Getting another mortgage when you have negative equity

My partner and I would like to buy a house in the next 12-18 months but are unsure about getting a mortgage. My partner currently owns an apartment which is in negative equity. There is about 270k left on that mortgage but at a guess, it is worth 150k max. The apartment is rented out and we have to supplement the rent by 200 a month to cover the mortgage (tracker). He has already checked with the bank and his tracker is not affected by renting the apartment.

Is there any chance of getting a new mortgage to buy a house with this negative equity? Our joint income is 135k pa. We have one dependant.

If we do approach a bank about getting a new mortgage, should we go with the bank the other negative equity mortgage is with or a different bank? If we go with a different bank, will we have to get a valuation of the apartment's current worth? Or how much info on the apartment would we need to give them?

We are currently renting as the apartment my partner owns is too small for 3 of us. I feel we are wasting money on rent but at the same time, with house prices dropping, perhaps we should stay put.

Your first priority should be to get rid of the negative equity by saving and by hoping that prices will increase. If you feel that they will fall, then you should ask the bank if you can sell it, and pay off the shortfall.

You should not buy another house and risk even higher negative equity.

Rent a house suitable to your needs until you have the negative equity eliminated.

Brendan

Thanks Brendan. I have to say you are the first person who has straight out said 'don't buy'. Both of our parents think we are mad to keep renting. However neither set has negative equity hanging over them!

I am happy to rent for the time being but the way things are going, we would not be able to sell the place for quite a few years. Also the shortfall would probably be 130k if we were to pay it. We have about 65k in savings but would take a long time to save the rest plus we would then have to re-save a deposit which would probably mean not buying for 6 or 7 years. Assuming that house prices will have risen in 7 years, would we not have lost out by buying when prices are low??
Despite negative equity, we have decent joint income 135 which we expect will rise by 20k in next 2 years.
I want to be sensible as am in no way a risk-taker but ideally would like to see our money going into somewhere we will live in forever.

135000 per year joint!

Live on the bread line for a year and you will be able to save save save! Cut everything!

also - ireland as a country is not set-up for long-term rental with a family. Typical lease is 1 year after which you can be turfed out. There is a lack of reasonably priced houses for rent on the market and they are in high demand as our generation of Apt buyers are all in negative equity and doing the same thing.

Until we bring in some sort of long -term letting such as in Spain or France, there will always be an over-inflated demand to buy a house, they only thing keeping it down is the fact that banks aren't lending or people can't afford it.

Hi Betty

Assuming that house prices will have risen in 7 years, would we not have lost out by buying when prices are low??

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I wouldn't make that assumption at all. But if house prices do rise over the next 7 years, your €150k apartment will rise in value. If house prices fall over the next 7 years, you will just be in a bigger hole.

Has your partner a cheap tracker? If so, it's worth approaching the lender and asking for a deal. You will sell the property and pay off €65k towards the deficit, if they write off the balance. Most will say no, but if it's Bank of Scotland, they might do a deal.

BettyD said:

Thanks Brendan. I have to say you are the first person who has straight out said 'don't buy'. Both of our parents think we are mad to keep renting. However neither set has negative equity hanging over them!

I am happy to rent for the time being but the way things are going, we would not be able to sell the place for quite a few years. Also the shortfall would probably be 130k if we were to pay it. We have about 65k in savings but would take a long time to save the rest plus we would then have to re-save a deposit which would probably mean not buying for 6 or 7 years. Assuming that house prices will have risen in 7 years, would we not have lost out by buying when prices are low??
Despite negative equity, we have decent joint income 135 which we expect will rise by 20k in next 2 years.
I want to be sensible as am in no way a risk-taker but ideally would like to see our money going into somewhere we will live in forever.

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Look at the positives:
1. You've a tracker mortgage and so are paying very low interest rates, presumably 2.x%
2. Only having to supplement the mortgage with €200 a month is pretty good going
3. 65K is a lot of savings to have
4. 135K in joint income, rising to 155K in two years, is substantial earnings.
5. By renting, you're not mad, you've flexibility where you want to live, where you want you young 'un to go to school, etc.

Saving 20K a year out of a joint salary of between 135 and 155k should be very feasible with a little streamlining. That should see you with savings of about 130K in 3 years which would buy a decent sized house in many parts of the country if prices fall another 20%, a reasonable enough figure to estimate I reckon. If you're in Dublin, which I presume you are going by details of apartment, then I think you'd need to top up your savings with a small mortgage to get a decent sized house, perhaps an extra 50K, which I think a bank will offer if they see such dedication to savings.

An apartment on a tracker rate and only costing €200 a month is much better than having to pay off a negative balance of €120K+ at God knows what interest rate, so I would keep the status quo there and see it as either a nestegg or a regular income for when you retire. Rents will rise in time but so will the ECB so it's hard to know when the apartment rental income will start paying the mortgage.

Thanks for all the replies.

Yes, he does have a cheap tracker, thank God.

And we have good tenants in the place at the moment. We don't mind having to happy to supplement it it by €200 a month as this is not much out of our monthly income.

I think, as Joe Nonety suggested, we will maintain the status quo for the moment. I would rather keep the place and hope that eventually it will pay for itself. We are renting a nice place that we are happy in so I think we will continue to save for a couple of years at least and then see where we are. We are in Dublin and this is where we would look to buy. Neither of us are interested in commuting as we can both walk to work at the moment. I manage our budget and we can easily save 20-25k a year.

If we can save 130-150k and then get a smallish mortgage, I think we'd both be happy with that.