# Selling when in negative equity



## Marianne S (2 Jul 2008)

*Age:* 27
*Partner's age:* 28
*Annual gross income from employment or profession:* 40K
*Annual gross income of spouse:* ~30k

*Type of employment:* Me permanent HSE employee, him self-employed

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

*Rough estimate of value of home: *300K

*Amount outstanding on your mortgage: 300K.* We've been paying it off for a year and a half now, initially LTV was 92% but prices have dropped

*What interest rate are you paying?* 5.1% tracker, 5.35% from Thursday if Jean Claude Trichet gets his way

*Other borrowings:* Partner has a car loan, 4 years left, fixed rate

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

*Savings and investments:*I save €500/month, he saves slightly less, we have 14K currently in high yield deposit accounts

*Do you have a pension scheme? *Both of us have, mine through work his is a private pension

*Do you own any investment or other property?* No

*Ages of children:* None

*Life insurance: *Level term


*What specific question do you have or what issues are of concern to you? *
We are generally very prudent with money and have done fine so far. Our main issues are saving to get married (next year hopefully) and moving to a bigger house. What we'd like to know is if we are in negative equity when we go to sell eg house is worth 250K but we owe 300K how does it work? We won't be able to clear the mortgage on property A with the proceeds from its sale so how do we buy property B and come up with a deposit? It will not be feasible to continue living in the 2 bed house we are in now when we start having children, it might be ok with one small baby but we will need a larger house in the next few years.


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## GOBSTOPPER (3 Jul 2008)

I personally think you should sit tight (3-5 yrs)and possibly extend if you need more room. whats the rush ? 3-5 years will pass very quickly and if you focus on getting married and having that child and live your life . Now is not the time to sell. People who have gone into negative equity only feel the pain if they sell .Once you can pay your mortgage and pay the bills and throw in the odd holiday your sailing.Take the long view and you will be fine ,and you might even make a profit when you do sell.


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## television (3 Jul 2008)

If the area is nice and your happy with it, then Id aggree with GOBBStopper. Extend stay the course. Dont sell.


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## Marianne S (3 Jul 2008)

Thanks for your replies, it's good advice. Unfortunately extending isn't an option, even if we could afford to. It is definitely a starter home and would be extremely cramped with three of us, one of our 2 bedrooms is used as an office for my partner. We will sit tight for as long as we can but I was wondering how the banks treat situations like ours


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## demoivre (3 Jul 2008)

Marianne S said:


> We will sit tight for as long as we can but I was wondering how the banks treat situations like ours



You won't have a choice imo. The bottom line is your house is the bank's security for the loan they gave you to buy it - they won't release that security until all the money is repaid.


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## demoivre (3 Jul 2008)

> =GOBSTOPPER;661124 People who have gone into negative equity only feel the pain if they sell .



The reality is, unless you can come up with the difference between what you owe on the property and what you get for selling it, you won't be  in a position to sell in the first place.


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## Brendan Burgess (3 Jul 2008)

Hi Marianne

I think that you will have to accept that moving will not be an option for you for some time - probably at least 5 years. 

Two things must happen. 
1) You will need to get rid of the negative equity.
2) You will need to save up the deposit on the new house. 

Start by paying your savings off against your mortgage if the interest rate you are paying is higher than the interest rate you are receiving. 

Your partner should also suspend making any payments into his pension fund. Getting rid of the negative equity should be a priority. Apart from anything else, it will be very psychologically satisfying to get rid of it. 

But the main point is that you will be waiting at least 5 years and you might have to plan your family on that basis.

Brendan


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## efm (3 Jul 2008)

Marianne S said:


> What we'd like to know is if we are in negative equity when we go to sell eg house is worth 250K but we owe 300K how does it work?


 
Just to answer the question - what would happen is you would sell the house for 250k and you would be indebted to the bank for the remaining 50k which you would have to pay off



Marianne S said:


> We won't be able to clear the mortgage on property A with the proceeds from its sale so how do we buy property B and come up with a deposit?


 
Simple answer is you can't unless your financial circumstances change dramatically.


