# Trading up when in negative equity??



## Tom Nestor (7 Mar 2011)

Age: 43
Spouse’s/Partner's age: Single
Annual gross income from employment or profession: €130,000 (current)
- reasonably secure

Type of employment: e.g. Full Time PAYE

In general are you:
(a) spending more than you earn, or
(b) saving?

Saving regularly

Other borrowings – car loans/personal loans etc
No loans or credit card debt. 
Low maintenance lifestyle.

PPR - Mortgage = 445

        - Value = 325 approx

Tracker rate currently 1.85%

Approx monthly repayments = 2100

Savings and investments: €150,000
Do you have a pension scheme? Yes - but only 5 years into that so need to compensate elsewhere 

Do you own any investment or other property? 
Yes

Investment Property 1 
Mortgage = 180k  (16 years left)
Value = 260k approx

Investment Property 2
Mortgage = 80k  (13 years left)
Value = 160k approx

Investment Property 3
Mortgage = Nil
Value = 180k approx

Both  investment mortgages are on variable rates with ICS, and clearly will be subject to serious  increases over the coming years, together with the elimination of property reliefs. That said, both are pretty much paying  for themselves, and in Dublin city centre locations which easily rent. I have spent a few quid in capital improvements in recent years.

Ages  of children: None. 

What specific question do you have or what issues are of concern to you? 

I'd like to  look at moving over the next couple of years, as Im not keen on the house I bought in 2007, and try to use the stamp  duty changes to trade up to the type of house that I couldn't afford 5  years ago. Some people see the current slump as an opportunity to trade up but I dont know if a bank will be interested in giving me a new mortgage - Id be interested in views/experience in this area.

Am I mad? Please give me a reality check if so.

I'm  thinking in terms of houses that are currently 450k to 500k (ie around  the same level as my current mortgage - the repayments on that dont stretch me in my current situation and were actually 50% higher back in 2007).

Im  conscious that any move would lose me the (very valuable) tracker but I wonder whether it is true that the bank  (UB here) might be happy to do a deal on a new mortgage to get rid of the  tracker from their books.

Any thoughts welcome, folks.


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## peterwilson (14 Mar 2011)

Tom Nestor said:


> Im conscious that any move would lose me the (very valuable) tracker but I wonder whether it is true that the bank (UB here) might be happy to do a deal on a new mortgage to get rid of the tracker from their books.


 
That was my first thought.
I'd say they'd be interested alright.
Ring them up and see what they say.

On a seperate note I did what you're planning to do.
Sold PPR and had to fork out 60K to cover the negative equity. 
Bought just before Christmas, availed of new stamp duty and very happy now 

It's tough to take the hit but if the PPR is not where you see yourself then why dtay there?


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## Brendan Burgess (14 Mar 2011)

Summary 


 |value|mortgage|equity
PPR|325|445|(120)
Investment 1|260|180|80
Investment 2|160|80|80
Investment 3|180|0|180
Savings|150|0|150
Total|1075|705|370Ulster Bank will not allow you to transfer your tracker to another home. It's possible, just possible that if you sell your Investment 3 and pay off the negative equity  on your PPR, they might give you a mortgage on a new home at a favourable rate. Very unlikely, but you could ask them. 

Brendan


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## niceoneted (14 Mar 2011)

You have enough savings to cover the negative equity in your PPR if it sells at teh right price. 

You are in a favourable position with the 3 investment properties, so I would keep going with them as I'd say they will pay for themselves in the end. 

You will not get a new tracker but they may be willing to give you a competitive fixed rate for paying of the tracker with such a high balance. 
If the PPR you are in is not the house you want to be in and you know where you do want to live and the type of house I would sell and move.
I would try not to strectch the new mortgage too much. 
The only way you know you will get a new mortgage is to visit the banks so set up those appointments.


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## Brendan Burgess (14 Mar 2011)

If you don't like the house you are in, you can sell it and rent for a while.

You will still have exposure to the Irish property market with your three investments.


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## Bronte (15 Mar 2011)

As you are a high earner your rents are being taxed at the highest rate.  Property 3 has no mortgage.  Your home, would it rent for at or near the mortgage amount, would the bank be happy for you to make that an investment property?  Would they allow it if you put some of your savings against it.  You need to have a chat with the bank.  As far as I know Ulster Bank only loan 50% for investment properties so the fact your borrowings are more than that at value of 925 versus mortgages of 705 may go against you.  But your track record on the mortgages and investments look good so you'll have to see what the bank says.  On your income can you pay for a mortgage on a new property and service the mortgages & tax on the other 4 or would you be better off selling one of them.  You'll have to do the figures on the various options. Your tax will come down on the rentals if your home is rented as you'll be able to write off 75% of the mortgage interest on that.


