Nervous about negative equity

[Trafford]

Age: 32
Partner's age: 35
Annual gross income from employment or profession: 33K
Annual gross income of spouse: c.45K

Type of employment: I'm permanent in a semi-state. Partner is self-employed.

In general are you spending more than you earn or are you saving? Saving

Rough estimate of value of home: 200K max

Amount outstanding on your mortgage: 200K

What interest rate are you paying? 1.1% tracker

Other borrowings: Car loan with CU €4,500. Recent purchase of more fuel efficient diesel. Loan term for 12 mths. Used €6k from savings towards car also.

Do you pay off your full credit card balance each month? Yes

Savings and investments:I save €330/month, partner saves slightly less, we have c.10K currently in high yield deposit accounts

Do you have a pension scheme? I have a fund with €13k from old employer. Current employer is in process of setting up new scheme which I will join and transfer fund into.

Do you own any investment or other property? Yes. €155K mortgage outstanding. 1.5% tracker. Rent pays mortgage. Currently worth max €150K.

Ages of children: None

Life insurance: Yes, for both mortgages.


What specific question do you have or what issues are of concern to you?
I am concerned about the investment property being in negative equity. It is a 2 bed townhouse so should have good longterm rental potential. If tenants move out we can still cover mortgage, but am scared of the liability. Should we brave it out and think long term, or cut our losses and use savings to cover shortfall created by negative equity? We would like to use spare money now to build up equity in our PPR, but would we be better off ploughing this into the investment property instead? Note, if tenants move out this "spare" money will be needed to cover mortgage. We acquired it as it was my PPR when we met, and not because we intended to become property investors/landlords. Would most likely have sold it on marriage had we not married and moved intogether after the downturn.

 

[aristotle]

If the demand for rented accomdation is ok in the area, and you think you shouldn't have too much problem renting it then I would hold on to it. When you say the rent covers the mortgage repayments are you accounting for other costs (house insurance, tax, etc)?

If the numbers make sense I would hold onto it. In the longterm you will have an asset that can be part of your pension plan.

 

[Trafford]

Thanks for replying Aristotle. It's hard to know if demand is still as good as it was for rental property, as obviously a lot of foreigners have returned home and a lot of nomadic construction workers are no longer nomadic. I suppose should the property be vacated and we are struggling to fill it it might be a good time to make a call.

Rent covers mortgage, insurance and life assurance. So far maintenace has been nil as it's a new house.

 

[niceoneted]

I would have thought on your combined income that you could be saving more than you are monthly.
I would save very hard and have the money put by just in case.
You have very good interest rates on both your mortgages so stick with it. Given the investment mortgage is relatively low and rent is covering it I would keep it for the long term if I was in your shoes.

 

[Trafford]

Hi Niceoneted! We've just had to farm some of what we used to save into the CU car loan, but after the 12 months are up we should be back up to normal saving levels. It's just a juggling game at the minute!