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## amgd28 (3 Jul 2008)

The only potential option I can see for you is to rent another property while renting out your exisiting one. 
This is not without its risks however and potential financial pitfalls


Would the rent on the existing property meet your mortgage repayments?
Would you be able to afford rental voids, where no rent comes in put the mortgage still must be paid?
would you be comfortable raising a family in a place you are renting?
How would you feel about getting calls from a tenant if/when a tap leaks etc?


Just one more option to throw into the mix - I am not advocating that you go this route, but just that you may not have thought of it as an option


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## FredBloggs (3 Jul 2008)

The above advice re not selling now is bang on.  Simply the bank won't release the deeds to your house until they are paid in full.  The advice for your partner to pay against the mortgage rather than into his personal pension is a good one.  Also putting a good proportion of your savings against the mortgage is worth doing.
On a practical note though if you start a family you could get away for about 3 years having the baby/toddler in your room if you've room for a cot/small bed.  That plus pregnancy will give you 4 years plus (add on a bit for trying!).  Not quite financial advice but just wanted to say the picture isn't all that black.


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## television (3 Jul 2008)

amgd28 said:


> The only potential option I can see for you is to rent another property while renting out your exisiting one.
> This is not without its risks however and potential financial pitfalls
> 
> 
> ...


 
I thought about this too but I dont think rent will cover that kind of morgage. So that is not an option.


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## amgd28 (3 Jul 2008)

Tou may be right about that, I don't know. In any case were the op to sell and trade up (wer ethe circumstances to allow), the OP would be faced with increase outgoings.
The question is whether the increased monthly outgoings in the scenario of the OP getting her wish and trading up by selling and buying would be greater or less than renting our current property and taking a lease on a larger property.

So the calculation can be defined as, roughly:

Sell and trade up (not possible, but calculate for theoretical reasons:
(Trade-up house value (inc stamp) - selling house value)/Outstanding mortgage * current mortgage repayments = *A*

OR

Rent current property out as landlord and rent out larger property as tenant:

Rent Payable + current Mortgage -Rent income *0.75 (allow 25% for voids, maintenance etc) = *B*

Basically what I am saying is if B is less than A, then regardless of whether the OP _could _trade up in the traditional manner, she may be better off not doing so.

But option B is still an option in her case and option A is not


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## Mr DT (3 Jul 2008)

You just have to stay where you are!! Simple really. 

I know plently of people who raised a family in a two bedroom house to start!! 

You may have had plans to move on but the situation you find yourself in now is that you can't, so you will have to survive with what you have got.

Bringing up a child is about the care, love and support you give them, as as far as I know this is all free. It's NOT about how big your house is and the number of rooms you have.

I understand you're plans where diffrent to what you now face and that must be disappointing, frustrating etc. 

A lot of people have been living a dream but reality is just starting to kick in.


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## television (3 Jul 2008)

Mr DT said:


> A lot of people have been living a dream but reality is just starting to kick in.


 
You can sill live the dream and the reality can be great for you.


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## Flax (3 Jul 2008)

Mr DT said:


> I know plently of people who raised a family in a two bedroom house to start!!


 
People used to raise a dozen children in two bedroom homes. 

I don't understand why a toddler needs her own room. Can the baby not just share the office with your partner? Or sleep in your room?


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## efm (3 Jul 2008)

Flax said:


> People used to raise a dozen children in two bedroom homes.


 
Are you advocating a return to tenement housing?   Just because "people used to" doesn't mean they still should 



Flax said:


> I don't understand why a toddler needs her own room. Can the baby not just share the office with your partner? Or sleep in your room?


 
There is nothing wrong with someone aspiring to have a comfortable and spacious existence - at least the OP had the good sense to come on here and ask the question before doing anything specific


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## Daveydoris (3 Jul 2008)

I have to agree with Flax and most of the other posters - in an ideal world we'd all live in 4 bed semi-detached houses then start to raise our kids...looks like people just have to face up to reality at the moment.
I know lots of people living in 2 bedroom houses\apartments with kids ( some more than 1). Granted, its a little crowded at times but its no big deal...life has to go on, regardless of the size of your house. 
Life would be a lot more difficult for the family if mammy\daddy are struggling to pay a mortgage every month on their lovely semi-d ;-)
In my opinion, stick with it for a few more years and see how things go.