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## Tom Nestor (16 Mar 2011)

*Trading up*

Many thanks for the replies.

Just to be clear, I am about to sell investment property 3. Assuming I can dispose of it for even say 170 (there are no tax implications) that can be added to 150 savings to give 320. Without that successful sale, I wouldn't contemplate approaching my bank.

Even if I cough up 120 in negative equity, I should hopefully have approx 200. Id hope to put 150 approx of that towards the new PPR - and look for a mortgage of approx 350k. So whilst Id lose my tracker, the plan is to have a smaller mortgage. In view of my salary etc, Id hope that UB would look favourably.

I completely agree that I need to talk to the bank - I was just trying to figure if there was much experience of ppl actually trying to trade up from my situation and the type of response they were getting.

To pick up on one point, my main concern with renting the PPR is whether Id lose my tracker. Id be more than happy to move (back) to Investment Property 2 which is far more convenient to my relocated job but I need to work through the financial implications - in terms of rental income versus loss of tracker versus loss of excellent tenants, etc.


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## Brendan Burgess (17 Mar 2011)

A few points

You say that there are no tax implications on selling Investment Property 4. I assume that you are not making a capital gain? If by any chance, you are making a capital gain, it would make sense to sell one of the other properties as you could set any loss the capital gain on Property 1.

Check out the threads on renting out your home. Unless the terms of the mortgage say that you will lose your tracker, then you won't lose your tracker. 

€925k is just too big an exposure to the property market. So you should  sell a few properties.

If you would prefer to live in Investment Property 2, then you should tell your tenants that you are moving there on termination of the lease. 

You are well off. You should be living in a home which you like and which is convenient. Given your complicated property ownership, this may take a bit of time to achieve, but you should put a plan in place now to achieve it.

Although the cheap tracker is a good reason for not selling your home, the fact that you are living there would make it easier to sell. It's hard to sell a rental property.


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## Bronte (17 Mar 2011)

On your last post your plan is to sell property 3 which makes sense.  You are currently able to service a mortgage of 445K at 1.85% which costs 2100 per month.  How much will 350K cost you at say 5% and stress test up another 3 to 8%.

On the question of whether you are allowed to keep the tracker on an investment, check your terms and conditions.  Tell us which bank it is and other people with the same bank will give you an idea of whether you'll have to fight the bank to keep it.  Many people including myself are fighting banks about the rates they are charging for investment properties.  There is a whole other thread on this.  

I do not think you are over exposed to property, you are well able to manage the mortgages and rentals and tax it looks like based on the no mortgage, the 13 years left and the 16 years left.  You are saving, you can afford a large mortgage on your PPR.  But you may need to look at investing in a good pension or something else to diversify.  

As previously stated why don't you do out the different scenarios and see what works the best financially.


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## Brendan Burgess (17 Mar 2011)

Bronte said



> I do not think you are over exposed to property, you are well able to manage the mortgages and rentals and tax



Tom can certainly meet his repayments, but I don't think that means that he is not overexposed. I would agree that he is not badly exposed in that he can handle price falls and drops in rental. 

But he wants to live in a nice house and he can well afford to. But he has too many properties and his mortgages are too high to allow him to do so. He needs flexibility, so I think he is overexposed. If he had fewer properties, more cash and lower borrowings, he could buy the house of his dreams.


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## Tom Nestor (20 Mar 2011)

*Trading up*

My tracker is with Ulster Bank - any pointers on how they might deal with a change in status would be appreciated.

I completely agree that stress testing to those levels suggested by Bronte is sensible.

I'm not going to disagree that Im over exposed to property. However my plan is to reduce by getting rid of one investment property to improve my PPR - the other two are investments which were bought at a reasonably good time, are very well located and will continue to rent easily. For me, quality targeted property investment remains a decent long term option especially when set against the options available from equity investment or from the long term investment portfolios (in which I simply have zero confidence).

I confirm there is no capital gain on IP No 3.

I have no urgency with implementing my overall plan. Whilst my present PPR isnt my ideal, its still a decent property and I can happily live here for another year or two in an effort to boost my cash position and possibly see further price drops which might assist my strategy.


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