Does the 20% deposit apply in this case?

amayb · 06-08-2015 2:18pm #1

My partner and I would like to purchase a house in the next year or so and I’m wondering if the 20% deposit applies in our situation.

He purchased a property in 08 with a friend and it’s now in negative equity. It’s rented out and pretty much pays for itself while we rent an apartment together (with work commitments, it’s not feasible for us to live in that house). I’ve never owned a property.

Does anyone know if the 20% deposit applies to the whole amount borrowed in our case? I think I’ve read before that if the current property is in negative equity it doesn’t apply and it will be 10% up to €220K?

We have 10% ready to go but we’d be looking to buy around the €320K mark so the 20% deposit would set us back a couple of years.

Michael D Not Higgins · 06-08-2015 2:31pm

Your partner is not a first time buyer therefore you're now not a first time buyer. Only if the other property is sold with a negative equity loan does the 20% not apply.

amayb · 06-08-2015 2:47pm

Thanks for your reply - that's what I was afraid of. Unfortunately, a negative equity loan isn't an option since it wouldn't make financial sense for the friend he bought the property with. The plan there is to keep renting it out until it breaks even.

I guess I just have to knuckle down and save every penny for another three years or so.

ComfortKid · 06-08-2015 3:01pm

Off topic here, and I'm not judging ye OP, but how can someone have enough to pay a deposit on a new property if they already have one in negative equity? Shouldn't he have to pay his debts on the other property more importantly?

Stheno · 06-08-2015 3:03pm

ComfortKid wrote: »

Off topic here, and I'm not judging ye OP, but how can someone have enough to pay a deposit on a new property if they already have one in negative equity? Shouldn't he have to pay his debts on the other property more importantly?

I think you are confusing negative equity.

All negative equity means is that the outstanding mortgage on the house is more than would be gotten if the house went up for sale.

The ops partner may well be keeping fully up to date with mortgage payments, but if the value of the house dropped significantly in the recession, selling it will incur a loss, that doesn't mean they have debts that are unpaid

stimpson · 06-08-2015 3:03pm

ComfortKid wrote: »

Off topic here, and I'm not judging ye OP, but how can someone have enough to pay a deposit on a new property if they already have one in negative equity? Shouldn't he have to pay his debts on the other property more importantly?

What a stupid post. You can be in negative equity but not be in arrears on the mortgage.

06-08-2015 3:03pm

ComfortKid wrote: »

Off topic here, and I'm not judging ye OP, but how can someone have enough to pay a deposit on a new property if they already have one in negative equity? Shouldn't he have to pay his debts on the other property more importantly?

Just because it's in negative equity it doesn't mean that the OP can't afford the repayments, it just means the property is worth less than the value of the mortgage.

km991148 · 06-08-2015 3:03pm

ComfortKid wrote: »

Off topic here, and I'm not judging ye OP, but how can someone have enough to pay a deposit on a new property if they already have one in negative equity? Shouldn't he have to pay his debts on the other property more importantly?

Does negative equity relate directly to 'the debt'. If the property wasn't in negative eq there would still be a debt. Are you saying no one should aply for new credit if they already have credit? If that's the case we would all save up and buy or houses instead of mortgaging..

ComfortKid · 06-08-2015 3:04pm

Stheno wrote:

All negative equity means is that the outstanding mortgage on the house is more than would be gotten if the house went up for sale.

Thanks for clearing that up. I thought negative equity means behind on payments. As you can tell, I haven't a clue and was just wondering in general, nothing to do with you op. Sorry.

Michael D Not Higgins · 06-08-2015 3:04pm

ComfortKid wrote: »

Off topic here, and I'm not judging ye OP, but how can someone have enough to pay a deposit on a new property if they already have one in negative equity? Shouldn't he have to pay his debts on the other property more importantly?

That's not really any of our business if the mortgage is being paid. But the mortgage on the BTL property will be considered in the outgoings for any further mortgage application and the rent income is not guaranteed so isn't necessarily taken into account by the bank.

gaius c · 06-08-2015 3:08pm

ComfortKid wrote: »

Off topic here, and I'm not judging ye OP, but how can someone have enough to pay a deposit on a new property if they already have one in negative equity? Shouldn't he have to pay his debts on the other property more importantly?

They could well have a tracker mortgage so paying it off early might not be in their best interests.

OP
Be aware that an outstanding loan will take a huge bite out of any future loan for a new property. The banks won't allow for any of the rental income.

ComfortKid · 06-08-2015 3:12pm

stimpson wrote:

What a stupid post. You can be in negative equity but not be in arrears on the mortgage.

