# Will the bank do a trade-down negative equity mortgage?



## Ms2011 (14 Apr 2011)

I would love if negative equity mortgages were allowed.
I currently have a mortgage of 253k.  House now worth around 150K.
Savings of 60K.
I have been looking at houses in the country where I would like to move and I would be able to get something I wanted for 100K.
If I were allowed I'd sell my house, use the 60K as a deposit on a 100K house leaving me borrowing 40k, tag on the shortfall of 103k from my house sale, my new mortgage would be 143k.
I don't know if I'm just looking at it with rose tinted glasses but I really can't see any reason why this wouldn't be allowed.  My debt is less, the banks debts is less, surely it's a win win situation or am I missing something???


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## pjuegos (14 Apr 2011)

Ms2011 said:


> I really can't see any reason why this wouldn't  be allowed.  My debt is less, the banks debts is less, surely it's a win  win situation or am I missing something???


 You are not missing anything, you are just amazed as plenty of us that this is so difficult to understand for some people!

 There are plenty of people that would like to use a NE mortgage without increasing debt:
 -trading down to save money
 -social difficulties in a badly chosen neighbourhood
 -unforeseen problems as a marital breakdown or a crazy neighbour
 -need to accept a new job in a different city
 - having a kid...

 As I said in a previous post, according to FG electoral promises there  might be hope for home owners in NE that want to trade down

 However, there is still plenty against this:
 -mortgage regulator opposed to this in 2010 when banks tried to offer  official NE products. He made no distinction between increasing or decreasing overall debt
 -legal problem: my       basic understanding is that the mechanics of conveyancing do not       currently allow such operation. The solicitor can only released       the deeds on the current house if there is enough money to clear       the existing loan, which is not the case for home owners in       negative equity. So, a law change might be needed
 - general public view:  there is a huge misunderstanding of NE  mortgages. This is clearly reflected in this thread, where contributors  as So-Crates compare NE mortgages with 125% mortgages for first time  buyers. Or when Brendan refuses the idea just because the group is too  small, which I doubt. Even if the group was small, refusing a logical  idea just because the number of people benefiting from it is too low  should not have a fit in a 21st century society

 Good luck!


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## Ms2011 (15 Apr 2011)

My plan 'z' after exhausting 'a-y' is to take my savings (enough to buy a house outstraight now but not enough to pay off my NE) and give it to a debt free relative to buy my new house in their name.  I will try to keep my payments up on my current house but if it gets to the stage where it's making life unbearable (both myself and my partner are being made redundant in July) I will hand back my current house and they can set something up for the shortfall or do whatever.  I feel like I have to do something like this to force the banks hand because otherwise they won't listen.
I can hear the gasps of horror from some of the people here but I don't care, I've tried to do things the right way but keep hitting a brick wall, I don't want to leave things like this but I feel I have no choice.  I'd love a NE mortgage and would snatch it up in a heartbeat and trade down but that's not going to happen anytime soon.
As people had said you only get one life!!!


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## truthseeker (15 Apr 2011)

Ms2011 said:


> My plan 'z' after exhausting 'a-y' is to take my savings (enough to buy a house outstraight now but not enough to pay off my NE) and give it to a debt free relative to buy my new house in their name.


 
What about gift tax on the money youre giving to your debt free relative? What if your relative decides to sell the property and run off with your money! Why would your relative lose their first time buyers status to buy a house for you in their name?


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## Gekko (15 Apr 2011)

truthseeker said:


> What about gift tax on the money youre giving to your debt free relative? What if your relative decides to sell the property and run off with your money! Why would your relative lose their first time buyers status to buy a house for you in their name?


 
Isn't FTB relief gone?


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## truthseeker (15 Apr 2011)

Gekko said:


> Isn't FTB relief gone?


 
It is now - but we have seen FTB relief, and first time buyers grants in the past - they could come back again some time down the line and the relative in question would have lost their eligibility.


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## Guest105 (15 Apr 2011)

Gekko said:


> Isn't FTB relief gone?


 

*Changes to mortgage interest relief*

The Finance Act 2010 provides for mortgage interest relief to be abolished entirely after 31 December 2017.
However, the new Programme for Government proposes bringing forward the date for abolition of relief for *new buyers* to June 2011.

http://www.citizensinformation.ie/e...e/buying_a_home/mortgage_interest_relief.html


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## Ms2011 (15 Apr 2011)

truthseeker said:


> What about gift tax on the money youre giving to your debt free relative? What if your relative decides to sell the property and run off with your money! Why would your relative lose their first time buyers status to buy a house for you in their name?


