# trade up negative equity mortgages to be allowed



## Brendan Burgess (15 Feb 2012)

Charlie Weston has reported this in today's paper.

If anyone is thinking of availing of this and would be prepared to talk to RTE about it, please email conor.hunt@rte.ie asap as he would like to record an interview for the 6 pm news.

I have recorded a piece saying why it's a bad idea.

Brendan


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## AndyDub (15 Feb 2012)

Banks trying to tempt people off their juicy tracker rates?


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## Advicepls (15 Feb 2012)

Would be really interested to hear your thoughts Brendan if you will be posting them on the site.  Won't be home for the news unfort, will try catch it on line.


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## Brendan Burgess (15 Feb 2012)

AndyDub said:


> Banks trying to tempt people off their juicy tracker rates?



I mentioned that in my interview


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## reddanmm (15 Feb 2012)

It Said on Morning Ireland that it is only for existing customers of the Banks (BOI and PTSB) will PTSB charge them the new SVR or the rip off one of 5.19% for existing customers. Technically the are not new Customers.  Just a thought


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## allie12 (15 Feb 2012)

Can I ask why this is a bad idea? I am in an apartment with €319.5k  left on the mortgage- we would someday like to move to a house, and to me this looks like a good idea. If we could sell and take the negative equity with us we would get a very nice house for less than that?

Am I missing something?


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## doubledeb (15 Feb 2012)

We are in a similar position. We're lucky that we have a lovely house but about 25miles away from our friends, family and jobs.

We only bought so far away cause we got caught up in the bubble and were encouraged onto the property ladder... silly now in hindsight!

We were always planning to move back to where we wanted to be but with neg eq it seems like it will be 10 years away at this stage.

This carrying neg eq idea seems like a good idea especially now that house prices have almost bottomed out, we would still have the same amount of a mort but would be living where we wanted to live. The neg eq wouldn't bother me so much then as I think it only becomes relevant if you want to move home.

Only problem I would have would be if I lost my tracker mort and thats probably a definate. saying that we are carrying about 45% in neq eq at the moment and I read somewhere that they would only allow you carry 25% max with you....


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## 44brendan (15 Feb 2012)

From both Bank and customer the concept is not a bad one. However, the fairness of the proposal (to the customer/s) is reliant on some level of agreement by the Banks in rspect of retention of the tracker mortgage. I haven't seen full details of the proposals, but it would appear equitable if the banks were to facilitate those on tracker mortgages by applying a SVR only to the extent of any additional borrowings. Brendan B's commentary would indicate that no such facilitation is proposed!


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## Wipetheslate (15 Feb 2012)

I think its a positive step and shows somebody in the banks are trying some outside of the box ideas , with some tweaking I think it would suit some people .

Say If I bought a house for 300k with 100% mortgage during the bubble ,which would fetch only 100k in the current market
 I see a house I like ,and would want to settle in, and its on the market for 100k now. 
So I apply to the bank for a 100k mortgage for the new house and they "port" 200k negitive equity from the old mortgage to the new one. 

After my circumstances have been stressed tested for the ability to service the new payments on 300k on SVR  I've moved from a house I hate to a house I love .
Bank has a happy customer and performing mortgage. 
Customer is happy in new house and able to pay mortgage.

At the start I had a 300k mortgage on a house I hated ,worth 100k 
At the end I have a 300k mortgage on a house I love , worth 100k

Only penalty being the difference between my old tracker and new SVR interest rate,A price some would be happy to pay IMO.

Does the Customer have to apply for a mortgage for the 100k purchase price or would the figure be 300k (purchase price & negetive equity ) ?


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## GarBow (15 Feb 2012)

If the banks will only allow you to transfer the equvilant of 25% of the new property price in negitive equity and you are 200k in negative equity then I assume the property you would need to be buying would be in the region of 800k (ignoring deposits etc).

To purchase a property for 100k, you could only bring 25k NE with you?

I don't think this scheme will help many.

In fact, it could have the effect of pushing people to buy more expensive properties to accomodate the amount of NE they want to absorb.

I can't see this working at all.


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## doubledeb (15 Feb 2012)

The only problem if they calculate your new mortgage on say the 300k... most people wouldn't qualify for that amount anymore even if they are servicing their existing mortgage of 300k.  I know we wouldn't anyway!

But I don't think the banks have much to loose there will still be neq eq whatever house you are living in!


