Sell negative equity property and move in with parents?

[Res13]

Any advice would be greatly appreciated as we need some help!

We bought a house at the peak in March 2007. We have recently been thinking about trading up as we want a detached house. As we have no savings we need to get a deposit together in order to move.
Initial idea was to save for a couple of years and move on, but recently have been having major issues with neighbours and children on the street (will spare the long details!)
Long and short of it is that we feel we can no longer comfortably (and sanely) live in the house and need to get out.
Wifes parents have offered for us to move in with them allowing us to save a bit quicker.

We are now trying to decide if we would be better just selling and continuing to pay the leftover mortgage while saving hard for a deposit for a new mortgage

Personal and income details
Income self: PAYE worker - 50,000 PA
Income history: In current job 8 years
Income partner: PAYE worker - 30,000 PA in current job 9 years

Number of children: 1 and one on the way

Home loan
Lender: EBS
Amount outstanding: 260,000
Value of home: 120,000
Interest rate: SVR 4.58%
Monthly repayment: 1360
Amount in arrears: none
Mortgage interest relief of 150e per month brings repayments to 1210

Summary of discussions and agreements with the bank:
Bank has advised it is ok to sell the house even though in negative equity.

Other loans and creditors
Car loan 5,000 - 2 years left

Other savings and investments
None

Please HELP!

 

[44brendan]

At face value this proposal appears to be a tough ask. even assuming you sell your house for net 120K you will be still carrying 140K of a residual loan. If your are considering trading up you will be looking for a new mortgage north of 300K on a combined gross of 80K pa. Based on current mortgae criteria, you will have a tough time getting support from your bank for an increase of this size.

 

[Brendan Burgess]

Agree with 44 Brendan.

We have recently been thinking about trading up as we want a detached house.

It's not really an option. If you have no savings with a mortgage of €260k, how would you expect to be able to pay a mortgage of, say €360k. No one "needs" a detached house.

You could ask EBS for a negative equity mortgage, but I would imagine that they will refuse.

If you want to move from your current house, they might allow you to transfer the negative equity to a house of similar value.

The only hope you have of recovering your balance sheet solvency is for house prices to rise. I am not forecasting that they will, but this is the only way you will be able to exit negative equity.

So you should consider renting out your home and moving in with your inlaws.

This additional income and house price increases might get you back towards positive equity. Of course, if house prices rise, the price of your target home will be higher too.

You certainly should not sell your home and be stuck with a shortfall of €140,000. EBS will pursue this as you have the income to pay it.

 

[DerKaiser]

Interesting and probably very common case.

The first question would be to look at your own circumstances to see what you can afford.

The key questions for me would be
a) how much savings have you left over each month
b) what is the cost of your target house.

For example, if your target house is €50k dearer than your current one, in theory you could increase your mortgage by €50k and your mortgage would increase by about €300pm. If you were comfortable with this then it's theoretically doable. After all, it would leave you with a €1600pm mortgage with a net income of aroune €5k p.m. and a total mortgage of around 4 times earnings.

There are some stings in the tail though:
1) Your bank might not agree to this, even if you think it possible
2) I'm pretty sure you'd lose your mortgage interest relief - an additional €150pm cost
3) You'd probably have stamp duty, legal costs, moving costs of about €10k with no savings to cover
4) The fact you have no savings suggests you may not have capacity to service a bigger loan
5) A child on the way will impact your joint income, expenditure or both
6) €50k extra may not be sufficient to purchase a significantly better house

 

[Res13]

Sorry might not have explained properly! while we were thinking of trading up we knew it wouldst be possible yet as we have no savings. the intention was to stay put and save for a couple of yrs then look to move.
As things have gotten worse with neighbours etc we really can't stay where we are. so our option now is to move in with parents for a yr or two which will enable us to save even more.
the bank has said we can sell and continue to pay residual loan - we have no intention of not paying this back as we can afford to.

We're not overly keen on renting the house out as will still have outgoing related to the house which is what we are trying to avid by moving in with parents!
just unsure as to what's the best move

 

[Bronte]

Do you really think two adults and 2 kids moving in with parents is a good idea. On paper financially it may make sense, but I'd call it a head wrecker. With the potential for two very unhappy households.

How much would your repayments be if you sold the house?

How much would you need to pay in rent in order to live in a decent house in a good location.

Why has the bank agreed to you selling the house?

 

[Res13]

Do you really think two adults and 2 kids moving in with parents is a good idea. On paper financially it may make sense, but I'd call it a head wrecker. With the potential for two very unhappy households. - My parents have an 8 bed house and we would effectively have our own living space - would just be sharing a kitchen. While we know it won't be plain sailing it can't be any worse than what we have to put up with where we are at the moment!

How much would your repayments be if you sold the house? Approx 750

How much would you need to pay in rent in order to live in a decent house in a good location. In excess of 900e

Why has the bank agreed to you selling the house?

As we are not in arrears and not likely to be, they don't have an issue once we keep repaying the shortfall. They also advised once we keep repaying there shouldn't be an issue getting a mortgage in the future.