Negative Equity??

[Schnoozel]

Hi all, I hope somebody may be able to advise:

I bought a property a few years back, which, on the back of the Celtic Tiger, increased in value dramatically.

On foot of this, I bought a second property which became my residence, with the original property rented out. To fund this purchase I released equity from the first property, moving my original mortgage (along with the new one) to one banking institution.

With prices plumitting in recent months, I have now gone into negative equity on the amount borrowed (including equity release) on the orginal property. The rent does not cover the mortgage and it is proving to be a headache.

3 questions - worst case scenario -

If I sell the property, and, clear what I can from the mortgage with the sale, how would the bank proceed with repayments without a guarantee (i.e house deeds)?

If the first property was repossessed by the bank, is the second property also at risk if I keep repayments in order?

If the first property was repossessed and sold on at a loss by the bank, can they still bill you for the loss incurred?

 

[FKH]

You wouldn't be able to get a solicitor to sell a house where the sale wouldn't discharge the mortgage on the property in full. They have to provide undertaking to the pruchaser's solicitior to discharge the mortgage. You would have to take out a loan to cover any balance.

If the bank institute proceedings against one property it would depend on the specific mortgages, if the properties are cross-mortgaged the bank could go after both. You would be better negotiatring interest only or something on the rental property if possible. Your credit rating would also be destroyed.

If this property was sold at a loss you would owe the balance to the bank and they could register that as a judgment mortgage on your other property.

Banks don't want to repossess properties and you should make them aware of your situation as soon as possible.

 

[Schnoozel]

Thanks for the very useful advice.

I suppose the quicker sold the better, in the current climate. Although might be worth seeing if there's any market stimulating action taken in the budget tomorrow.

Cheers.