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## doubledeb (15 Feb 2012)

GarBow said:


> If the banks will only allow you to transfer the equvilant of 25% of the new property price in negitive equity and you are 200k in negative equity then I assume the property you would need to be buying would be in the region of 800k (ignoring deposits etc).
> 
> To purchase a property for 100k, you could only bring 25k NE with you?
> 
> ...


 
Its more like if you have a property worth 200k and an outstanding mort balance of 300k they will only let you carry 25% of the 100k of neg eq with you so you would only be able to carry 25k in neg eq with you not the full 100k, you would have to come up with the other 75k from somwhere else.
This is what I took from it anyway, I'm sure eventually banks will arrange this on a case by case basis... that is if they all go for it!


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## GarBow (15 Feb 2012)

No, The amount of NE you can carry is based on 25% the purchase price of the new house (according to the Independent Article this morning). This makes sense as the security is based on the new property not the old one.


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## doubledeb (15 Feb 2012)

So if I have an outstanding mort of 260k, i sell the house for 150k. neg eq of 110k.  I buy a new house for 150k, I can only bring 27.5k of neg eq with me?

Where in the name of god do i get the other 82.5k from?


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## GarBow (15 Feb 2012)

doubledeb said:


> So if I have an outstanding mort of 260k, i sell the house for 150k. neg eq of 110k. I buy a new house for 150k, I can only bring 27.5k of neg eq with me?
> 
> Where in the name of god do i get the other 82.5k from?


 
Exactly. This is why it will only help a minority of those in NE. Those who bought either just into the boom or those near the end of the decline. 

e.g. You bought a property in 2010 for 200k - Now worth 150K - You can buy another house for 200K and carry the 50K NE.

Where as if you bought in 2006 for 300k - Now worth 150K - You would have to buy and be able to afford a house for 600K and I would guess with a hefty deposit too. Still as screwed as before this nonsense scheme.


I note that the 25% is not a definate figure and only from the indo this morning.


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## jamie79 (15 Feb 2012)

*Effect on the market*

I would be worried that the effect of this on the market would drive up the price on those "trade up" properties and drive down the price of 1 bed / 2 bed apartments.


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## 44brendan (15 Feb 2012)

I can't see thi scheme as having any effect on the market. it would only apply to a minority of borrowers.


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## JackMerridew (15 Feb 2012)

This could be a workable example. I’d assume that some saving would be necessary. 

Current Home value €180k 
Mortgage €255k
N/E €75k 
New House value €300k 
Mortgage €270k (90%) Savings 30k
N/E Transfer €75k
Total amount of debt €345k
N/E €45K 
The assumption would be that the property prices have levelled out (?) and the Borrower is unlikely to move again in the short term.


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## kaza (16 Feb 2012)

Wipetheslate said:


> At the start I had a 300k mortgage on a house I hated ,worth 100k
> At the end I have a 300k mortgage on a house I love , worth 100k
> 
> Only penalty being the difference between my old tracker and new SVR interest rate,A price some would be happy to pay IMO.


 
The customer might be happy to forfit their old tracker for the new SVR interest rate so as they have a home they can live in long term - but this can have a big impact on your total repayments to the bank. I lost a tracker mortgage with PTSB and I am on their SVR - for me I will probably make over an extra €180,000 in interest payments to PTSB because of this (on €300K mortgage over 35 years) - so €180K is a hell of a lot of extra money to pay in interest for swapping your current tracker mortgage onto a new property for more or less the same mortgage amount over the same years with their SVR! 
It is basically around €450 extra per month in interest on you mortgage repayments


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## Leaky1 (16 Feb 2012)

I don't have a tracker mortgage so its not something I'm afraid of losing if I went for a neg equity mortgage. In the last year we have paid lumpsums against the mortgage so we now have n.e. of approx €50k. 

Is my thinking right that based on a shortfall of €50k on the sale of my current home, that the maximum purchase price of my next home would be €200,000 (the €50k being 25% of the purchase price)? Therefore leaving me with a new mortgage of €250,000 - provided we are approved for such an amount and that it is affordable.

In the above example where does a 'deposit' for the new place figure into it all? The previous comments here say the negative amount carried forward can only be a max of 25% of the 'purchase price' ... does that really mean 25% of the mortgage for the new property? If, for example, I have €20,000 in my savings account do those savings get used as a 10% deposit for the new property, or are they something that reduces the shortfall on the sale of the old place? Or am I simply splitting hairs.


