self build second mortgage, already in negative equity

Is this is any way possible? Would appreciate some opinions while I wait for broker to return call.

After tax income:
Myself €37k
Husband €27k
My husband is P60, good company. I work for a firm, but am technically self employed as I invoice them each month (time agreed at 7 hours a day 5 days a week, but I suppose from the banks point of view this wont matter, its still self employed)
After expenses (current mortgage/childcare/phone/L&H/TV/Food/Car costs/all insurances - everything basically) we can save approx. €25k a year.

I have a mortgage in my name from a purchase in 2007. Mortgage €280k, property in estate on sale at €180k at the moment, realistically probably €160k to sell. So negative equity €120k. Interest rate is ECB +1.5%

My husband has a site (similar sites in the area sold for €70k recently). Full planning permission. Independent builders quotes for €130k - €140k. We will do direct labour, father in law will project manage (he drew plans), my husband’s uncle is a builder, we will pay him a wage and he will do a lot of the work. He thinks we can do it for approx. €100k. Factoring in flooring/kitchen/furniture & a contingency I would like to have €150k to start. We have €80k saved. If we start mid 2013 I hope to have €100k by then so we would need €50k of a mortgage. This should get the house to where we can move in (we only need 2 of the bedrooms at the moment, we’re fine with just doing the bare minimum rooms and finishing the rest at a later stage once we are in).

Our original plan was to just keep saving and build without a second mortgage, but we have been discussing our options recently, and really would prefer to be in the new house before our son starts school so we don’t have to move him. Do we have any chance of getting €50k, given the site value and our savings? Or will the negative equity automatically go against us, even though we can easily manage the repayments on both. If the negative equity doesnt cause a problem will my job status? Also, the current house is in a good rental area, so we should be able to rent this out and cover at least 50% of the mortgage on that property at a minimum (more likely 75%).

I would be grateful for any of your views.

Your current NE is 120K. Already you have savings of 80K soon to be 100K. Would you not be better paying off most of the 80K now. Then over pay the morgage and start saving and get to a point of no NE, a 10% deposit and borrow the full build costs?

Hi Bronte, thanks for your input.

Two reasons I would prefer not to take this option.

Firstly, we are now hoping to build next year so we would be settled in for our son starting school. We wouldnt have enough to clear negative equity + 10% deposit at that stage.

Second, If we cant build next year, I would prefer to keep saving and use this to build the house, as was our original plan, simply because we have a tracker on the current house, and I want to minimise the amount borrowed at what would be a new higher rate.

A week later, I am still waiting for the broker to come back to me to discuss this. I might just try calling into our bank altogether and see if it would be possible to borrow the €50k.

You need to think very carefully on how you approach your bank on this. In essence the deal as proposed does make sense for both yourselves and the Bank. I recently approved a similar deal for clients of the Bank I work in.
Are you on a tracker mortgage? If so you need to ensure that any agreement with the Bank enables you to hold on to that mortgage.
All going well you will require an ongoing mortgage of circa 170K. make sure costings are correct and incorporate all required expenditure. the Bank will require architect supervision of the build. Direct labour may be an issue, but is surmountable.
Your savings record is good and I agree that overall this deal does look like a very good option for you.
Your main difficulty is getting past the ineptitude of the Banks current assessment criteria. It's astounding how incompetent some Banks remain, even where proposals are sound, such as your own. Prepare your proposal well for presentation to the Bank & ensure that you cover all of the relevant risk factors. Also make sure that any deal allows you to keep your current rate (if its a tracker).
Good luck!