# Trading up and going broke



## Skyline (27 Jul 2009)

Age: 36
Spouse’s/Partner's age: 33

Annual gross income from employment or profession: 55000
Annual gross income of partner: 65000

Type of employment: Civil Servant, partner: private sector, 

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

Rough estimate of value of home 320-340K
Amount outstanding on your mortgage: 383K
*What interest rate are you paying? 2.3%*

Other borrowings – None

Do you pay off your full credit card balance each month Yes
If not, what is the balance on your credit card? 

Savings and investments: around 95k cash, 5k stocks

Do you have a pension scheme? 
Yes Defined Benefit, souse also has generous penmsion scheme with employer

Do you own any investment or other property? Just our PPR

Ages of children: None

Life insurance: Yes


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


We are living on the outskirts of Dublin in our house of 3 years. Obviously we are in negative equity, although its difficult to know by how much. House in the estate are on sale with asking prices of 320 - 375, depending on how eager the owners are for a quick sale. We paid 400 for our house in feb 2006.

We have always wanted to move to a particular area of Dublin where we rented for a 2 years and buy a house to live our lives there. This was always a dream but as a result of the crunch, there are some 30 year old "in need of modernisation" types of properties coming on stream at something approaching realistic prices. One house was guiding at 850 and dropped to 575 before going sale agreed, so there is room for manoeuvre. Good houses in this neighbourhood were guiding over a million at the peak of the boom.
Although we are not desperate to move from where we are now, we feel that its coming close to the bottom of the market although we know we could be way off. We are thinking of going for one of these houses if the opportunity arises. This leads to my questions.

1. Given our negative equity, am I right in assuming that the bank will insist that we equalise our equity before we have any chance of another mortgage? 

2. We would rather rent out the current place than sell as I believe that property prices will start rising again eventually (years away). Am I correct that there will be no claw back of stamp duty?

3. We have a tracker owner occupier mtg on our current house. What will we need to do if we move out regarding this mortgage? Would we be better off to change to interest only on this?

4. From your experience, what mechanism will the bank use to value the current house? The amount of equity we need to put into the house will make all the difference in making numbers add up for the purchase of the upgrade.

5. The whole experience would leave us with equal equity in one house, 8% equity in the upgrade house and zero cash. Are we mad? We can gather cash reasonably fast between our salaries and partners bonus, but it would be scary for the first while. Has anyone been through this?


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## chlipps (27 Jul 2009)

This sounds crazy to be honest... Currently you are approx 280k in debt (380-savings)... If you decide to purchase a new house but retain the old house, then you are adding over 600k (stamp, fees etc,,) to your debts giving total debt of nearly 900k. That is huge debt to be taking on in current climate and no allowance in these figures for modernisation... Not to mention job security.


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## niceoneted (27 Jul 2009)

I think this is very unrealistic to be thinking this way. It is a lot of debt to be taking on. Have you spoken with your own bank or another bank in relation to this yet as I do not believe it would be viable. 
I would tend to use about 80K or so to pay off your current mortgage thereby reducing mortgage payments and bringing your current house out of negative equity. 
I would then save like mad. If it is the house you want gather as much together as possible.


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## mtk (28 Jul 2009)

House prices are down around 40% from peak so i think the 400k is more like 240k at this stage. just what i see around me.......


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