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## Leaky1 (16 Feb 2012)

44brendan said:


> I can't see thi scheme as having any effect on the market. it would only apply to a minority of borrowers.


 
I would be one of the minority that this type of product would be marketed to, and it is a relief to have it as an option. We have a 1-bed apartment and it is not suitable for us in the longterm. While I am desperate to move I will be doing it with my eyes wideopen this time around - I won't be queueing at the bank or estate agent in the immediate future but it is good to have this type of mortgage as an option (where it is affordable of course).


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## Bronte (17 Feb 2012)

Leaky1 said:


> I would be one of the minority that this type of product would be marketed to, and it is a relief to have it as an option. ).


 
Well at least someone is happy, the amount of whining about losing their tracker mortgages and that it's unfair of the banks and only the banks gain that has been on the radio about has been unbelievable. 

Firstly it is a new option, an option that's all, available to very few, and where it makes sense it will hopefully help those people and so what if they lose their trackers. Add up the figures and if it make sense be glad one has actually been given an option.


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## Brendan Burgess (2 Mar 2012)

Matthew Elderfield has spoken on the topic [broken link removed]



> Mr Elderfield said while negative equity mortgages posed consumer  protection issues, because they involve borrowers taking on increased  debt, the Central Bank had decided to make it easier for financial  institutions to offer them.
> 
> 
> He said in light of the limited take  up of negative equity mortgages so far, and because of the potential  benefits for facilitating moves and generating transactions in the  housing market, the Central Bank has decided to "adapt its approach to  make provision of negative equity mortgages easier".
> ...


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## JMJR (2 Mar 2012)

*NE mortgages*

Have these been available since middle 2011?


Last month, Bank of Ireland and Permanent TSB confirmed it had been given permission by the Central Bank to offer negative equity mortgages in limited circumstances since the middle of 2011.


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## Brendan Burgess (2 Mar 2012)

I understand that they are available on a very limited basis to select clients. They will not be advertised or promoted.

Brendan


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## RIAD_BSC (2 Mar 2012)

JMJR said:


> Have these been available since middle 2011?
> 
> 
> Last month, Bank of Ireland and Permanent TSB confirmed it had been given permission by the Central Bank to offer negative equity mortgages in limited circumstances since the middle of 2011.


 
I think the point is that, since mid 2011, they have been allowed give them in "limited circumstances". Central bank had set strict rules on it. Elderfield is now saying that they won't set any rules, but will monitor the banks to make sure they aren't being irresponsible. "We will not set prescriptive standards in these areas." He said it would be good for the housing market to allow some more activity.

Negative equity mortgages, despite what some opponents say, make perfect sense for some people, provided their new loan repayment passes strict stress tests.

Remember, 40% of the country already have negative equity mortgages. All this will do is allow some of them flip that NE from one address to another. They will no longer be prisoners in homes that are unsuitable.

"Rent your house out and move to one that is more suitable" is the usual refrain of opponents to NE mortgages. This is just plain bad advice on so many levels:

 - You are forcing people to become professional landlords when they don't want to be.

 - People are fleeing the buy-to-let market because they are losing money hand over fist. Forcing people to enter this market, unwillingly, seems to me to be much, much riskier than a NE mortgage.

 - People will probably be in breacxh of the PPR clauses in their mortgages. They may lose their trackers because they rent their places out.

 - They will become liable for tax on their rental income.

 - What happens if their tenant moves out? Straight away they will have to pay their rent and their full mortgage......


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## LittlePiggy (5 Mar 2012)

As a FOOL who never took up a tracker mortgage and went with an SVR, these changes sound like a potential lifeline. If our bank were to allow this, and provided they didnt just stick a couple of extra percent onto the SVR for us, then  in theory there would be no change to the affordability of our debt. Is that correct? This is a nice option to give us some hope for the future.

I say future because 25% of the NE being carried over is still nowhere near enough for us, sadly.


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## Brendan Burgess (7 Mar 2012)

The Irish Times has an editorial [broken link removed]



> This is not to say that government action to bolster the property market  – either directly or via a loosening in regulatory constraints on  financial institutions, as in this case – should be treated lightly. The  national obsession with property was a factor, if not the main factor,  in the frenzied credit expansion that ultimately led to this State’s  worst ever recession. But a stable, well- functioning property market is  essential. Tightly controlled negative equity mortgages can be a small  but significant part of achieving that objective.



