Negative equity - rent or sell

Hi,

I would just like to get some feedback on my situation and get some opinions on what is the best move forward for my family is.

As with many people we bought during the boom and are now in considerable negative equity. We are just starting our family and need to move to a bigger place.

We have been in touch with multiple banks and have the following options:

1. Sell our house and carry our negative equity over to the next mortgage.
2. Rent our current house and get a second mortgage.

We have quiet a bit of savings and if we go with option one our overall negative equity is reduced but we will still be in negative equity for a good few years leaving us stuck with that bank and their rates.

If we go for option 2 we will have a LTV < 80% which leaves us free to shop around for better rates rather than getting stuck with our current bank until we go into equity.

For option 2 I have been trying to familiarize myself with how much tax we would need to pay on rental income if any in our case.
Our mortgage on that house is approx 1500. I have been in touch with a letting agent and after their deduction for management we expect to get 750. We are paying at least 800 a month in interest on the mortgage (I am waiting for a breakdown of last years capital vs interest statement). From reading through posts I have seen that 75% of the interest paid can be written off against the rental income. Along with other expenses I expect we would pay little or no tax.
A couple of questions on this:
1. Is what I say above about rental income correct.
2. Are there rumblings that this 75% relief could be reduced in coming budgets or even go completely.

Any feedback would be much appreciated.
Apologies if I have posted in the wrong area, this is my first post.

Thanks.

If you look over the last couple of years posts on similar questions, and on posts concerned with letting property ,the general opinion which i strongly share is..

... absolutely do not do the two property idea -i.e. living in one whilst letting the other.

If you are able, with lender's permission, to sell your NE house and ,with savings and a loan ,obtain a bigger home then that is what you should do.

Letting is not as profitable as people think it is. It can be a risky business. And the govnt is not making it easier continually adding one tax,fee or charge and another -plus a whole host of regulations.

Nobody knows if the 75% relief will go or diminish, but you must take this into your worst case scenario - along with not finding good tenants or tenants not paying or causing damage.

Considering you're starting a family you really don't need the hassle and stress for what could be an almost profitless argument.

If you can get the O.K. to buy a bigger house then do it now and get rid of the one you're in.

P.S. You could get up to €10k p.a. tax-free if you rent-a-room. It doesn't have to be only one room for which,of course, you wouldn't get 10k. But if ,when house-hunting, you find a house that has an almost self-contained room or two you could make far more letting this on tax-free basis than letting a whole house with the tax liabilities.
And when the kid/s grow up you can kick out the lodger and it's more space for you.
Read about it on the revenue.ie website.

I really appreciate the response. It was my initial plan to sell the house but then I got advice from a few people saying it might be worth keeping the old property. Just wanted an outside opinion.

I think I will go with my initial instinct to sell the house.
Thanks again for the response.

irush said:

. It was my initial plan to sell the house but then I got advice from a few people saying it might be worth keeping the old property. Just wanted an outside opinion.

.

Click to expand...

Yes it's very easy for other people to say become a landlord. You've not posted many figures but based on a rental of 750 and a mortgage of 1500 that would be some subsidy you've have to pay out of current salary and that would only be the half of it. You've NPPR, the new property tax and the possibility of less than 75% interest being deductable (I don't think the government will now reduce this).

I think it might be a good idea for you to post up all the figures on your current mortgage, your savings and how much you plan on borrowing for your new home on here and you will get a much better idea of whether an NE loan is the way to go.

If you do let stay away from agents.

Here are the figures:

Outstanding mortgage on current home - 280K
Judging from other similar properties sold in my area I expect to get 95K if I sell

I have savings of 150K
New home - 300K

Mortgage on current home - 1500
Rental income expected - 750 (850 if we don't go through an agent)

I've not changed my first opinion (Don't own two properties), but have you considered renting, rather than buying, a bigger house ? At least for a couple of years until things are a bit clearer.

Having a N.E. of nearly 200k, plus buying a 300k house, plus furniture, plus kids on the way is a lot of money - even with your savings of 150k.

It could mean you're starting off your family in your "own" new house (really, the bank's) and a debit situation of nearly 400.000 euros ,(depending on various house purchase/fitting expenses. )
OR
You could start off in your rented big house with a debt of under 50k and a monthly rent of ,what? 15-20k p.a. ?

I don't know your area or whether one can rent a decent house for 15k, but if you're looking to buy at 300k then I'm crudely guessing a similar house may rent for ca. 15k, tops 20k.

In a couple of years you may be debt-free and in a better position to consider buying.

(That's one big drop in property price in your area. You must have paid nearly 300k and now will only get 95k ??! )

The house was worth 317K and now less then 100K. Its a huge loss but we just need to get on with it and make the right choice at this point.

Thanks for the responses, very much appreciated!