# negative equity and circumstances changed - advice please.



## morpheus (15 Jul 2008)

Hi all,

Myself and partner bought the house in Nov 2006 for 325K with a 100% mortgage.

Its now worth about 300K, 3 bed terraced house, back garden.

Our circumstances unfortunately changed and we broke up, now we find ourselves with a house which will cost us cash to sell.

Should we rent the house? Should we sell the house, these are the questions we are mulling over. 

Partner wants to stay in the house and rent 2 rooms (can you rent a box room?!!!) I think we should just finish furnishing the spare rooms and rent the whole place out. On the really bad days we consider selling it and cutting our losses.

Things are amicable between us and we can easily discuss these issues but I thought I would throw it out there and see what you thought?

regards


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## ClubMan (15 Jul 2008)

morpheus said:


> Should we rent the house?


Any use?

Sell home or keep as an investment?
Interest only mortgage for investment property
Property Investment FAQ


> can you rent a box room?!!!


Yes. Obviously the rent a room scheme only applies to owner occupiers where the rented room(s) bring in €10K p.a. or less in rental income.


> I think we should just finish furnishing the spare rooms and rent the whole place out.


Why? Have you crunched the numbers to compare the renting versus selling (presumably at a loss) scenarios?

Is your ex still living in the property? Where are you living?


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## MrKeane (15 Jul 2008)

One party should try and buy the other out, even if it means making a loss. Its best be shut of the whole thing IMO.


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## morpheus (15 Jul 2008)

im living back with folks temporarily. she wants to stay there i think out of convenience for work but its not that she isnt open to discussion on the issue. was considering buying her out (well its in negative equity) but doubt bank will allow me to retain ownership on my own, i earn circa 40k pa and reckon i can afford the monthly payments but dont think that is enough.


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## ClubMan (15 Jul 2008)

What about her buying *you *out?


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## groom (15 Jul 2008)

Its a no brainer. Cut your losses, take a relatively small hit and get out asap. Do you really want to be a landlord with or without your ex?


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## ClubMan (15 Jul 2008)

It's not necessarily a no brainer if one or other or both of the people involved (even if split up as a couple) are happy to remain living there for the forseeable future and can afford to service the mortgage in which case the negative equity issue is not necessarily relevant to their day to day circumstances.


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## FKH (15 Jul 2008)

I don't see how either one of you can buy the other out. If you need €320,000 to clear the existing mortagage and the property is valued at €300,000 no bank will lend you the money. The only option would be if either of you had substantial savings.

Also unless you have enough money to repay any shortfall in the mortgage if you sold it this isn't really an option either.

I'm guessing that if you rented the entire house it would more or less cover the mortgage which is why you want to do that. Remember though that if you rent the house as investors there may be some clawback of stamp duty if you paid none when you bought the house.

Only if you have reserves of cash is selling or buying out an option so you may have no real choice but to rent it out.


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## morpheus (15 Jul 2008)

we cant live there together and she is not in a position to buy me out. im willing to let her walk away considering there is negative equity of about 30k but was unsure as to whether i can take over the mortgage in that way.

yes you are correct in your assumption that we figure the renting may pay a large chunk of the mortgage until we are in a better position financially or until we sell on the house. we just dont know what the stamp duty implications are, we are currently recieving TRS too. we bought the house as first time buyers, but it was second hand so we paid the then FTB 3% stamp duty of about 9000 euro.


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## ClubMan (15 Jul 2008)

You bought in November 2006 so if you rent the property out (other than under the owner occupier rent a room scheme) before November 2008 then you are liable for a clawback of _SD _- i.e. whatever an investor would have paid less whatever you actually paid. If the property becomes a rental/investment property then you obviously cannot continue to claim owner occupier mortgage interest relief. The links that I posted above summarise many of the issues pertinent to converting a _PPR _to an investment. As I said you really need to crunch the numbers to assess the viability of the different option scenarios.