It's odd that none of those who support them seem to compare trading up from one negative equity loan to a larger negative equity loan with renting. 

Brendan


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## RIAD_BSC (7 Mar 2012)

The laws around the rental market here are inadequate to meet the needs of many families who need a certain amount of stability, which current laws don't offer. There is no security of tenure here beyond 4 years (kids spend 14 years in school). So what happens after 4 years? Does the family move out, and hope they get another rental property in their kids' school district? Also, the landlord can throw them out at ANY time if they want to sell the property or move back in themselves.

Also, renting as an alternative solution to a negative equity mortgage, for some people, can be a higher risk financially. What if your tenant moves out, and you have to cover both rent and mortgage? What happens your mortgage rate now that you have become an "investor"? Tax becomes due on rental income, etc etc......

It just looks to me like the Irish Times, and Elderfield, have seen a certain amount of sense on the issue.


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## Dearg Doom (7 Mar 2012)

Brendan-

Perhaps I'm missing the point, so can you comment on Wipetheslate's post? If I have a SVR NE mortgage right now which I am am servicing and I can fund the costs of moving (legal, stamp, etc.) from one house worth €100k to another worth €100k - why not allow the move? Neither the bank nor I are in any worse position for it and I can relocate for personal/work/whatever reason?


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## 44brendan (7 Mar 2012)

Wipetheslate said:


> I think its a positive step and shows somebody in the banks are trying some outside of the box ideas , with some tweaking I think it would suit some people .
> 
> Say If I bought a house for 300k with 100% mortgage during the bubble ,which would fetch only 100k in the current market
> I see a house I like ,and would want to settle in, and its on the market for 100k now.
> ...


 
In this instance the new mortgage approved would need to be 300K. I.e. I can't see any Bank agreeing to this option where a client/s cannot fully service the original mortgage.


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## Dearg Doom (7 Mar 2012)

44brendan said:


> In this instance the new mortgage approved would need to be 300K. I.e. I can't see any Bank agreeing to this option where a client/s cannot fully service the original mortgage.



But where they can service the original mortgage (e.g. they are selling and buying again for reasons other than affordability), should they approve it? And would they? 

IMO, they should as there is no substantial change.


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## 44brendan (7 Mar 2012)

looking at this proposal from the perspective of the Bank's I would see the issues as follows:
- Do the clients have a satisfactory repayment track record & no imminent change in their financial circumstances? If so then they should be afforded an opportunity to move home as negative equity will not undermine the Bank position.
- Bank should also be prepared to leave tracker mortgage element of existing facility unchanged.
- If they have capacity to take on a higher loan, this element would be approved at current SVR.
The difficulties in getting such a process "past the post" is that unfortunately most Banks are now caught up in the moment in terms of risk assessment. I.e. who would be first to put this in front of Senior Bank Management? It needs a Government drive before it has any chance of success.


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## Dearg Doom (7 Mar 2012)

44brendan said:


> they should be afforded an opportunity to move home as negative equity will not undermine the Bank position



I concur and believe where the loan (or perhaps the repayment) amount and term do not increase there should be full portability of NE. I get the impression that others think otherwise and wonder if I'm missing something.


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## thedaras (25 Apr 2012)

This appears to be an update from the Bank of Ireland re Negative equity mortgage holders :
http://www.independent.ie/business/...meloans-for-175pc-of-house-value-3087055.html


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## silverfield (25 Apr 2012)

I went to BOI wanting to carry over neg equity and you are right they would only let me carry over 125% which meant that in order to fit those figures I would have to borrow MORE to make it work! Makes no sense to me whatsoever. I explained that my current LTV is approx 163% - I proposed to purchase a house for 200,000 after selling my own and put down the 8% deposit. This then would bring my LTV to about 134% - - THEY WOULD NOT ALLOW IT???? My proposal to bring my LTV from 163% to 134% and come off my tracker was refused! Literally makes no sense at all. I could of course borrow MORE to close the gap to 125% - Have you ever heard such rubbish in all your life. It's so very tiring working with the bank and the excuse for what they call professionals running it!



Only problem I would have would be if I lost my tracker mort and thats probably a definate. saying that we are carrying about 45% in neq eq at the moment and I read somewhere that they would only allow you carry 25% max with you....[/QUOTE]


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