I will give this a shot, but there are many variations and people are in all different types of situations so the below can be considered in the round. Each situation is different so case by case evaluations needed. No doubt others may well have different views, opinions and inputs. All welcome.
Introduction – Where does one start? Contrary to much of the negative publicity out there re property, the current environment may indeed offer an opportunity to people who bought property in the boom time to move now for a much lower cost than applied in the boom.
It may actually allow people who organised their financial affairs reasonably well and were sensible to buy a property today, sell the one they bought, and end in a more attractive financial position than may have been possible for many years, and in a house that is more to their liking, etc.
Critical to this though is the need to be in a reasonable financial position to start with and to have retained employment, manage outgoings, manage financial affairs carefully, etc.
As many people are in negative equity, this alone does not prevent people upgrading to a better house/location, if things are managed carefully and the figures are worked out carefully. Critical of course, is ‘buy-in’ by the Banks and the need to present a persuasive case to them, well supported with facts and figures.
Renting vs Selling- The idea that the Laois house may be rented while renting in Dublin may not be the best one. Have you considered selling in Laois and buying in Dublin? While initially this may seem daft, unrealistic or not do ‘able, it may or may not be. At least work through the various alternatives in the general case.
Renting is a tough business and unless you’re in it for the long haul you should at least consider the alternatives. My inclination is to steer clear of renting out your own house in Laois for anything other than a short period if it can be avoided, unless you want to be a landlord and are prepared for it, including the financial and practical consequences. Your reasonable question re use of an agent is suggesting to me you don’t want the ‘hassle’ which is fair enough.
Clearly, if it is not possible to sell fair enough, but there are significant costs with renting (as pointed out elsewhere).
Location, Location, Location - The user in this case works in Laois but works in Dublin. I am assuming that their ‘hub’ is Dublin and that is where they want to be. Clearly if they wish longer term to be in Laois that is a different proposition. The key first question is where they see themselves longer term, if it is in Dublin then they should/can work towards that.
Existing house - Guessing that they bought sometime in the boom and are in negative equity. No idea how much, but if a reasonably standard 3 or 4 bed house, negative equity assumed at €80-100k is probably not unreasonable. Ouch! If the negative equity is less than all the better.
Mortgage - Assuming that the existing mortgage is up to date and it’s an annuity mortgage (i.e. also repaying capital, not an interest only mortgage). No indication of mortgage type could be a tracker or other. Key point is that whatever the existing mortgage type that at least that portion is retained. That is, if on a tracker in Laois that the Bank will allow the Borrower to retain the tracker up the existing level, while moving house. Any additional mortgage may be SVR or some fixed rate.
Income and personal budget – Trying to get a handle on incomes and costs. He uses the expression ‘We’ so taking it that it is two people, two incomes, no mention of children so assume there are none at the moment. Currently commuting from Laois to Dublin so there is a considerable cost associated with that. Hard to estimate but if one commuter probably costing at least an additional several hundred euro per month, in petrol, cars costs, and other ancillary (e.g. food take-outs, tolls, etc). Fair to say that it is costing much more than one would imagine. If there are two reasonable incomes at least that may offer the prospect of considering alternatives.
The critical thing is to set out, as accurately as possible, the current monthly budgets, incomes, all costs, etc, to get a proper understanding of the existing financial position. This is an important step, and indeed the Bank will require it. It will also be helpful to show you are on top of your financial situation, etc. Break out the costs as much as possible, but be realistic. Do not take unreasonable views. If currently you are not saving then do not compile a budget which suddenly shows an ability to save unrealistically.
Illustrative Example - Central to any decision is a thorough evaluation of the financial impact. It would have been helpful if financial information had been posted above, but in the absence I will use example figures to illustrate. Following is a hypotheses/illustration only, assuming that the house in Laois is sold and a new house in Dublin is purchased. I have tried to make reasonable assumptions around house prices, and rates, though clearly it is possible to take any range of options and assumptions.