 
*What about gift tax on the money youre giving to your debt free relative?*
I would be giving it to my parents, you can give a parent €33,106 without a gift tax, €33,106 to my mother, €33,106 to my father, my mother can then transfer her portion to my father as there is no tax when one spouse gives money to another, anything extra I would give to them in cash in person.

*What if your relative decides to sell the property and run off with your money!*
I guess I can't vouch for anyone elses parents but this wouldn't happen with my parents, I'd trust them with my life 

*Why would your relative lose their first time buyers status to buy a house for you in their name?*
My parent's own their own home out straight and are retired with no intention of ever moving. My house that they buy for me in their name would be left to me in their will.

This is a last solution for me, I would rather take a direct route to solving my financial problems but as there is none available to me it seems, so I have to go around the rules that are already there!


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## Mrs Vimes (15 Apr 2011)

If one of your parents needs to be cared for in a nursing home then this house would be considered an unencumbered asset for means testing purposes and may need to be sold.


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## Brendan Burgess (15 Apr 2011)

Hi MS2011



House |253
Mortgage |150
Cash|60
Net negative equity|43


> (both myself and my partner are being made redundant in July)


You have a legal and moral obligation to repay the money you borrowed.

If you are both going to be unemployed, why are you buying a new house in a different location?  Would it not be more sensible to stay where you are and get Mortgage Interest Supplement - not sure about the impact of your savings on the means test. 

You can reduce your debt by €60k. I don't see why you are not doing this.

If you can buy a house in your new location, why can't you rent one there?  If you are both unemployed, you should be paying down your debt. 

The Law Reform Commission has recommended a new personal debt settlement system. It will take about two years to implement. But one of the underlying assumptions will be that the person acted in good faith. Dissipating your assets would bar you from participating in any scheme of debt settlement. 

My recommendation would be that you hold onto your cash and you try to negotiate a settlement with your bank. You may find them more flexible when you are both unemployed.


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## Stephen_Red (15 Apr 2011)

I think a negative equity mortgage would in your case make one hell of alot of sense.

However due to the fact that you are going to be made redundant it is hard to see a mortgage lender approving a new loan. I dont see how your impending unemployment puts you in a stronger negotiating position? Possibly it might if you didnt have 60k in cash.

Perhaps Brendan means that you could negotiate a write down with your lender if you use your cash to pay off some of the negative equity.

Not sure who your mortgage lender is but I have experience of two mortgage lenders (AIB & Stepstone) offering to write down negative equity where homeowners wanted or needed to sell up. Only one of the mortgages was in arrears, (ironically not the Stepstone/Subprime one). AIB ended up writing off over 30k on a buy to let property and the Stepstone customer has to date still not been able to sell the house.


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## oldnick (16 Apr 2011)

Brendan -what's this about"  _you have a moral and legal duty to pay the bank_" ...? 

The OP has made it quite clear that is what she wants to do -your comment insinuates otherwise and I can't find where she says she won't.

_"you can reduce your debt by 60k. I don't see why you're not doing this"_

Again, I must have missed something. The Ops  suggestion in her opening post means that the debt to the bank will be reducedby a similar amount.
 Selling  her house at 150k and getting one for 100k in an area she wants to live means a reduction of 50k in her mortgage - regardless what she does with her 60k saving.

Op'S original suggestion made perfect economic sense and everyone benefits.

And,actually, the fact that they will be made redundant should act as an incentive to the bank to allow them to switch to a cheaper property. 

Frankly, if the bank is too stupid to allow her to do as she sensibly suggested then I don't think there is any "moral" duty to pay them. (not sure there is anyway)

ms2011 -good luck !


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## Brendan Burgess (16 Apr 2011)

Hi oldnick

ms is facing unemployment - he should not be thinking of buying a house. 

He has a house worth 150k and wants to trade down to a house worth €100k.

On the face of it, this seems reasonable. He saves 50k and the bank saves 50k. 

Of course, a good part of the €50k will be eaten up in moving costs, so it's not 50k. 

If he was moving to a new house for a new job, there might be some sense in it. But he is unemployed and his wife is unemployed. 

However, he is facing a real prospect of being unable to pay his mortgage. 

It's not a question of just reducing the risk for himself and for the bank. The cash gives him a real chance of actually eliminating his shortfall completely with the agreement of the bank. This is the best thing for him. 

He and you are focussing on the fact that, given a choice of A or B, B is obviously better for the bank. In fact, C, where he sells the house and pays the proceeds off the loan, is the best option for the bank. And D, where he negotiates a writeoff of the shortfall, is the best option for MS. 



|A|B|C|D
Mortgage|253|143|43|0
House|150|100|0|0
Negative equity for bank|103|43|43|0
Cash|60|0|0|0
Net negative equity|43|43|43|0


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## Brendan Burgess (16 Apr 2011)

Oldnick asked



> Brendan -what's this about"  _you have a moral and legal duty to pay the bank_" ...?
> 
> The OP has made it quite clear that is what she wants to do -your  comment insinuates otherwise and I can't find where she says she won't.