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## FKH (15 Jul 2008)

I would also say that the bank will probably not release your partner from the mortgage deed so she will still be jointly liable for the mortgage. To put the house and current mortgage in your sole name you will I believe need the bank's consent.


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## Persius (16 Jul 2008)

I think the investor rate of SD was 4.5% at that time. Though check with revenue.
So if you rent out before Nov 2008 you'll be liable to a 1.5% SD clawback


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## DerKaiser (16 Jul 2008)

Seems to me that a €40k salary wouldn't comfortably sustain a €325k mortgage.  I don't think turning it into an investment property is a solution either as it's a large gamble to take on a single type of asset.  I'd say if you can get out with a €30-40k loss between the two of you then do it! take the pain for a couple of years of paying off the balance and get on with your separate lives.


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## ClubMan (16 Jul 2008)

Would it be feasible for one of the existing joint buyers to bring in one or more other joint buyers to buy the other party out and remain living in the property? Just another possible option to look at...


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## Mick31 (16 Jul 2008)

Perhaps, you should leave it altogether; let the bank take it back!

Thta's what's going to happen soon on a much larger scale anyway


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## z109 (16 Jul 2008)

Mick31 said:


> Perhaps, you should leave it altogether; let the bank take it back!
> 
> Thta's what's going to happen soon on a much larger scale anyway


Ho hum, you are still liable for any short-fall on the bank sale versus the mortgage, the banks selling fees, their legal fees to take repossession etc. These will be a lot larger than taking a loss on the house and getting a personal loan to cover them. Plus you will be declared bankrupt and be unable to get standard credit for 12 years.


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## tink (16 Jul 2008)

Hi I had a friend in this situation and they decided to live together as there would have been a shortfall if they sold.  For a year everything was fine but as soon as he met someone else it fell apart, he was bringing his new girlfriend home and it was not a comfortable situation. Add on to this that you could have to hold on to this house for an unknown number of years I would sell up now. This is what a solicitor advised and he bought her out and she started with a clean slate.


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## horatio1 (16 Jul 2008)

It amazes me that people think that can still get a house valued and presume that they will sell it for that.The fact is you will be lucky to sell it at all.I would ask where you got the value of 300k as if you bought in 2006 at 325k it has fallen less then 10%? Are there many other houses in the area selling quickly? If it takes six months too sell you can knock another six% at least off the value. All things to consider but hope it works out.


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## ButtermilkJa (16 Jul 2008)

horatio1 said:


> ...
> I would ask where you got the value of 300k as if you bought in 2006 at 325k it has fallen less then 10%?
> ...


Not wanting to stray off topic but it is possible that the house gained value from 2006 up to €360k or €370k in early/mid 2007 and has now dropped to €300k. That's a 16%/17% drop  over the last 12 months. My point being, a 10% drop from 2006 levels does not seem unbelievable.

My advice would be to ride out the storm for the next few months until you are no longer faced with the possibility of SD claw-back and then consider your options. 4 months will come and go so fast that it won't be worth the €4.5k to sort things out now. If you're living back at the family home then presumably you can live rent free for those months and continue chipping away at the mortgage in the meantime.


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## Mick31 (16 Jul 2008)

yoganmahew said:


> Ho hum, you are still liable for any short-fall on the bank sale versus the mortgage, the banks selling fees, their legal fees to take repossession etc. These will be a lot larger than taking a loss on the house and getting a personal loan to cover them. Plus you will be declared bankrupt and be unable to get standard credit for 12 years.


 

The bank would charge you what???  They can put you on the black list and that's as far as it goes.


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## NicolaM (16 Jul 2008)

Mick31 said:


> The bank would charge you what???  They can put you on the black list and that's as far as it goes.


