Capital Reduction?

Johnny Bitte

Hi all,
Quick one.

Ask to transfer mortgage into my name rather than both mine and ex's.

The list of information they want is pretty standard, pay slips, bank statement etc.

But the last is:
"As the property value is less than the mortgage outstanding, we will require a €20,000 capital reduction to be made"

Can someone please tell me what this is about?:(

Jo King

They want you to pay 20K off the outstanding balance. Reasonable enough in the circumstances.

John Mason

they want you to pay 20k off your mortgage which is probably the amount of your negative equity

Johnny Bitte

Jo King wrote: »

They want you to pay 20K off the outstanding balance. Reasonable enough in the circumstances.

Who the fook has 20k lying around or could borrow it along with their mortgage?:eek:

Not buying it if thats the case I guess.

Johnny Bitte

irishbird wrote: »

they want you to pay 20k off your mortgage which is probably the amount of your negative equity

Thought thats how the came up with that number.

Ste.phen

What agreement do you have with your ex? Surely they'd be happy to pay at least 20k to get out of being responsible for 50% of the debt?

Johnny Bitte

Ste.phen wrote: »

What agreement do you have with your ex? Surely they'd be happy to pay at least 20k to get out of being responsible for 50% of the debt?

Fairly amicable, she justs want some money to pay for a furniture loan she has in her name.

Will be looking into alternatives to get around this butI am in now way paying to to take on a mortgage.

Probably gonna try and sell.

3DataModem

but when you sell, you'll also have to pay the bank the negative equity.

Johnny Bitte

Yes but there also the possibility or selling and breaking even. Or renting it.
But there s no way I could afford that.

johndaman66

The_Goose135 wrote: »

Yes but there also the possibility or selling and breaking even.

Don't like being a spoilsport but why are you so confident you are going to sell and break even? It appears the bank reckon you are 20k in negative equity. At that I don't know how much of the principle you and your girlfriend have paid off. If ye have paid off a considerable amount selling and breaking even might be highly optomistic or even doubtful. I won't dwell too much on this point though as ye may for example have made home improvements or rennovations with money ye did not borrow for example for all I know and indeed I don't know how much if any of the principle has being paid back to the bank. Do bear in mind as well though that the prices you see on daft or myhome don't necessary mean a whole lot. Its actual seeling prices you should be considering....well I did say I was going to be a spoilsport about it...sorry.

The_Goose135 wrote: »

Or renting it.
But there s no way I could afford that.

Im not sure how renting would solve your immediate problem. Its hardly the case the renting out a room or 2 will immediately give you the 20k necessary to transfer the mortgage fully into your name. Am I missing something?

Johnny Bitte

johndaman66 wrote: »

Im not sure how renting would solve your immediate problem. Its hardly the case the renting out a room or 2 will immediately give you the 20k necessary to transfer the mortgage fully into your name. Am I missing something?

No renting the house completely would cover 90% of the mortgage and at least I wouldn't be paying the whole lot.

There were 3 options in my mind.

I buy her out, which I now know I cannot afford. :rolleyes:

We put it on the market and try and sell. Theres a new kitchen, bathroom and decking, garden shed. All done in the last year. The house will also have the kitchen appliances, tables and chairs, 3 and 2 seater couches, tv unit and bluray player + 40" tv, new bed and mattress, chest of drawers, side table and new built in wardrobes.
The selling point is that its ready to walk into and hopefully a young couple will jump at that. We are 8,000 away from paying off 20,000 so if we were to get that we would at least cover the mortgage.

Other option is if it can't be sold rent the house to cover the mortgage until one of the other options can be done.

Treehouse72

Be aware that renting out the house has tax and mortgage implications.

The rental income is taxable and the house will become liable for CGT when sold once it has been rented out (which it would not be if it remained a PPP).

It is also likely that renting the house out will cause your lender - who you have to tell about the change of use - to move you onto a BTL mortgage. If you currently have a tracker, this will mean a large jump in repayments.

johndaman66

To be honest Goose135 I think the way you and the bank are viewing this scenario are a wee bit at odds. I think it might be the case that you cannot or would be cutting things really tight meeting repayments on your own if you feel there would be a need to rent out the house. This would be extremely undesireable from the banks point of view. You and your girlfriend probably secured the mortgage based on both yer incomes I'm sure. Am sure the bank would have or at least should have stress tested this on a basis of one of ye being out of work for some time/ girlfriend having children and so on. If you are to take over mortgage on your own and were to be put out of a job longterm its unlikely you could meet repayments once the term of any mortgage protection insurance you had elapsed. It would seem the bank want this €20k immediately if god forebid this sceanrio were to pan out not long after you took over the mortgage. Remember also that you will need to seek accommodation elsewhere yourself if you rent out the complete house.

The_Goose135 wrote: »

I buy her out, which I now know I cannot afford. :rolleyes:

Fair to say we can rule that option out so Goose135?

