Second mortgage application; negative equity history; advice on best course of action?

[2ndtimer]

Hi all,

Hoping for some advice on my current and short term future situation and the best way to approach it. Slightly long and complicated so bear with me.

I currently own an investment property with my ex husband. We originally lived there as our PPR and on separation we both moved out and it is currently rented. Rental income covers the interest payable plus some extra (same tenants for 3 years +). We are both still paying our full portion of the mortgage each month so the rental income is building up in a savings account and is used for unforseen expenses, insurance, income tax and/or as a lump sum payment at some point (not used yet as overpayments trigger a penalty). We both contribute equally to this (I could stop this and just pay my portion of the shortfall between rent and mortgage which would give me extra cash of 325 per month). I do our tax returns each year and we pay approx. 500/600euro each in tax per annum after deductible expenses and capital allowances etc. We have applied for a divorce and it is pending - we are amicable and expect it to come through within a year (conservative). We have no children. Numbers below;

Original cost of property (2006) - 300,000
Mortgage - 300,000
Balance outstanding on mortgage - 255,000
Value of property - 100,000 (conservative)
Term of mortgage - 39 years, tracker
Monthly repayments - 880 pm
Rental income pm - 650
Amount built up in joint savings (with ex) - 16,000
Everything with existing investment property is 50:50 with ex. He doesn't want to sell until such time as we can clear outstanding mortgage and ideally make a profit. He is happy to retain house indefinitely and has no plans to apply for another mortgage. (Just to note - amicable situation re divorce is partially reliant on this - if I tried to force a sale or in any way change the status quo, this could change)

Current situation
Me (33) - salary 89,000 (plus bonus generally 6,000-8,000 (not guaranteed) - private sector, permanent job, in job 4 years, no credit card debt or other debt of any sort
Fiance (31) - salary - 75,000 (plus bonus of c. 3,000-6,000), private sector, permanent job, in job 10 years, no credit card or other short term debt
Joint savings - 60,000
Currently renting together - 750 each per month

We are considering making a joint application for a mortgage and before we approach any banks or brokers we want to anticipate what reactions we might get and what obstacles we will face. The numbers below are estimates, we haven't chosen a particular house we want yet.

Want to buy - 4 bed family home
Value of property - 580,000 approx
Amount of mortgage - hopefully 500,000 (expect to save another 20k this year)
Term - 30-35 years
Savings - 60k
Lump sum from fiance's parents - 20k if needed
No children yet
Never any default on debts, never any late credit card payments, we both own our cars outright
Neither of us have an overdraft

My questions are -
1. Do we have any chance of getting a mortgage together or would my fiance have a better chance applying alone? Draft calcs online say we may get approx. 620k together (that's including my monthly mortgage debt of 440 but presumably the online calcs view this as short term debt and so this isn't accurate). They say fiance would only get approx. 350k alone. Would every bank automatically deduct the 255k on my current o/s mortgage from the 620k (or relevant figure) bringing us down to 365k even though I am only responsible for half of the 255k (realising that joint and several liability with ex means the full 255k gets taken as my debt) Should we save for another year before even considering applying and hopefully have 100k with our savings and gift from fiance's parents?

2. Is there any alternative for me in situation with ex other than retaining the IP and sticking with it until we can sell for the o/s mortgage balance? Given current value I expect this to take 10+ years. I also don't have the cash (approx. 75k) I would need to have ex "buy me out" - as I'd need to pay him 1/2 the neg. equity balance. I realise it is profitable in the sense that rent is covering interest costs but I don't want to be tied to ex indefinitely. Current savings I will need for deposit on new home.

Thank you!

 

[Brendan Burgess]

Which lender is it and what is the tracker rate?

Balance outstanding on mortgage - 255,000
Value of property - 100,000 (conservative)
Term of mortgage - 39 years, tracker

Are you sure of these figures? That is a rate of 2.7% or ECB + 2.65%? Seems high for a tracker.

I was going to suggest that you would take over the house and the mortgage. The effective NE is reduced by the tracker, but with such a high tracker rate, it's not reduced that much.

(not used yet as overpayments trigger a penalty).

