Negative Equity and the new LTV rules

TrishSimon

I was just on another site won't mention the name and one poster said that if you are in negative equity on a property you already own that the new rules don't apply to you if you want to buy another property.
I am a bit confused here and I do have an appointment to see a broker on Thursday for more information also but my question is:

My one bed purchased in 2009 for 123,500 now worth approx 100K-110K and I owe 117K on it so obviously I am not a FTB, husband is a FTB he does not own anywhere so do we qualify for the rule where if you are in negative equity you need 10% deposit and not the 20%.

Any information would be helpful as so many posts going around its getting confusing.
Thank you

snubbleste

I don't understand the confusion.
You are not first time buyers.

TrishSimon

snubbleste wrote: »

I don't understand the confusion.
You are not first time buyers.

I understand that, once a joint application is made my husband loses his FTB status as I am not a FTB but it states on a few forums that if you own a property that is in negative equity then lenders only require you to have a deposit of 10%, legal fees and stamp duty when purchasing another property so I am merely asking if this is true or not.

Michael D Not Higgins

Trish, the LTV limit exemption is only applicable if you're selling your other property. You cannot keep your apartment and get an exemption from the limits.

Have you seen your broker yet and what did they tell you?

tigershould

As above. If you sell your apartment you carry over the 7-17k NE on top of your new mortgage and you can use 10% deposit.

"Housing loans for borrowers in negative equity who wish to obtain a mortgage for a new property are not within the scope of the LTV limits."

Stream

I have inserted a reference from page 9 of the CBI information note below. All it requires to avail of the NE exemption is that you are a borrower in NE on a current property seeking a housing loan (note if does not state "negative equity loan" which is a term specifically defined in the CBI notes) to finance a new property. There is no mention of a need to sell the NE property. There is no mention of assessing status post drawdown of the new mortgage - this may be relevant because your situation after receiving a 2nd mortgage and paying a deposit may be that you are no longer in NE overall even if you are still NE on your initial property. There is no mention of what the required deposit will be although I expect most banks will require at least a 10% deposit.

Obviously the CBI rules are subject to each bank's own approach to implementation and their other policies which may be stricter than the CBI rules.


"Exemptions to the LTV limits
There are certain exemptions from these limits. The exemptions below do
not count towards the total value of mortgages within the scope or the
percentage limit and so are excluded from both the numerator and
denominator in calculating compliance with the proportionate cap.
1. Negative equity borrowers: Borrowers in negative equity on a current
property who are seeking a housing loan to finance a new property are
out of scope of the LTV limits. "

Michael D Not Higgins

Stream wrote: »

I have inserted a reference from page 9 of the CBI information note below. All it requires to avail of the NE exemption is that you are a borrower in NE on a current property seeking a housing loan (note if does not state "negative equity loan" which is a term specifically defined in the CBI notes) to finance a new property. There is no mention of a need to sell the NE property. There is no mention of assessing status post drawdown of the new mortgage - this may be relevant because your situation after receiving a 2nd mortgage and paying a deposit may be that you are no longer in NE overall even if you are still NE on your initial property. There is no mention of what the required deposit will be although I expect most banks will require at least a 10% deposit.

Obviously the CBI rules are subject to each bank's own approach to implementation and their other policies which may be stricter than the CBI rules.


"Exemptions to the LTV limits
There are certain exemptions from these limits. The exemptions below do
not count towards the total value of mortgages within the scope or the
percentage limit and so are excluded from both the numerator and
denominator in calculating compliance with the proportionate cap.
1. Negative equity borrowers: Borrowers in negative equity on a current
property who are seeking a housing loan to finance a new property are
out of scope of the LTV limits. "

I think there are two ways to interpret the Central Bank information.

The first is that the section dealing with negative equity loans is directly preceding the part you've quoted and 'new property' means exchange for the old property, i.e. the parts dealing with negative equity borrowers and negative equity loans are interchangeable.

This makes sense since the other parts expanded on around the negative equity loan are also summarised in the list of exemptions to the LTV requirements.

The second is the way you've interpreted. I can see it is potentially murky but in the context, exemption from LTV is when you're discharging negative equity, not just because you're in negative equity. Again this makes sense, partly because the exemption in the consultation paper specifically mentions "discharging residual debt" and "to avoid unduly limiting mobility for these borrowers".

There's nothing special about someone in negative equity til they try to sell so I don't see why they get special treatment if they're not trying to sell.

