Want to Trade Up: Should I sell and take the hit now or rent it out

corkross

Would be interested in peoples opinion. Bought house 4 years ago, got married recently and wife is not too enamored with current house (too small) or area, so plan is to move at some point in near future. Got it valued during the week and its 70K down from what I paid (ie 22%). In the face of negative equity should I cut my losses and eat into deposit for new house (would have to rent for a while) or hold onto current house, rent it out and sit the downswing out?

Victor

Do you seriously want to have two properties in a declining market?

Ste.phen

'sit the downswing out' is only a strategy if you can easily afford the two mortgages, even on the assumptions that one of you loses your job, interest rates rise sharply, and taxes are increased.
And, of course, you're assuming prices will ever go back up above what you paid for it.
They probably will someday, but that's just a guess, and it's a lot of money and stress for you if it doesn't work out perfectly.

The_Conductor

corkross wrote: »

Would be interested in peoples opinion. Bought house 4 years ago, got married recently and wife is not too enamored with current house (too small) or area, so plan is to move at some point in near future.

If you do intend to move in the near future- sell your current property first- before you go hunting- prices are still falling, and you have no idea how long it will take you to sell. You do not want to be in the position of being half way through selling your own property and having another seller clamouring to get you to close on their home.......

corkross wrote: »

Got it valued during the week and its 70K down from what I paid (ie 22%). In the face of negative equity should I cut my losses and eat into deposit for new house (would have to rent for a while) or hold onto current house, rent it out and sit the downswing out?

If its only down 22% on what you paid for it- you're actually incredibly lucky. Instead of a random valuation- I'd ask an estate agent what it would be worth if you *had* to sell it. Bank of Ireland and AIB are now both routinely knocking 10% off the independent valuations for mortgage purposes when people are doing revaluations for remortgaging or equity release queries. This is a far more accurate measure- than a random 22% fall.

Also- how likely is it that a mortgage lender will loan you the funds for a second property in the current climate. I know of civil servants who are still being decentralised (despite what you hear in the media) who are being refused mortgages to buy property in the vicinity of their new jobs- unless they dispose of their Dublin property. If a civil servant, with an allegedly safe job- can't do it, I can't imagine anyone else can either at present.

Negative equity is an issue certainly- but so too must be the fact that interest rates are at historically low levels and are forecast to commence rising towards normality from Q2 2010 onwards.

If you move-

1. you have the negative equity to clear
2. the current interest rate quoted will rise significantly
3. the property you buy will likely also be in negative equity before long.......

I know we all bought years ago- 'to get our foot on the property ladder' with the intention of trading up at some stage.

You really need to explore the implications of what you're proposing in a lot of detail before coming to any conclusions.

corkross

Thanks all for advice,

Decided to stay put for now.
Bank did allow for holding on to current property (luckily we both have relatively recession proof public sector jobs) but wouldnt include Stamp Duty into account in Mortgage- so would be too much to borrow (30k) and take the negative equity (20k) hit too in addition to getting 8-10% deposit .

I guess I was naive in thinking all i needed was the the 10% of both house price and Stamp combined.

cheers