Well...no....Not correct..



yoganmahew said:


> Ho hum, you are still liable for any short-fall on the bank sale versus the mortgage, the banks selling fees, their legal fees to take repossession etc. These will be a lot larger than taking a loss on the house and getting a personal loan to cover them. Plus you will be declared bankrupt and be unable to get standard credit for 12 years.


All correct.
No further mortgages in foreseeable future, no loans will be possible, no overdrafts allowable, no credit cards gettable. 
Also still liable for outstanding money owed (and charges etc as above..)
This would surely put a bit of a damper on life, don't you think?


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## horatio1 (16 Jul 2008)

ButtermilkJa said:


> Not wanting to stray off topic but it is possible that the house gained value from 2006 up to €360k or €370k in early/mid 2007 and has now dropped to €300k. That's a 16%/17% drop over the last 12 months. My point being, a 10% drop from 2006 levels does not seem unbelievable.


 
Buttermilk,
             NOV 06 to Early/Mid 07 up 35/40k? The house must be 10 yards from a luas stop with a school accross the road and have nuns and a priest as neighbours either side!


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## Mick31 (16 Jul 2008)

Maybe it would put a damper on life, maybe it would not. Depends on an individual


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## NicolaM (16 Jul 2008)

That would make me a much less happy bunny anyway , don't know about you.
I'd be properly damped if I was excluded from doing all of those things I reckon.
I suppose at least you'd learn how to live a credit free life, you'd never have to worry about a car loan, and you'd make sure that you always had enough squids in the bank to cover all your bills, and wouldn't run up those nasty overdraft fees ever (the way sometimes happens after a very expensive month..).
Plus you could save all that interest from mortgage repayments, waste of money anyway


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## LDFerguson (16 Jul 2008)

Mick31 said:


> The bank would charge you what??? They can put you on the black list and that's as far as it goes.


 
If you think that a bank is going to walk away from thousands of euro and do nothing other than "put you on a black-list", I wish you luck.


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## Mick31 (16 Jul 2008)

Mark my words, and see what's ging to happen down the road.  

If you are a foreign national with a mortgage, all you need is a RyanAir ticket, is that correct?  

If housing market starts really goin' down, not many will be paying off their loans knowing they are throwing away their money.  As I said it depends on an individual...


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## NicolaM (16 Jul 2008)

Mick31 said:


> If you are a foreign national with a mortgage, all you need is a RyanAir ticket, is that correct?


I'm sure that is correct. If you want to fly out of the country, that is.
But I am also sure that a bank would quite happily chase a large debt up, even if out of this jurisdiction.
Relatively easy to do in the EU I would guess, and I'm sure would certainly be done beyond EU if more than a few thousand.
I'm not sure how realistic you are being, Mick, no offence intended.
Nicola


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## Mick31 (16 Jul 2008)

NicolaM said:


> But I am also sure that a bank would quite happily chase a large debt up, even if out of this jurisdiction.
> Relatively easy to do in the EU I would guess, and I'm sure would certainly be done beyond EU if more than a few thousand.


 
That's a messy business.  Banks usually call it 'bad debts'


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## NicolaM (16 Jul 2008)

It does appear that you may be trolling, Mick, based on your posts.
Either that or you are _not_ _deliberately_ mis-understanding the consequences of leaving the bank 'take a property back' (which I would be inclined to think, preferring to give anyone the benefit of the doubt), it is just that you do not understand full stop.
Either scenario is unfortunate.
Nicola


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## morpheus (17 Jul 2008)

Couple more questions:

1. Whether we are deciding to rent a room, rent the house, or sell, who should we talk to? Mortgage advisor? Financial Advisor? Solicitor? Letting agency? I assume we should not directly approach our Mortgage Provider at this stage?