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## Flax (3 Jul 2008)

efm said:


> Are you advocating a return to tenement housing?  Just because "people used to" doesn't mean they still should


 
No what I was saying was you don't need a bedroom for each child. We've become quite "soft" in Ireland (sorry, don't know a better word for it!) if we are bothered when we can't have the best case scenario.

We should be able to compromise when we can't have the perfect solution.



efm said:


> There is nothing wrong with someone aspiring to have a comfortable and spacious existence - at least the OP had the good sense to come on here and ask the question before doing anything specific


 
Of course, but she doesn't _have_ to move to a bigger house. Kids don't understand the concept of "oh my god I have to share a room with someone". I shared a room with my brothers and I didn't even notice this was not ideal.


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## MortgageGuy (3 Jul 2008)

one way to definitely realise a loss when the value of your house is below that of the mortgage on it is to sell. in fact, you would need to finance the sale, you can't clear the mortgage at present so you'd have to find funds for that, so the only prudent advice is to sit tight.


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## Lsquared (4 Jul 2008)

If you redirect  your savings to your mortgage and begin overpaying it, you should be able to erase your negativity equity to at least a zero sum so that you can sell if you need to in a few years. If trading up in the next few years is a real priority for you, you might want to rethink the wedding expense that you have been saving for - try a small wedding and plan a small, low key affair to save money. Also, from the time that my husband and I tried to start a family and the birth of our first child, several years had passed. Sometimes things just dont fall into place as one hopes. So hunker down, work on putting as much money as you can into paying down your mortgage debt, then if you find that you just must move while still in negative equity, perhaps you can rent a larger place and rent out your own smaller home until until such time as you are in a position to purchase again.


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## onekeano (4 Jul 2008)

Hi, sorry to read about your situation, I suspect we'll be seeing more of this over the next 12 months or so. Personally I would plan staying put for the forseeable future. A couple of points:

a) if you plan having 1 or 2 kids in the next few years, thats a serious hit on the cost of childcare from what I understand (maybe €1.2-1.5k + per month?). Can you afford that right now? If so, can you you afford to start putting that off your mortgage right now to reduce the chances of negative equity. If you can't afford to do that right now - can you really afford to have 2 children in the next few years?

b) your spouse earns 30k gross per annum - having an office which takes up a bedroom is a serious piece of real estate to generate an income of 30k. To be honest I coulnd't justify that myself for a salary like that.

c) can you or your spouse generate bextra income by changing job or getting a part time job which would help to drive down the outstanding mortgage. Years ago getting a part time job was pretty normal to help pay bills but it seems so 70s/80s now.

Apart from that suspending pension contributions to pay down mortgage sounds like a good idea but I do think you need to readjust your expectations and plans to take account of circumstances. You're still young, this will be one of several speed bunps you'll hit along the way and you'll need to be realistic to be happy.

Hope it works out
Roy


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## Marianne S (4 Jul 2008)

Again thanks for all the good advice. We're not on the breadline or anything, we're well able to pay the mortgage we have at the moment and save money and are living very comfortably so unless we go to sell the negative equity issue isn't an issue. People who bought 10 years ago would have raised enough equity to upsize within 3 or 4 years and i was wondering what happens when you don't have that equity. We'll be following advice and sitting tight and in the mean time will try to redirect as much money as possible into paying off capital so at least we have a bit more leeway.


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## Daenis (4 Jul 2008)

I know this is a while down the road but when you need the additional space, perhaps your partner could rent a room elsewhere for his office space, as he is self employed the cost would reduce his profit and therefore his tax bill.


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## z109 (4 Jul 2008)

What is likely to happen is that you will drag the negative equity around with you. This is what I believe happened in the UK in the 1990s following the housing crash there. 

The situation would be that you take the amount owing after the mortgage on one house and add it to the mortgage on the next house you buy. From the banks point of view, it shouldn't matter which house you are in negative equity on.

So, it is worth approaching your bank and seeing in what circumstances they would be willing to countenance this. They may say no. If they do, go back to them every three months and check again. In the meantime, the advice to reduce the negative equity by overpaying as much as possible is good.


