Mortgage - can you pass on the deficit?

[philcheetham]

This is a question i raised with a friend of mine and we weren't sure what the answer was.

Here is an example:

We bought our house about three years ago for 380,000. We have had the property valued recently at 325,000, and so a deficit of 55,000 euro.


If we were to sell our property at 325,000, what happens to the 55,000 euro deficit? Do you then just make repayments on this?


Also:

If you were to then look at a property for, say, 300,000. Could you pass on the deficit of 55,000 euro onto the new property, thus making your mortgage 355,000 euro? (This was the part where we were unsure)


It isn't really something im looking to do now as i am happy in my home, but if the circumstances came about where we wanted to move, would you be able to do this?

Thanks for your help.

 

[j26]

When you sell the house, you'd have 55k in unsecured debt as it is no longer secured against any property (the new buyer will insist on it being free from any mortgages) so the bank would look for full redemption. You would effectively be looking for a new loan of 55k, which the bank may or may not give. Even if they grant it, unless it's secured against something else I'd imagine that the bank would be looking for a significant hike in the interest rate.

While in theory you could secure the outstanding amount to another property, the banks would not lend over the market value of the new property, so you'd have to be buying the property at a significant discount over its market value for this to work.

 

[Towger]

It is called the “Negative Equity Trap” and is going to be a growing problem for those who bought a starter home with plans to move to some thing bigger and better in few years.

 

[gipimann]

There was an example of this on the Prime Time special last night, a couple in the midlands had sold their house (at a loss), are now in public housing and will be repaying €800 per month for the next 10 years to repay the debt.

 

[Mpsox]

Furthermore the banks are not issuing 100% mortgages, so in the case of the above, in addition to the €55k debt from the sale, the buyer would need at least €30k of a deposit + stamp duty. Therefore to simply move house, they'd be potentially looking at needing €85k-€100k

 

[philcheetham]

we mentioned the fact that mortgages have completely changed in the way they are given (i.e. no 100% mortgages etc). As i said, it just came up in a conversation and it got me thinking about it. thanks for the replies.