2. People say here it will cost more to hold onto the house, Im not sure that I follow... my thinking was that if we decided to hold onto the property as an investment for a couple of years and rent, and are currently paying 1450 per month towards the mortgage (amount outstanding will be about 315k at end of this year) how would that not work? Houses in our area are renting for about 1000 - 1400 euro per month. we would be happy enough to rent it out for 1000, keep the house and only have to pay the balance towards the morgage each month (after expenses are removed from the rent) Yes we are broken up but we are still friends and have an amicable relationship, there was no heart breaking reason for the breakup, we just couldnt cut it together. Im not trying to be silly,I value the advice and would just appreciate an explanation in simple terms as to why it makes better sense to sell up completely and take out loans to pay the balance??

3. If we sell up the house and either one of us meets someone else in the future and we go to buy a new house how does that effect our TRS? I know this lasts for 7 years on your Primary Residence but will that be suspended until we purchase a new home and then continue on? Also if my new partner turned out to be an FTB would my status as a previous owner occuppier mean that their stats as an FTB is nullified?

Overall, thanks guys. this is a hard time and i appreciate your advice and help.


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## ButtermilkJa (17 Jul 2008)

horatio1 said:


> Buttermilk,
> NOV 06 to Early/Mid 07 up 35/40k? The house must be 10 yards from a luas stop with a school accross the road and have nuns and a priest as neighbours either side!


Sorry, missed the part where November was mentioned as the purchase month.


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## ClubMan (17 Jul 2008)

morpheus said:


> 1. Whether we are deciding to rent a room, rent the house, or sell, who should we talk to? Mortgage advisor? Financial Advisor? Solicitor? Letting agency? I assume we should not directly approach our Mortgage Provider at this stage?


Well if you want general financial/investment/tax advice then a good independent financial intermediary might be the best option. However many of the issues and implications of renting under the owner occupier rent a room scheme or renting out a (former) _PPR _outright (thereby converting it from _PPR _to investment) are covered in detail in many threads and posts here.


> 2. People say here it will cost more to hold onto the house, Im not sure that I follow... my thinking was that if we decided to hold onto the property as an investment for a couple of years and rent, and are currently paying 1450 per month towards the mortgage (amount outstanding will be about 315k at end of this year) how would that not work? Houses in our area are renting for about 1000 - 1400 euro per month.


Gross? Net of taxes and other expenses? You really need to crunch the numbers carefully before jumping to conclusions about the viability or otherwise of such an investment. You might also want to switch to interest only when renting out. See the _Property Investment _key posts thread on this.


> 3. If we sell up the house and either one of us meets someone else in the future and we go to buy a new house how does that effect our TRS? I know this lasts for 7 years on your Primary Residence but will that be suspended until we purchase a new home and then continue on?


Yes - you have whatever remains of your 7 year _"FTB"_ preferential relief periods left to claim now or in the future.


> Also if my new partner turned out to be an FTB would my status as a previous owner occuppier mean that their stats as an FTB is nullified?


Yes if you buy jointly.


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## morpheus (17 Jul 2008)

Thanks for the help


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## magoko101 (17 Jul 2008)

morpheus said:


> 2. People say here it will cost more to hold onto the house, Im not sure that I follow... my thinking was that if we decided to hold onto the property as an investment for a couple of years and rent, and are currently paying 1450 per month towards the mortgage (amount outstanding will be about 315k at end of this year) how would that not work? Houses in our area are renting for about 1000 - 1400 euro per month. we would be happy enough to rent it out for 1000, keep the house and only have to pay the balance towards the morgage each month (after expenses are removed from the rent) Yes we are broken up but we are still friends and have an amicable relationship, there was no heart breaking reason for the breakup, we just couldnt cut it together. Im not trying to be silly,I value the advice and would just appreciate an explanation in simple terms as to why it makes better sense to sell up completely and take out loans to pay the balance??



What people are probably refering to is the potential drops in property prices and how your house _could_ drop in value over the next 2 years.
Assuming that you have a mortgage of 315 and can sell it at a slight loss would suggest this is not the worst case scenario, but is assuming prices will drop over the coming years.
If prices were to rise 20% in the next year then I'm sure nobody would be telling you to sell now.