Did you read this from Ms2011?



> My plan 'z' after exhausting 'a-y' is to take my savings  and give it to a  debt free relative to buy my new house in their name.


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## Ms2011 (16 Apr 2011)

The reason I want to move is:
*A:* I live in an area where there is some anti social problems, it's ok for a couple out working all day but I wouldn't want to raise children there. I'm in my 30's my partner is in his 40's, I do not want to delay having children for much longer.
*B:* The area I want to buy in is nearer my parents, as they are getting older it would be nice to be nearer to them, plus if I do have children I would like them to be able to regular contact with their grand parents.

As I have state my plan is plan 'z'. 
I have looked into leasing my house to the council long term, I was rejected. 
I have looked into renting the property but with me losing my mortgage relief, incuring taxes, registration fees, maintenance etc. the figures don't make it worth while, not to mention the problems with tenant etc. associated with renting. Plus neither I nor my partner want to be landlords.
If the lender allowed us to sell and took our 60k as the shortfall I would be over the moon and it's something I will definately ask them. It would all depend on if the house would sell then.
My partner should have some work with a relative by the end of August so hopefully we won't be both unemployed for too long but this in itself will delay us getting another mortgage because he would have to be in permanant employment for 'x' amount of time.
Either way I have no intentions of not paying my debts as I've said if I get my parents to buy my new house and hand back my old house I am perfectly willing to pay the shortfall when the bank sells it.
I feel like due to the lack of options for people out there or the door being constantly being shut in their faces that they have to start coming up with more creative ways of getting out of one house and into another and getting on with their lives.


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## Ms2011 (16 Apr 2011)

Brendan Burgess said:


> ms is facing unemployment - he should not be thinking of buying a house.


 
The fact is though I already have a house, a house which I am struggling to pay, by buying a new cheaper house and getting rid of the dearer house I am easing mine and the banks fiancial pressures.
I'm not looking to buy an additional house, just a cheaper one in a location which suits me better and puts me in a better position to honour my debt, I don't know why that doesn't make sense?


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## Ms2011 (16 Apr 2011)

Mrs Vimes said:


> If one of your parents needs to be cared for in a nursing home then this house would be considered an unencumbered asset for means testing purposes and may need to be sold.


 
My parents will never go into a nursing home, me and my siblings would make sure of that.


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## niceoneted (16 Apr 2011)

Have you other siblings?
What if your parents were to pass away, the house would be in their name and thus become part of their estate. This could end up being split between all siblings.


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## Ms2011 (16 Apr 2011)

niceoneted said:


> Have you other siblings?
> What if your parents were to pass away, the house would be in their name and thus become part of their estate. This could end up being split between all siblings.


 
The property would be expressly left to me and my partner in their will, even if this wasn't the case my siblings (2 of them) wouldn't squabble over a house they knew I'd paid for, we're not that kind of family.


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## oldnick (16 Apr 2011)

Brendan -your post 13 ,yes, of course we were focusing on a choice between A & B .

I thought this is what the discussion was about ;why would the bank - in common with all lenders re NE loans- appear to prefer A over B when it is clearly better for the bank and it is what OP wants.
C may be better for the bank -not according to OP for her, though worth considering.

But ,naturally, if D was possible then ,great.  If MS tells bank they're both going to be jobless this may be possible. 

(MS2011  - you don't mention any redundancy pay-off ??)

Brendan - Your post 14.  I didnt take MS2011 comments don't mean that she intends to avoid her debts. 
She said she will try her best to continue payments,  If all else fails, she said, she will hand back her house and the bank can set something up for the shortfall.
I may have misunderstood her but I didnt think she intended to default the bank and avoid her "moral and legal duty".

Anyway, this is not an important issue - your advice that she tries for plan D imay be well worth trying.


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## pjuegos (20 Apr 2011)

MrDerp said:


> I don't know if you've read my earlier posts, so  I'll just say before I post, I'm for negative equity portability. I do  however, think its not practical, and difficult to implement.
> 
> This isn't a swap of address. It's a sequence of steps involving:
> 
> ...


 
 Yes, it is a problem. It would just be a change of address if NE  mortgage products were officially approved and backed by the government  and the mortgage regulator.