Can you explain this? If you have a variable rate mortgage, there is no penalty for overpayments.

Normally, one should not overpay a tracker mortgage, but it might be justified in this case, to separate your financial affairs from your ex husband as soon as possible.

I think you should focus on trying to separate your financial affairs before buying another house jointly with someone else.

Can you and your fiancé get a mortgage together for €500k?

You are a second time buyer so you would need a deposit of €100k.
They might make an exception, but I doubt that they would as you already have heavy negative equity and borrowings of €255k.

Would they allow you to
1) take over the mortgage from the Ex
2) Transfer it to a new home with your fiancé?

Negative equity: €155k
Cost of new house: €580
Less savings: €60k
Mortgage required: €675k
LTV: 116%
LTI: 4 times (675/170)

I don't think that they would.
Whatever about you taking over your ex-husband's NE, I don't think that your fiancé would want to.

 

[Brendan Burgess]

I don't see any solution here which includes you buying a house in the short-term.

Overpay your mortgage as much as you can, even though it's a mid-priced tracker.

When the NE is reduced through capital repayments or through house price rises, then offer to take over the mortgage and property from your ex-husband.

Could your fiancé buy a house on his own?
They should give him a mortgage of €262k and with €80k savings, that would amount to €340k.

When you are free of the other property, trade up.

Brendan

 

[2ndtimer]

Which lender is it and what is the tracker rate?

Thanks Brendan for your reply.

The lender is/was Halifax now Bank of Scotland and we're dealing with Edinburgh. I'm pretty sure our tracker is ECB plus 1.35 which should make it 1.4 right now?

It's a little complicated but my ex tells me the mortgage payment each month now is 876 (I was rounding above). I don't get access to the account (perhaps I should) so I am relying on him in this case but since I do the tax returns each year I get the interest statements and they have always been correct before - recent reductions as ECB rate has been cut. So I will check this but our tracker is definitely not ECB plus 2.65 - I'm almost certain it's 1.35.

When we tried to make an overpayment a couple of years ago, the bank told us there would be a penalty. We didn't really push it as we felt it might be better to build up a lump sum for unexpected repairs, vacant periods or change in circumstances anyway and it won't make a significant dent in the mortgage but we can revisit this. Again, as an aside, dealings with the ex are amicable only to the extent I leave him alone and don't try to change things.

Can you and your fiancé get a mortgage together for €500k?

This is what I thought - my fiance and I would be better to save for another year or two and get to the 100k mark which we should be able to do. Hopefully prices won't keep rising in the meantime!

I agree re sorting out financial affairs with ex but unfortunately he won't hear of this (and in any event, we cannot make up the shortfall in the NE in the event of a sale anyway). When you say I could take over the mortgage - how would this work? Allow my ex to walk away from his portion of the debt? That doesn't seem sensible (regardless of whether the bank would allow it). One thing is, my fiance would be happy to do it if it meant my ex went away. Only thing is - I am guessing that if I took over the sole mortgage I would lose the tracker and then the IP wouldn't be profitable anymore?

 

[2ndtimer]

I don't see any solution here which includes you buying a house in the short-term.

Yes, I think you're right. I think we will have to save for a min. of another 1.5-2 years. It's upsetting and I feel like I'm totally shackled to my ex despite trying to save steadily and be cautious (except in 2006!).

Out of interest - I see lots of my friends who bought back in boom years are now buying second homes and retaining their IPs. Most of them would have paid significantly more than I did for their first apartment/house and they would all be in various stages of NE yet none seem to have any issues now getting 500-600k for new mortgages - obviously I don't know their circumstances - is it simply that they must all have large lump sums of 100k plus? Is that the only way people are getting 2nd properties today?

 

[Brendan Burgess]

The lender is/was Halifax now Bank of Scotland and we're dealing with Edinburgh. I'm pretty sure our tracker is ECB plus 1.35 which should make it 1.4 right now?

It's a little complicated but my ex tells me the mortgage payment each month now is 876 (I was rounding above). I don't get access to the account (perhaps I should) so I am relying on him in this case but since I do the tax returns each year I get the interest statements and they have always been correct before - recent reductions as ECB rate has been cut. So I will check this but our tracker is definitely not ECB plus 2.65 - I'm almost certain it's 1.35.

