I did a deal 3 years ago with them on the arrears and have since been part of the redress and the so called arrears where overcharged monies and returned to me.

    Current situation

    Mortgage---------------320
    Value-------------------220
    Rate 1.1%

    New situation

    Mortgage---------------375
    Value--------------------375
    320k@2.1%
    55k@5%

    The deal makes sense to me but banks are funny. They would have to give me 55k and they would get a better asset which the loan is secured, an extra 1% on the tracker portion. And my partner would be on the loan to.

    Do banks make decisions like this?
     
  12. Brendan Burgess

    Brendan Burgess Founder

    Posts:
    32,805
    It's unlikely that ptsb will give you a tracker switcher if you were in arrears.

    However, if the arrears were solely due to the loss of the tracker rate,then you would have a good chance.

    But the only way to find out is to ask.

    Brendan
     
  13. finance1233

    finance1233 Registered User

    Posts:
    23
    Thanks Brendan

    Ill ask and see how I get on. I assume if they were reluctant to lend me any new money that they would have no problem with me porting my tracker to a new home of the same value of existing tracker?
     
  14. GRAINNE WY

    GRAINNE WY New Member

    Posts:
    2
    Just wondering how you got on with ptsb and moving tracker to new home?
     
  15. finance1233

    finance1233 Registered User

    Posts:
    23
    hey grainne, i got approval in principal for the switcher. slightly different figures
    just 45k of new borrowing porting over 320k on tracker. 97% ltv.