Existing house - assume bought in 2007
Cost in Laois - 2007 €300,000
Value today - say 50% reduction from 2007 €150,000
Annuity mortgage of 90% €270,000 Assume 25 year termTracker ECB +1.25% (i.e. 2%)
Approx monthly repayment €1,150
If not tracker, say SVR of 4.5%Approx monthly repayment €1,450
Mortgage balance outstanding in 2013 - range of (depending on repayment type/levels) €210,000 - 230,000
Negative Equity in 2013 approx range €60,000 - 80,000
New House Purchase in 2013
Cost in Dublin - 2013 €250,000 (2007 cost approx €500,000, assuming 50% reduction)
Mortgage - 90% €225,000
Negative equity (midpoint) €70,000
Total mortgage required €295,000
Assume Bank allows Tracker to be carried to new property
New 25 year mortgage - €220,000 on Tracker 2% - Bal €75,000 SVR 4.5%
Monthly repayments approx estimated €1,350
(If all on SVR add another €300- 350 per month)
Comments on above:
1 Affordability – relatively unchanged. Increase in monthly repayments should be offset by lower commuting and related costs. Applies in the situation of a tracker or indeed a SVR mortgage.
2 Banks Security position – slightly improved. Previously the mortgage on the Laois property was about €60-80k higher than the property value. Now with the Dublin house that difference is lowered to about €45k. And without commenting on where house prices may go probably safe to say that the new house has been bought at a much lower cost point in the cycle. Apart from this difference, Bank may also take the view that a house in Dublin is infinitely more saleable than one on Laois. Hard to know how the Bank will view this or whether they will allow it.
3 Deposit - Question is whether the Borrower can take a deposit to the new house? Above assume a 10% deposit (25k). Perhaps unrealistic? In fairness I think a Bank would expect to see something being brought in terms of new cash, but it may be possible to rework the above numbers. There may be other factors that are attractive such as level of incomes, security of employment, etc that can be leveraged in discussions with the Bank.
4 Upgrade at lower cost than in the ‘boom’ - Outcome of above is an upgrade/move to Dublin at an additional cost of €100k over and above what the Laois house sells for (i.e. 250 less 150k). In 2007 this differential would have been €200k (500 less 300) based on the above example. Depending on quality of existing house there may be a need for a compromise on what can be bought in Dublin compared to existing Laois house, but this needs to be weighed up in terms of what is important; such as quality of life, less commuting time, less tiredness, closer to friends/family perhaps, etc.
5 Mortgage duration - Above illustrative example adds another 5 years to the overall mortgage length, however, so things such as age profile, other aspirations (e.g. kids), etc may well come into play and should be considered. The Laois property mortgage was a 25 year one commencing sometime in 2007 so would be repaid in 2032/33, while the new Dublin 25 year mortgage is assumed to be repaid in 2037/38.
6 Headroom and flexibility - Do consider what ‘headroom’ exists should mortgage rates increase or other circumstances change (e.g. loss of or reduction of an income). If things are already so tight then the above is probably not the way to go in the first place. Would not be changing pension arrangements if you are happy with them. Reality is you also need them and while they could be changed short term, this runs that risk that they will be put on the ‘long finger’ and forgotten. Important to retain a degree of flexibility as these arrangements are long term.
7 Renting - I have not set out an evaluation of the financials to consider the renting alternative as others have commented on that. But do take a look and run the numbers also. If this above is a reasonable proposition, I doubt that any short term renting of Laois and a house in Dublin will better it in terms of what you may be trying to achieve longer term. Financially I would surmise that in the longer term it may well cost you more also. May be for a short period to get things sorted initially and give some breathing space while you check out the options though.
8 Other – no doubt there are many other consideration and individual facts and circumstances to be considered.
Hope the above was helpful. It gives a flavour of the type of things to consider when in one property and seeking to move to another. The Rent vs Sell/Purchase is a key decision and should be approached carefully, with detailed consequences (practical, lifestyle and financial). Seek expert financial help as needed. All the above is illustrative only and there are likely to be other areas that have not been addressed above.
Finally, this example deals with a location move (Laois to Dublin), but the broad thrust of the comments and approach above apply equally well to other situations, e.g. someone bought an apartment as a ‘starter;’ with the intention of upgrading to a house at a future date. Given events they now find themselves in negative equity, needing a bigger place, etc.