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## burntfingers (22 Jul 2008)

Hi, in a similar situation but unfortunately nothing amicable about it. The good relationship is the best thing you have going for you so hang on to it, but don't be surprised if it's too difficult to sustain long term. With that in mind I'd be very careful about how you proceed and I would seek independent legal advice (prob not the sol who handled purchase) on how to prevent a Mexican stand-off at some point in the future whether you rent rooms/rent the house. I always thought that in the worst case scenario the house would be sold but far worse is wanting to sell and being prevented by co-owner while house prices plummet, how would you agree when to sell if you were renting house/rooms out? Ex could be very comfortable and have no interest in renting/moving back home/buying smaller place alone. You have to allow for a change in relations as time progresses and your situations change. Stick the house on the market and rent out one of the rooms(the better of the three), keep your interest in the property, you don't have to stay there full time (maybe crash at the folks at the weekend) but keep it as PPR for both of you until it sells, if that takes six months or a year at least everyone knows where the process is heading. Maybe now, while things are good between you, decide on what sort of financial hit you are both prepared to wear to get out of this so that you can deal realistically with offers  on property, factoring in sols fees and EA fees. Just my opinion...


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## cromulent (22 Jul 2008)

burntfingers said:


> far worse is wanting to sell and being prevented by co-owner while house prices plummet


 
get a good solicitor to get them to wear it, not you.

(try to use paragraphs, it's easier for the rest of us to read your post )


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## chippengael (22 Jul 2008)

Can you both move out, convert to an interest only investment property mortgage, rent the place out and just pay back the interest over the next few years? 

Set up a new account for the rental income and mortgage repayments and make it very transparent. You will have to pay tax on the excess of income minus interest. Of course you will have to pay back the capital eventually - this is a long term deal - but maybe the market/your income will improve.

If not, sell it and move on.


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## levelpar (22 Jul 2008)

> Partner wants to stay in the house and rent 2 rooms (can you rent a box room?!!!) I think we should just finish furnishing the spare rooms and rent the whole place out.


 
I think your partner is right.  Let her stay and rent out rooms. 
She has somewhere to live and near her work place while keeping an eye on the property plus paying the mortgage.

You can live almost rent free with your parents and let the dust settle til next year


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## DerKaiser (22 Jul 2008)

chippengael said:


> Can you both move out, convert to an interest only investment property mortgage, rent the place out and just pay back the interest over the next few years?
> 
> Set up a new account for the rental income and mortgage repayments and make it very transparent. You will have to pay tax on the excess of income minus interest. Of course you will have to pay back the capital eventually - this is a long term deal - but maybe the market/your income will improve.
> 
> If not, sell it and move on.


 
I don't think tax on the income in excess of the interest repayments will be an issue somehow!  Owning a house to live in is one thing as you'll always need somewhere to live.  Owning a house as an investment is simply an investment, a large investment in a single risky asset.  This is as big a gamble as going out tomorrow and borrowing 5 times your income to invest in stock in a single company.


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## DerKaiser (22 Jul 2008)

levelpar said:


> I think your partner is right. Let her stay and rent out rooms.
> She has somewhere to live and near her work place while keeping an eye on the property plus paying the mortgage.
> 
> You can live almost rent free with your parents and let the dust settle til next year


 
So she continues with her life (minus him) and he goes back to square one? 
Like a previous poster said they should disentangle themselves from the situation whilst still on good terms


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## chippengael (24 Jul 2008)

DerKaiser said:


> I don't think tax on the income in excess of the interest repayments will be an issue somehow! Owning a house to live in is one thing as you'll always need somewhere to live. Owning a house as an investment is simply an investment, a large investment in a single risky asset. This is as big a gamble as going out tomorrow and borrowing 5 times your income to invest in stock in a single company.


 
Agreed - but in this particular case they have already made the investment. Now it's just a case of deciding what to do with it.


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