Negative Equity Mortgage - Need Advice

Hi

Myself and my wife are looking to approach AIB for a negative equity mortgage. We are both 32 and married one year so looking to trade up to something bigger and hopefully start a family.

My wife bought the apartment we live in back in 2006 before we were married. it is currently worth €260k and she has a €300k Tracker mortgage. I am not on the deeds or mortgage as we have not approached AIB since we got married in case they try and put us on a SVR mortgage due to the change in our marital status.

I own half of an investment property with a friend of mine. Property has a mortgage of €270k and is worth €150k. Ths is on a Tracker mortgage with Ulster Bank. The property has been rented since it was bought in 2007 and the rent almost covers the mortgage. (€100 shortfall per month which is paid between myself and my friend)

I earn €65k
Wife earns €70k
Savings of €45k
Bonuses are usually around €5k in total
We have no loans or credit card debt
Rental income of €5k on investment property

The plan is to do the following:

1. Read through the terms of the mortgage agreement with AIB to see if there is anything in there about losing the Tracker rate by us getting married.

2. Apprach AIB and propose selling our PPR and carrying the Negative Equity by means of a Negative Equity Mortgage. Hoefully we can sell for €260k leaving us with €40k neg equity. We would look to get a mortgage of €350k (€310k for new house + €40k neg equity). We would be hoping that AIB would be eager to get us off a tracker and onto a SVR and this could work out in our favor.


My question is, based on the figures above is this a viable option for us? Will the 50% share in the investment property be a show stopper or will the bank accept that this property has a strong rental history?

Will the bank see see our total borrowings to be too high relative to our combined earnings?

any advice would be greatly appreciated.

A very interesting situation.

First of all, don't worry about your marriage affecting your wife's tracker mortgage. It won't.

If you are not in a mad hurry to trade up, and it seems as if you are not, then I think you should be more relaxed in your negotiation. Ask AIB if they will give you a discount for paying off the tracker early. Don't confuse it with asking for a new mortgage. If you get the discount, then put the property on the market.

Likewise for UB. If your co-owner is prepared to sell, you should do so if UB will give you a discount.

I don't think that UB will give you a discount. AIB probably won't give you a discount now, but they might at some stage in the future.

If you don't get a discount, stay put and continue to save, until you absolutely have to trade up. Even then, you can let the AIB apartment and rent a new house. As it's a cheap tracker, you will probably find that the rent exceeds the mortgage payment.

Welcome to AAM Baltazar.

What about selling and using the savings of 45K to pay off the 40K shortfall.

How much would the new mortgage cost. What is your current rent. How much are you currently saving monthly.

You don't mention kids. So I presume you could rent somewhere small and save on rent and then be able to build up a deposit again. You have good salaries.

Investment property

This is a worry. Negative equity of 120K and it's owned with a friend. Are you sure it only costs you an extra 100 Euro a month. What about PRTB, NPPR and income tax? It would be interesting to have the full figures on these. If your friend loses his job will he be able to continue subsidizing the mortgage and other costs.

Would it be better for both you and your wife to live in this property and take over the full mortgage?

Thanks for the advice – certainly some food for thought in relation to looking for a discount down the line from AIB for paying off the tracker early.

Not sure I want to sell our PPR and use our savings to make up the difference in the negative equity. We are lucky in the sense that our PPR is a 2-bed apartment in a nice area so we are not in a huge hurry to sell. Also, a new mortgage on a SVR would probably be double the mortgage payment that we are currently paying and while we can afford this I wouldn’t be in a huge hurry to trade up to this size mortgage until we need to.

As for the investment property, this is in an area which would be a significant commute for both of us to work and is not as nice an area as our PPR. My friend that I co-own the investment property with is in a stable public sector job so I presume this lowers the risk of him losing his job although I accept it does not eliminate this risk completely. The investment property requires an injection of €100 per month from each of us and has other expenses such as NPPR, Mgt Fees, Repairs etc.

We are lucky that we have good salaries and our jobs are as stable as any private sector job can be I suppose. The companies we work for are both doing well despite the current economic climate.

Just to expand on the figures quoted in the previous post:

Property 1 is our Private Principal Residence
Value: €260k
Mortgage (AIB Tracker): €300k
Negative Equity: €40k
Monthly Tracker Mortgage Payment: €1050


Property 2 is a 50% stake in an investment property:
Value: €150k
Mortgage (Ulster Bank Tracker): €270k (€135k each)
Negative Equity: €120k (€60k each)
Monthly Tracker Mortgage Payment: €1050
Rent per Month: €850
Annual Expenses(NPPR, Mgt fees, insurance Tax): €3500

My Salary = €65k
Wife Salary = €70k
Bonuses approx = €5k total per year
Total Savings = €45k
Savings Amount: €2000 - €2500 per month


I think what we should do is keep plugging away on the savings while paying a relatively low mortgage on our PPR. In 12 months time our mortgage on our PPR would be slightly lower again while our savings should have increased. In that time something might materialise with the banks providing discounts for people willing to clear their tracker mortgage. If not, we will be in a better position to negotiate with them.

What would the new mortgage of 350 K cost you? In effect you would then owe 350K and 270K on the investment. Bringing total borrowings to 620K.

I realise the 270K is not your full debt, but ultimately should anything happen to your friend you would be 100% liable.

Would your friend be able to take over the investment property if you paid him the NE of 60K. Does he own any other properties? Is he married. You have to think of the repercussions of your joint liability with him. The fact he is a civil servant is excellent. And a subsidy of only 100 Euro a month is very doable.

If the apartment you are currently in is large enough for the two of you and in a good location, why do you want to buy at all?

Investment Property - can you double check the figures below

Mortgage 12,600K
Costs: 3,500K
Total: 16,100K

Rent: 10,200K

Difference 5,900K / 12 = 491 shortfall monthly. That's 245 each monthly, not 100.

Can you divide up the costs of 3500K. As your on a tracker I assume your mortgage interest is low, so I would have thought you would be paying a bit more in income tax (at the higher rate). What is the annual mortgage interest.

It is worth approaching the Bank, but in my experience they are unlikely to facilitate you unless your proposal includes a sale of the investment property. You are going to suffer a loss on this, but in turn you will be purchasing a higher spec property at a price that previously would not have been available to you. The negative equity on the BTL can be transferred to the mortgage on the new property. This is probably the best solution for both the Bank and yourselves. Repayment capacity will need to be evident (Bank assessment) in respect of the final mortgage (including the carried negative equity).