The_Goose135 wrote: »

We put it on the market and try and sell. Theres a new kitchen, bathroom and decking, garden shed. All done in the last year. The house will also have the kitchen appliances, tables and chairs, 3 and 2 seater couches, tv unit and bluray player + 40" tv, new bed and mattress, chest of drawers, side table and new built in wardrobes.
The selling point is that its ready to walk into and hopefully a young couple will jump at that.

Of the options you list I think this may be the most vaible option Goose135. The extras you list are all fine and well and may help you secure a better deal when yourself and estate agent/ vendor get down to the finer detail. But think at the end of the day you/ye will need to price it at such a price that it will generate interest in the first instance, bearing in mind that we are very much in a falling market. Seems the only way ye will "win" on this one is to price it ahead of the market. Ye would then need to make up the €20k shortfall between ye (or maybe more depending on what ye sell for). Hopefully ye are still in a position that ye can sit down and trash the whole thing out as amicably as possible, park yer emotions at the door, that sort of thing.

The_Goose135 wrote: »

We are 8,000 away from paying off 20,000 so if we were to get that we would at least cover the mortgage.

Not actually fully sure if I fully follow that point Goose135. Assume from that point that ye have paid of €12k of the principle but I stand to be corrected. If that is the case its not directly relevant to being in NE to the tune of €20k. The fact that ye are in NE to the tune of €20k means that the house currently has a market value of €20k less than whats currently owed on the mortgage. Probably not making myself very clear but another way of looking at it is that if ye had not paid back this €12k ye would be in NE to the tune of €32k

The_Goose135 wrote: »

Other option is if it can't be sold rent the house to cover the mortgage until one of the other options can be done.

Remember also that you will need to seek accommodation elsewhere yourself if you rent out the complete house. The rental proceeds may cover 90% of the mortgage repayments. But are you including the opportunity cost of not living in the house yourself but paying rent to live elsewhere? Also in my experience not everybody is cut out to be a landlord. You need to be prepared to deal with the possibillity of ahkward tenants. Just thinking back to a house I lived in. Although I got on well with a particular house mate it was clear that for the landlord getting the rent money from him was like getting blood out of a stone. The landlord used to say to me to make sure Joe would be around next Monday or else leave his rent money somewhere for him. Now I didn't mind telling Joe but it was hardly my job to do so either as I wasn't a leaseholder or anything. If the next lad or lassie were in my shoes they may well tell the landlord to clear off for himself and ask Joe himself. Tenants can be demanding. For exampe if a washing machine breaks down you might not have the luxury of leaving it for a few days as you would in your own house. You might be told to get it sorted pretty lively. I'm rattling on a bit now but just trying to point out possible negative aspects to being a landlord

Again sorry if I'm appearing especially harsh Goose135 but I don't have any bad intent towards you if thats the way it seems. Just trying to stand back and look at your situation as objectively as possible. I dont have a recognised qualification that allows me to dish out such advice and no doubt there are aspects Im overlooking. As with issues of such a nature it would be a good idea to seek proper legal advice before doing anything rash. Also try to maintain as amicable a relationship with your girlfriend as possible throughout.

Johnny Bitte

Thanks John, some great advice in there. I thought the NE was on the price we bought it for. That's another spanner in the works.

Yeah it looks like we are gonna take a serious hit on this.

Relationship is still friendly but she is gonna be shocked to hear this.

Thanks again.

johndaman66

Your most welcome Goose135. Only glad to be of any assistance possible. Many people seem to have an incorrect notion in their mind on the meaning of negative equity. Wikipedia seems to give a pretty good definition and explanation. Below is the link

http://en.wikipedia.org/wiki/Negative_equity

Perhaps easy for me to say but try not to let the whole situation get you down anyway. Lifes too short and all that. Remember too that the problem does not exclusively lie on your shoulders, rather you and your ex girlfriend.

The_Conductor

The_Goose135 wrote: »

No renting the house completely would cover 90% of the mortgage and at least I wouldn't be paying the whole lot.

Unfortunately the fact that renting out the property would cover 90% of the mortgage is irrelevant. Any rental income is treated as 'income' and while you may have some costs you can offset against this income before determination of tax on it- the big cost that people have been allowed to write-off on rental income historically, has been mortgage interest. This was however reduced to 75% in the last budget, and it is proposed to further reduce this to 50% this time round (as a step towards abolishing it altogether over a 4 year period).

Also- if you rent out your property- you are no longer an 'owner-occupier', you do not qualify for the favourable mortgage terms on offer to owner occupiers, and would normally be moved onto an investment mortgage by the lending institution (typically 1-2% higher interest rate than for an owner occupier).

Personally if I were in your position- I'd see if the property could be sold, and take out a personal loan to offset against the negative equity.

Note- the fact that your ex has a personal loan out for furniture, is irrelevant- she is liable for half the negative equity on the property also.

With respect of a 20k negative equity valuation by the bank- this may in itself be wishful thinking- and only a nominal figure they are pulling out of thin air. You need to get an independent valuation done by a local estate agent, on the basis that the property has to sell- in order to determine an open market valuation.

Sorry.