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Future mortgage arrangements - Negative Equity

  • 29-11-2009 2:56pm
    #1
    Trotter
    Closed Accounts Posts: 5,362 ✭✭✭


    I'm curious about how people in relatively mild negative equity will be treated regarding trading up in a couple of years time.

    If a person has a mortgage that is now (after the burst bubble) about 20k above the existing value of the house, is it reasonable to think that

    A) The bank would give a second mortgage on a new bigger house knowing that the 1st house will be rented out?

    or better still,

    B) The bank would allow buyers to bring the negative equity (within a set amount, say 30k) with them onto the cost of a new mortgage for a newer house?


    Wouldn't option B work if the new mortgage was with the existing bank? It would also allow people who are outgrowing starter homes to trade up, thereby stimulating the market a bit?


Comments

  • #2
    themoneyguy
    Registered Users, Registered Users 2 Posts: 76 ✭✭themoneyguy


    A lot of factors would have to be considered

    For option A
    • What is the rentability of the existing property
    • What will the LTV ( loan to value) of the new property. If one property is in negative equity and the new one is a LTV of 85 or les the banks might be fine with it. Ideally the banks would only be comfortable if the joint debt v value of both houses was 92%.
    Option B
    • I dont see any bank sanctioning a loan greater than 100% of prop value. It wouldnt have happened in boom and if wouldnt happen now. As the banks' only recourse for recouping your loan in worse case scenario is selling your property then they wouldnt rely on security that would leave them at a loss.
    Hope this helps...


  • #3
    Trotter
    Closed Accounts Posts: 5,362 ✭✭✭Trotter


    Thanks for that, just on option B, if the existing house is in negative equity so recouping the money from the house would leave the bank short anyway. I think if people have never missed a payment and the negative equity on property 1 isn't too severe, having received a load of public money the banks should have to go a bit further to help people to trade up if they never missed a payment and have solid income.


  • #4
    Jet Black
    Registered Users, Registered Users 2 Posts: 3,845 ✭✭✭Jet Black


    Trotter wrote: »
    I'm curious about how people in relatively mild negative equity will be treated regarding trading up in a couple of years time.

    If a person has a mortgage that is now (after the burst bubble) about 20k above the existing value of the house, is it reasonable to think that
    Trotter wrote: »
    A) The bank would give a second mortgage on a new bigger house knowing that the 1st house will be rented out?

    You would not need as much of a salary for a home mover as you would for a rented property (buy to let)

    The thing that you have to take into consideration is if you are selling the old house and buying a new house the bank may not lend you the money on the new property depending on the loan amount.
    The loan to value would have to be below 80%.

    I would say there will be a decline in buy to let propertys due to the current econimic climate. You would need joint income of 70k plus with little outgoings, 100k with the usual outgoings (cars, personal loans etc.)
    Trotter wrote: »
    B) The bank would allow buyers to bring the negative equity (within a set amount, say 30k) with them onto the cost of a new mortgage for a newer house?

    Would this be with the first property sold or rented? It doubt it either way though.
    Trotter wrote: »
    Wouldn't option B work if the new mortgage was with the existing bank? It would also allow people who are outgrowing starter homes to trade up, thereby stimulating the market a bit?

    Yes, but despite the banks advertising, they are cherry picking at the moment. So its very unlikley for most.


  • #5
    Trotter
    Closed Accounts Posts: 5,362 ✭✭✭Trotter


    Jet Black wrote: »
    Would this be with the first property sold or rented? It doubt it either way though.

    I meant in that case the first property would be sold.



    I think if we use the usual logic on this, then the little guy doesnt get the extra help.

    However, the little guy just handed 50bn + to the big guy so in my opinion, things should be made to change. This is where this whole deal falls. The banks got our help without having to agree to any extra flexibility.


  • #6
    stepbar
    Closed Accounts Posts: 6,123 ✭✭✭stepbar


    Trotter wrote: »
    I meant in that case the first property would be sold.



    I think if we use the usual logic on this, then the little guy doesnt get the extra help.

    However, the little guy just handed 50bn + to the big guy so in my opinion, things should be made to change. This is where this whole deal falls. The banks got our help without having to agree to any extra flexibility.

    The banks offered people TOO much flexibility during the boom, 120% mortgages, "rent a room" rental income, high multiples and so on. And I extend that flexability to the developers by lending money based on future sales / rental income and so on. People who bought in the boom need to cop the fcuk on and 1). accept that the house they bought is not worth what it was and 2). accept that the home they presently live in is where they will be for the forceable future. A period of deleveraging is badly needed in this country.


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