TrishSimon

Michael D Not Higgins wrote: »

Trish, the LTV limit exemption is only applicable if you're selling your other property. You cannot keep your apartment and get an exemption from the limits.

Have you seen your broker yet and what did they tell you?

Thanks that is very clear to me know, no going to see the broker tomorrow

Stream

Michael D Not Higgins wrote: »

I think there are two ways to interpret the Central Bank information.

The first is that the section dealing with negative equity loans is directly preceding the part you've quoted and 'new property' means exchange for the old property, i.e. the parts dealing with negative equity borrowers and negative equity loans are interchangeable.
This makes sense since the other parts expanded on around the negative equity loan are also summarised in the list of exemptions to the LTV requirements.

The second is the way you've interpreted. I can see it is potentially murky but in the context, exemption from LTV is when you're discharging negative equity, not just because you're in negative equity. Again this makes sense, partly because the exemption in the consultation paper specifically mentions "discharging residual debt" and "to avoid unduly limiting mobility for these borrowers".

I believe you are quoting from the original consultation paper. The information note does not mention anything about discharging residual debt. I believe my interpretation is reinforced by referencing the Central Bank feedback to the consultation paper.

".....We take on board the feedback that the exemption for NEBs as proposed in
CP87 may restrict the mobility of some of these borrowers. With this in
mind, we have, for the time being, decided that NEBs are outside of the
scope of the LTV limits. " [source: Central Bank CP87 Feedback Statement Q3]

My view is that this is the CB stating what was in the original CP (i.e. the residual debt element) was potentially restrictive so they have given a very broad exemption to NE borrowers in the information note and they to not reference residual debt.

I have not spoken with any banks on this yet and I expect there will be some confusion initially and potentially different opinions or policies on how individual banks choose to handle.

Michael D Not Higgins wrote: »

There's nothing special about someone in negative equity til they try to sell so I don't see why they get special treatment if they're not trying to sell.

Irrespective of whether they sell or not, the mobility of NE borrowers to purchase a new home would be unduly limited if they were required to have a 20% deposit when they have no equity in their existing property. I don't see why they should have to sell the existing property to avail of the exemption. I am not saying that all NE borrowers looking to get a new home should become landlords either. My point is that each individual NEB's case will be different and will need to be examined on its own merits however being in NE affects your ability to buy a new home even if you don't sell. As such I feel it is right that NEBs are able to avail of this exemption.

Michael D Not Higgins

Stream wrote: »

I believe you are quoting from the original consultation paper. The information note does not mention anything about discharging residual debt. I believe my interpretation is reinforced by referencing the Central Bank feedback to the consultation paper.

".....We take on board the feedback that the exemption for NEBs as proposed in
CP87 may restrict the mobility of some of these borrowers. With this in
mind, we have, for the time being, decided that NEBs are outside of the
scope of the LTV limits. " [source: Central Bank CP87 Feedback Statement Q3]

My view is that this is the CB stating what was in the original CP (i.e. the residual debt element) was potentially restrictive so they have given a very broad exemption to NE borrowers in the information note and they to not reference residual debt.

I have not spoken with any banks on this yet and I expect there will be some confusion initially and potentially different opinions or policies on how individual banks choose to handle.



Irrespective of whether they sell or not, the mobility of NE borrowers to purchase a new home would be unduly limited if they were required to have a 20% deposit when they have no equity in their existing property. I don't see why they should have to sell the existing property to avail of the exemption. I am not saying that all NE borrowers looking to get a new home should become landlords either. My point is that each individual NEB's case will be different and will need to be examined on its own merits however being in NE affects your ability to buy a new home even if you don't sell. As such I feel it is right that NEBs are able to avail of this exemption.

The original consultation paper imposed no limit on the loan to cover the residual debt but the LTV does affect the rest of the loan.

"The LTV limit will only apply to the loan secured on the new property, before the residual debt is applied. The residual debt which can be exempted only applies if the property sold is a primary dwelling."

I believe these two qualifiers are what they are referring to. The loan on the new property will now be entirely exempt from the limits as opposed to just excluding the cost of the negative equity.

The bank can look into specific exemptions as part of their proportional lending outside of the limits as allowed by the regulations, but if you compare two people, one with a 100k mortgage on a house in negative equity and one with a 100k mortgage on a house in positive equity, why should the former benefit over the latter if both are keeping their houses?