Obviously I didn't know that or I would not be asking. If I don't ask stupid questions I'll never be able to ask smart ones :-)

amayb · 06-08-2015 3:19pm

Haha, a lot has happened on here in the last few mins!

But yes all of this is correct, the mortgage is not in arrears and the property is close to a university so it's very easy to rent out and always ticks along by itself - hence we've been able to save 10% for a new deposit.

I understand that the existing mortgage will impact heavily on any future borrowings too as the rental income is ignored but the existing mortgage is a tracker so the monthly repayments aren't enormous and with our savings record I think we can pass any stress test.

It's the 20% deposit that's the main stumbling block right now simply because we're effectively starting off again where we were a couple of years back but in the long run we'll get there. It's just disappointing

gaius c · 06-08-2015 3:35pm

amayb wrote: »

Haha, a lot has happened on here in the last few mins!

But yes all of this is correct, the mortgage is not in arrears and the property is close to a university so it's very easy to rent out and always ticks along by itself - hence we've been able to save 10% for a new deposit.

I understand that the existing mortgage will impact heavily on any future borrowings too as the rental income is ignored but the existing mortgage is a tracker so the monthly repayments aren't enormous and with our savings record I think we can pass any stress test.

It's the 20% deposit that's the main stumbling block right now simply because we're effectively starting off again where we were a couple of years back but in the long run we'll get there. It's just disappointing

I think you underestimate how much of a hit the existing loan will be. Basically their calculation will be:

1. What are their incomings?
2. Based on incomings, here's what their max loan is.
3. Now subtract the entirety of their current loan from that amount.
4. If existing loan is larger than what they are prepared to offer you now, then you will need a 100% deposit!

20% deposit is actually the least of your worries.

amayb · 06-08-2015 3:42pm

gaius c wrote: »

I think you underestimate how much of a hit the existing loan will be. Basically their calculation will be:

1. What are their incomings?
2. Based on incomings, here's what their max loan is.
3. Now subtract the entirety of their current loan from that amount.
4. If existing loan is larger than what they are prepared to offer you now, then you will need a 100% deposit!

20% deposit is actually the least of your worries.

Maybe I'm completely wrong but I thought they would just count the monthly repayments as an expense e.g. He earns €50K per year, existing mortgage costs €7K per year so we will lend him €43,000 X 3.5?

Obviously all other expenses would be factored into the equation but I thought this is how the existing mortgage would impact it?

Stheno · 06-08-2015 3:43pm

amayb wrote: »

Maybe I'm completely wrong but I thought they would just count the monthly repayments as an expense e.g. He earns €50K per year, existing mortgage costs €7K per year so we will lend him €43,000 X 3.5?

Obviously all other expenses would be factored into the equation but I thought this is how the existing mortgage would impact it?

no, if you qualify for 400k and the outstanding mortgage is 200k the most you will get is 200k

amayb · 06-08-2015 3:49pm

Wow ok, well then I was way off the mark.

Potentially the better option then is for me to purchase something on my own as a first time buyer. Obviously wont be anywhere near the €300K mark we were thinking,

ComfortKid · 06-08-2015 3:55pm

amayb wrote:

Potentially the better option then is for me to purchase something on my own as a first time buyer. Obviously wont be anywhere near the â‚¬300K mark we were thinking,

You wont find out for sure unless you ask.

gaius c · 07-08-2015 2:41pm

amayb wrote: »

Wow ok, well then I was way off the mark.

Potentially the better option then is for me to purchase something on my own as a first time buyer. Obviously wont be anywhere near the €300K mark we were thinking,

If you're married, this definitely won't work as they will see that your partner has an outstanding loan against them.

If you are not married, there may be other ways they can figure out that you are not really buying on your own. They are quite thorough these days.

It's important to understand why they are doing this even if the rent covers the mortgage. If you were to default on both mortgages, neither bank will want to be in a contest over your liquid assets in the event of repossession & bankruptcy or insolvency.

tinkerbell · 07-08-2015 2:46pm

Stheno wrote: »

no, if you qualify for 400k and the outstanding mortgage is 200k the most you will get is 200k

Since when? I thought banks look at monthly repayment capacity. The above doesn't make much sense as €200k on a tracker plus €200k on a variable would be a hell of a lot lower than a monthly repayment on €400k on a variable / fixed rate.

That's why it's always recommended to clear a personal loan before you apply for a mortgage as the monthly repayment will significantly lower your mortgage borrowing potential (a €20k personal loan with a repayment of say €400 a month will reduce your borrowing potential by a lot more than €20k).

MrDerp · 08-08-2015 10:07am

tinkerbell wrote: »

Since when? I thought banks look at monthly repayment capacity. The above doesn't make much sense as €200k on a tracker plus €200k on a variable would be a hell of a lot lower than a monthly repayment on €400k on a variable / fixed rate.