As I said in a previous post:



pjuegos said:


> legal problem: my       basic understanding is that the mechanics of  conveyancing do not       currently allow such operation. The solicitor  can only released       the deeds on the current house if there is  enough money to clear       the existing loan, which is not the case for  home owners in       negative equity. So, a law change might be needed


 
 FG promised before the elections working with the mortgage regulator to  allow home owners in NE to trade down. If they finally get to execute this  electoral promise (who knows?) , my basic understanding is that they will have to modify  the law to avoid the problems you were mentioning. 

 pj


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## orka (20 Apr 2011)

pjuegos said:


> ... It would just be a change of address if NE mortgage products were officially approved and backed by the government and the mortgage regulator.


Why would it just be a change of address?  If there's a time gap between selling a house in NE and buying a new one, the bank is left with unsecured debt between the two transactions.  That leaves them open to the borrower not going ahead with the house purchase and bankrupting away the unsecured debt.


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## pjuegos (20 Apr 2011)

orka said:


> Why would it just be a change of address?  If there's a time gap between selling a house in NE and buying a new one, the bank is left with unsecured debt between the two transactions.  That leaves them open to the borrower not going ahead with the house purchase and bankrupting away the unsecured debt.



what I mean is that it would be a change in address if there was a system in place that could prevent that to happen, which I assume it will require a change in existing law. 

How do they do it in the UK? They already have NE transfers in place .guardian.co.uk/money/2011/jan/27/negative-equity-mortgage-lloyds

 pj


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## orka (20 Apr 2011)

pjuegos said:


> what I mean is that it would be a change in address if there was a system in place that could prevent that to happen, which I assume it will require a change in existing law.
> 
> How do they do it in the UK? They already have NE transfers in place .guardian.co.uk/money/2011/jan/27/negative-equity-mortgage-lloyds


I don't know how you could have a system in place to prevent it happening if the sale precedes the purchase - once the NE house is sold, it's sold and I can't think of any mechanism for a bank to force someone to complete the purchase of another house. Compelling the purchase to be done first would leave the risk of the borrower/bank being stuck with 2 properties if the NE house sale doesn't go through. I'm not sure how feasible totally contemporaneous transactions would be but that could work. The only other way (other than the bank just trusting the borrower to do the right thing...) is to only allow it where there is a secured guarantor for the time between the sale of the NE house and the purchase of the next house.

The UK scheme doesn't explain how they get around the problem but it seems to be only available where the borrower has enough savings for a deposit on the next house - so maybe they take control of the savings for the gap time - so at least if the borrower doesn't buy the next house, they have some contribution towards the unsecured loan they have been left with.


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## Ms2011 (20 Apr 2011)

orka said:


> The only other way (other than the bank just trusting the borrower to do the right thing...) is to only allow it where there is a secured guarantor for the time between the sale of the NE house and the purchase of the next house....
> 
> ...so maybe they take control of the savings for the gap time - so at least if the borrower doesn't buy the next house, they have some contribution towards the unsecured loan they have been left with.


 
I would be perfectly happy to deal with either of these stipulations.


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## orka (20 Apr 2011)

The UK product mentioned in the above article should make anyone in NE consider carefully whether they should pay down the NE or hold on to their savings.  The UK product requires you to have a deposit for the new property - but you won't have that if you have paid down your NE - even though your overall financial position is the same.


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## JoeB (21 Apr 2011)

It should be possible to close out two sales simultaenously. I agree that this is awkward, but I now feel strongly that NE mortgages should be allowed.

I can't see a solution to the gap time between buying and selling except to reduce the gap completely, by closing sales at the same time. This does create a chain which makes the whole conveyancing thing more complex, but what other solutions are there?

The bank shouldn't be expected to take risks in order to facilitate this, and it's unlikely that everyone will be able to get secured creditors to guarantee the debt while it's unsecured.
I would disapprove of the goverment acting as 'guarantor of last resort'.

Attempts should be made to minimise transaction costs, and all taxes and charges relating to certain types of these transfers should be tax free.


In cases where the bank have the same security in terms of loan to value that they had previously they should of course allow NE portability.

But is it possible to sell a small apartment, and buy a bigger house for the same money? How is this possible now, if it wasn't possible in the past?


I agree that someone who wants to sell in Dublin and purchase in Galway might be ok, but people in small one beds in Dublkin will not be able to buy two beds in Dublin for the same price as a one bed.. so savings would be required.

If savings are required then the bank may prefer that these are used to pay down debt, and aren't used to facialitate NE portability. This is a problem.. I would disapprove of banks being forced to take certain actions... the government should set up a government bank if they wish to lend money, rather than requiring private companies to do so.

I would be in favour of the government guarantying some small degree of extra debt incurred in NE moves, but only where there is a clear social benefit.,.. ie moves for employment etc. But people would need job offers, i.e guaranteed jobs in the new location.. this will be difficult. Can employers have a job on hold for several months while the person tries to arrange a complex move? I don't see why employers would go for it...


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