TrishSimon

Stream wrote: »

I believe you are quoting from the original consultation paper. The information note does not mention anything about discharging residual debt. I believe my interpretation is reinforced by referencing the Central Bank feedback to the consultation paper.

".....We take on board the feedback that the exemption for NEBs as proposed in
CP87 may restrict the mobility of some of these borrowers. With this in
mind, we have, for the time being, decided that NEBs are outside of the
scope of the LTV limits. " [source: Central Bank CP87 Feedback Statement Q3]

My view is that this is the CB stating what was in the original CP (i.e. the residual debt element) was potentially restrictive so they have given a very broad exemption to NE borrowers in the information note and they to not reference residual debt.

I have not spoken with any banks on this yet and I expect there will be some confusion initially and potentially different opinions or policies on how individual banks choose to handle.



Irrespective of whether they sell or not, the mobility of NE borrowers to purchase a new home would be unduly limited if they were required to have a 20% deposit when they have no equity in their existing property. I don't see why they should have to sell the existing property to avail of the exemption. I am not saying that all NE borrowers looking to get a new home should become landlords either. My point is that each individual NEB's case will be different and will need to be examined on its own merits however being in NE affects your ability to buy a new home even if you don't sell. As such I feel it is right that NEBs are able to avail of this exemption.

I was confused as to the rules and limits but now am more clear, I am willing to change the apt into an investment property in case people feel I would be benefiting from it and pay income tax and all the other expenses but I do understand we still won't qualify, I just want a home for myself and my husband as is the situation with most people I imagine we just have to speak to the broker and figure something else out

seamus

This is now pretty clear under the S.I. posted on the other thread:

“negative equity loan” means subject to paragraph (3), an amount that a borrower owes to a lender under a loan that had been a housing loan made for
principal home purposes where the relevant principal home has been sold and the proceeds from the sale have been insufficient to discharge in full the
amounts (whether principal, interest, arrears, other amounts or any combination of them) that had been outstanding under the housing loan;

In other words, it only becomes a negative equity loan when the property it was secured on, has been sold.

The other implication here is that someone in negative equity must sell their property before they can drawn down on the new one, if they wish for the new mortgage to be exempt. That's something that would generally be expected, but banks may require a certain amount of time between the sale and the new drawn down in order for the mortgage account to be properly closed and signed off, etc.

Stream

Michael D Not Higgins wrote: »

The bank can look into specific exemptions as part of their proportional lending outside of the limits as allowed by the regulations, but if you compare two people, one with a 100k mortgage on a house in negative equity and one with a 100k mortgage on a house in positive equity, why should the former benefit over the latter if both are keeping their houses?

Well the latter has more options available to them. If the latter sold the property, they would have the positive equity in cash to help towards a new property. Or they may be able to release some equity. If the former sold the property, they would be left with residual debt on top of mortgage for new property. I'm assuming both parties have equal opportunity to save. The exemption would only reflect that NEB's have less options in raising cash for a deposit for a new property. Even with this exemption, there will be other hurdles (e.g. LTI levels assessed on two mortgages) so I do not expect this to be a widely sought exemption.

I'm sure there are many different scenario's that could be justifiably debated. Ultimately, as you said above, this is why they have the lending outside of the limits which probably means the interpretation of the NEB exemption is a moot point.

Stream

seamus wrote: »

This is now pretty clear under the S.I. posted on the other thread:

In other words, it only becomes a negative equity loan when the property it was secured on, has been sold.

The other implication here is that someone in negative equity must sell their property before they can drawn down on the new one, if they wish for the new mortgage to be exempt. That's something that would generally be expected, but banks may require a certain amount of time between the sale and the new drawn down in order for the mortgage account to be properly closed and signed off, etc.

Agree that's the definition of a NE loan. However the information note states "housing loan" and not a "negative equity loan" [1. Negative equity borrowers: Borrowers in negative equity on a current property who are seeking a HOUSING LOAN to finance a new property are out of scope of the LTV limits.".]

As such, I don't see why there is a requirement to sell the NE property nor can I see it stated anywhere within the Information Note.

Michael D Not Higgins

Stream wrote: »

Agree that's the definition of a NE loan. However the information note states "housing loan" and not a "negative equity loan" [1. Negative equity borrowers: Borrowers in negative equity on a current property who are seeking a HOUSING LOAN to finance a new property are out of scope of the LTV limits.".]

As such, I don't see why there is a requirement to sell the NE property nor can I see it stated anywhere within the Information Note.