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## Complainer (5 Jul 2008)

Daenis said:


> I know this is a while down the road but when you need the additional space, perhaps your partner could rent a room elsewhere for his office space, as he is self employed the cost would reduce his profit and therefore his tax bill.


What's the benefit in reducing your profit (=income)?


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## gabsdot (5 Jul 2008)

You could consider a sheomra type thing in the garden to house the office. That would free up some room in the house. Or if you can convert your attic


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## Daenis (5 Jul 2008)

Complainer said:


> What's the benefit in reducing your profit (=income)?


 short term measure, having the extra space for a baby, pay less taxes and prsi which if they are in the high rate could be more cost effective than moving to a bigger house while accepting a 50,000 loss on their current house.  I'm not suggesting a fancy office in the middle of the city just the same situation a room perhaps in a friends house or one in their locality.


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## Cheeus (6 Jul 2008)

Voluntary redundancy with HSE when they start that? Would it be worth your while and could you get a job easily somewhere else? If you're planning on having kids maybe you'd be thinking of not working anyway?


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## Complainer (6 Jul 2008)

Daenis said:


> short term measure, having the extra space for a baby, pay less taxes and prsi which if they are in the high rate could be more cost effective than moving to a bigger house while accepting a 50,000 loss on their current house.  I'm not suggesting a fancy office in the middle of the city just the same situation a room perhaps in a friends house or one in their locality.


I see the point about extra space, but I don't see any benefit in paying less taxes/prsi, given that they would end up worse off in the end, i.e. less gross income and less net income.


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## BoscoTalking (6 Jul 2008)

Lsquared said:


> If you redirect  your savings to your mortgage and begin overpaying it, you should be able to erase your negativity equity to at least a zero sum so that you can sell if you need to in a few years.


It will be tough and scary but I think it probably is the best thing to do.  





Lsquared said:


> If trading up in the next few years is a real priority for you, you might want to rethink the wedding expense that you have been saving for - try a small wedding and plan a small, low key affair to save money.


 Honestly this is a nobrainer. I have heard of at least 2 people this year who went on holidays and came home married completely sidestepping the whole moneygrabbing shindig that Irish weddings have become. If its not an option and my father was was devastated when I suggested it you can do the immediate family to the church and book a small room for dinner in a local hotel. My friend did that - the neighbours got over it, one odd auntie does not speak to her as a result (result) 





Lsquared said:


> Also, from the time that my husband and I tried to start a family and the birth of our first child, several years had passed. Sometimes things just dont fall into place as one hopes.


 So true. Bigtime!.


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## lanie (7 Jul 2008)

What about taking a loan out to clear the neg equity amount (if affordable). I know it may be a bad idea to clear a debt with a loan but it may be an option.


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## mainasia (10 Jul 2008)

I'm not financial expert but it really depends on which way you think the wind is blowing, will prices go up or down. Now if you feel the wind of global recession blowing in your face you may guess yourself. At that stage it seems to be taking a loan out at the cheapest interest rate possible and selling the place and then renting and saving for a few years makes more financial sense. As I said I'm no accountant but can anyone point out if my logic is wrong here i.e. if she stays where she is she is only getting into a bigger hole if the trend is down. Almost all the above evaluations except the last poster seemed to ignore this logic, whereas to me it seems the negative equity will increase if you stay where you are. And in that situation it will take you much longer to be able to save for a deposit for a new bigger place, therefore I would take their advice very carefully, I don't see any bank in Ireland giving out loans to people with existing negative equity, they are hardly giving out loans full stop. Maybe you don't want to go back to renting and feel more comfortable in your own place but you may put your future dreams on hold that bit longer by staying put, as some of the posters said it may also an idea to adjust your own ideas of what size house you need.

I don't have property and live outside the country, I'm just trying to give a balanced view here.


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## Susanna (22 Jul 2008)

You are both young,don't sell now. Children appear to be your main priority and they are expensive,if you move you may be forced to do extra part time work to pay the bills and be caught paying childcare costs when you do so. As time passes your house will not be in negative equity and your wages should increase making mortgage repayments easier and savings easier.


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