The figures seem to conflict. The only way to resolve this is to look at the annual statement. You absolutely must get this. How do you know he is paying his share?

€255,000 @ 1.4% for 39 years would be €707 per month in total, i.e. €350 each.

OK, the 39 years is probably the original term, so you have 30 years left?
€255,000 @1.4% for 30 years would be €868 per month in total. Are you paying half of that?

I still think you must get the statements.

You are paying about €6,000 a year off the capital, so it will take a while to wipe out the negative equity, unless the value of the house rises.

When we tried to make an overpayment a couple of years ago, the bank told us there would be a penalty.

This makes no sense, unless you were on a fixed rate at the time. The lenders want people to overpay their trackers, so try again.

As it's a Bank of Scotland mortgage, there is no point in you taking it over. The objective in taking it over was so that you could switch it to a new house. But BoS don't allow this.

 

[2ndtimer]

Yes, we have 30 years left. I will get the annual statements shortly anyway for the tax return. 868 seems to make sense as the 876 figure my ex gave was last summer before last rate cut. Yes, I pay half of this each month. I know my ex pays the other half because the 650 rent goes into the rent account each month and is building up. So he has to be funding his half from his own money.

I will look into the early repayment again - if this is worth while then perhaps we could start paying the full mortgage plus the monthly rent received off each month (approx. 1,518). That would be an extra 7.8k p.a. off the principal. It would still take 5+ years to get the mortgage down to a level which might equate to the value. My worry is that I don't want to be committing large sums every month to a property with my ex - I want to keep any extra cash I have for my future with my fiance - probably nonsensical.

 

[Brendan Burgess]

It's a tough one indeed.

I think that the first step should be for you or for your fiancé to apply for a mortgage to see how much you would get. If that gets you the house you want, then focus on that.

If, as I suspect, you will need to be rid of the house with your ex, try to encourage him to join you in overpaying the mortgage. The sooner it is paid down, the better you are financially and personally.

Brendan

 

[2ndtimer]

Thanks Brendan. I suspect I'll have to be patient!

 

[2ndtimer]

Hi Brendan / anyone else who wants to help! It's just over a year since I posted and wanted to give an update / ask for advice on latest situation.

Nothing much from the above has changed other than the following;

1. Divorce is currently in progress with a court date expected soon - yay!
2. I still own the investment property with ex - mortgage is now 249k and value has probably increased a little bit, probably to approx. 120k (conservative).
3. Savings with partner are now €85,000 (we would have had more but an expected event happened so had to dip in a bit). Still no other debt.
4. My salary has increased to €98,250 and partner's has increased to €92,500 so we have upped savings and expect to have close to €130,000 by the end of this year.

We decided not to go to a bank last year as we didn't want to be disheartened by what they might say. Divorce has taken longer than expected as I tried to see whether I could take over the mortgage of the IP on my own and ex was having none of it. He wants to retain his interest until such time as it makes him a profit (not just clear loan) and he blocked that particular course of action. He has no need of another mortgage as has free accommodation so is happy with status quo. So I gave up on that.

So now - my fiance and I (we will get married as soon as divorce is through - registry office job so no savings for a 30k wedding ) want to start a family (I am 34) and we would ideally like a house before any baby is born (fingers crossed). We have an appointment with a broker but I am just wondering what we could do to plead our case other than continuing the savings. As previously outlined above, I don't want to overpay the tracker on the IP as ex is not doing so and is refusing to take his name off the mortgage. So we are simply making the monthly repayments and rent of 650 is received every month. Tax etc all up to date.

Figures
Salary (me) - 98,250
Fiance - 92,500
Savings - 85,000 (potential for lump sum of 20k from family offer still stands)
No other debts
Mortgage on IP - 249,000
Value - 120,000
Monthly mortgage - 845 tracker (1.35 over ecb)

House we want to buy - family home - between 570k - 620k realistically

 

[Sunny]

Go to a broker. You might have to jump through a few hoops but all the banks will be keen to try and make it work on those salary levels. They will want the business.