The SI says
"This Regulation shall not apply to a new housing loan for the purchase of a principal home advanced to a borrower who is at the time that the housing loan is advanced a borrower under a negative equity loan."

seamus

The S.I. contains the definition above. That overrides the Information Note

http://www.irishstatutebook.ie/pdf/2015/en.si.2015.0047.pdf

Stream

Michael D Not Higgins wrote: »

The SI says
"This Regulation shall not apply to a new housing loan for the purchase of a principal home advanced to a borrower who is at the time that the housing loan is advanced a borrower under a negative equity loan."

I missed Seamus' reference to the SI above so I didn't realise this was available until now.

I agree that it closes off the exemption to NEB's who wish to keep existing property.

dizzy23

has anyone any actual experience if this ? im waiting ti hear from ebs !!!

castle2012

Yes currently going through the process with ub . Couple of things you cant get a mortgage offer till you have your own sale agreed plus the one your buying sale agreed. Its very complex . My application started in December when I sale agreed my own . Anyway im at the end stage fingers crossed, hopefully this week or next week . Just waiting on the call from bank with final approval.I'll let you know when I hear back .

dizzy23

cheers!! im sale agreed on home n sale agreed on new fingers crossed !! was told by ebs I had to go through marps even though im not behind n payments r anythin !! have been told that it was submitted 2nd of this month although with them since dec n that they have 21days t decide so by my reckonin dat means ishould know by mon !!!

dizzy23

gettin really cross now still no word!! was told both times iv rang this week I habet no info for u u will be informed within 21 days of application being made !!ah that was sunday !! im fearing now its bad ans they wont tell me !!!

ginanc

we are currently negotiating a negative equity mortgage with AIB
important to note that AIB are enforcing the new central bank deposit rules for negative equity mortages also ie we require 20% on the new property
they confirmed this to me on Monday after a couple of weeks of confusion
don't know what other lenders are doing
so the supposed different rules for negative equity situations isn't being taken on board by AIB

TrishSimon

ginanc wrote: »

we are currently negotiating a negative equity mortgage with AIB
important to note that AIB are enforcing the new central bank deposit rules for negative equity mortages also ie we require 20% on the new property
they confirmed this to me on Monday after a couple of weeks of confusion
don't know what other lenders are doing
so the supposed different rules for negative equity situations isn't being taken on board by AIB

I would take further advice on this possibly from a broker as I don't think AIB can make up their own rules regarding the negative equity side of things and the deposit, I mean why would their be one rule for AIB and another rules for all other banks.

ginanc

i guess it's just AIB policy - they can apply any rules they want really regarding deposit once it is not below 20% - same for the other banks
they have amended the info on their website to reflect this also so it is official

seamus

TrishSimon wrote: »

I would take further advice on this possibly from a broker as I don't think AIB can make up their own rules regarding the negative equity side of things and the deposit, I mean why would their be one rule for AIB and another rules for all other banks.

Banks are free to make up their own rules provided that they're still within the requirements of the central bank.

ginanc

yep so the CBI saying that people in negative equity are exempt from new rules is meaningless for AIB customers

TrishSimon

ginanc wrote: »

yep so the CBI saying that people in negative equity are exempt from new rules is meaningless for AIB customers

It's interesting to know as I am a KBC customer and am in the situation of a small bit of negative equity so I got advice from a broker and we have a plan in place that will enable me to qualify for the 10% deposit with KBC doing a switch up mortgage.

ginanc

interesting
our NE is less than 50k so not huge - AIB are adamant we need 20% though

TrishSimon

ginanc wrote: »

interesting
our NE is less than 50k so not huge - AIB are adamant we need 20% though

I'm sure they all have their own rules maybe get some advice from a broker I used Garry in OMAC in Clondalkin very straight forward and gave great advice and I feel confident now with a plan in place

Michael D Not Higgins

TrishSimon wrote: »

It's interesting to know as I am a KBC customer and am in the situation of a small bit of negative equity so I got advice from a broker and we have a plan in place that will enable me to qualify for the 10% deposit with KBC doing a switch up mortgage.

Excellent, happy it's working out for you!

dizzy23

well my 21 day reply still hasnt been recieved !! have been told its in the post and it positive but to what that means I do not know!! probably tellin us we can sell our house pay them back qnd become homeless so fed up of banks. as above iv heard aib r talking about this and iv taken advice and been told that they can't that its one of the things the central bank has brought in . good luck to you and keep us posted