I know people who bought a house when one party had (then significant) negative equity on an apartment. The criteria applied by the bank was:
1. LTI: value of both mortgages combined not to exceed banks LTI limits (then 5.5% with their bank)
2. They were allowed the banks LTV 90% on new mortgage
3. Affordability was calculated on two stress tested mortgages, with 8 months rent per year on the apartment allowed in income calculations. After that normal calculations applied on the affordability of both mortgages

So in short, I would expect LTI to apply over both mortgages, LTV on the new mortgage, and affordability to apply based on incomes plus a portion of rent.

OP, they will allow for your negative equity, but will most likely apply the LTI on both stringently, with LTV 80% on new property. I can't see you falling within the higher LTV exceptions.

So the amount you can hope to borrow, I reckon, will be (3.5 x your joint income, maybe including some rent) - outstanding mortgage amount. Divide by 0.8 or multiply by 1.25 to figure out your limit for purchasing a new house. So you get an overall dispensation on total LTV to allow for negative equity but not on total LTI, they'll manage the risk on that basis.

Jen44 · 12-08-2015 7:32am

Ive just gotten approval on a new mortgage with 10% deposit even though we are not first time buyers. Our first house is in around 20k negative equity but is in an area with a good rental market so we are going to rent it out. We just rang banks directly and asked would they be willing to budge on the new mortgage lending rules based on individual circumstance. The bank were happy to go ahead and give us the mortgage at 90 % LTV as we were not looking to borrow more than 3.5 times our combined salary. My advise would be to ring around and explain your circumstance. AIB were iron clad on the new rules but a few of the other banks were willing to work with us and as I have said we have since been approved. Just to add if you are married you will not be able to apply for a mortgage on your own as a first time buyer. I bought our original house on my own but as we are now married my husband is also not considered a first time buyer even though he has technically never bought a house. If you are not married and you still want to go ahead and buy on your own you will not be able to use any of your partners earnings towards the new mortgage so the will reduce the amount you are able to borrow significantly! Hope this helps and good luck!

tinkerbell · 12-08-2015 7:43am

Jen, did the LTI limit apply on your new mortgage only or did they take into account your existing mortgage?

Michael D Not Higgins · 12-08-2015 7:43am

Jen44 wrote: »

Ive just gotten approval on a new mortgage with 10% deposit even though we are not first time buyers. Our first house is in around 20k negative equity...

I'll believe it when you draw down. Did you tell the bank you were keeping the old house? They have leeway to give negative equity loans on sold houses and forgo the LTV limits.

gaius c · 12-08-2015 8:19am

10% deposit with a negative equity house so it's basically less than 10% deposit.
It doesn't sound very plausible.

Jen44 · 12-08-2015 9:16am

Just to clarify my first house is a tracker mortgage with Bank of Scotland who are no longer in the country the interest rate is 1.15% the mortgage is 660 a month and the rental value is 900 euro a month. The new mortgage is with a different bank altogether and the loan offer has already been received by my solicitor so it is possible, individual circumstances will be taken into account. We only needed to borrow 262k for the new house and it was well below 3.5 times are combined salary so the bank were happy to go ahead. I plan on selling the first house in a year or so as soon as its out of negative equity. The estate agent we are dealing with for the rental of the first house said we would prob break even if we sold it now but to be sure we are going to wait.

Jen44 · 12-08-2015 9:20am

tinkerbell wrote: »

Jen, did the LTI limit apply on your new mortgage only or did they take into account your existing mortgage?

No just the new mortgage its completely separate and with a different bank

NyOmnishambles · 12-08-2015 9:26am

Jen44 wrote: »

Just to clarify my first house is a tracker mortgage with Bank of Scotland who are no longer in the country the interest rate is 1.15% the mortgage is 660 a month and the rental value is 900 euro a month. The new mortgage is with a different bank altogether and the loan offer has already been received by my solicitor so it is possible, individual circumstances will be taken into account. We only needed to borrow 262k for the new house and it was well below 3.5 times are combined salary so the bank were happy to go ahead. I plan on selling the first house in a year or so as soon as its out of negative equity. The estate agent we are dealing with for the rental of the first house said we would prob break even if we sold it now but to be sure we are going to wait.

gaius c wrote: »

10% deposit with a negative equity house so it's basically less than 10% deposit.
It doesn't sound very plausible.

Michael D Not Higgins wrote: »

I'll believe it when you draw down. Did you tell the bank you were keeping the old house? They have leeway to give negative equity loans on sold houses and forgo the LTV limits.

I am in an almost identical situation to the poster above and have had the same experience

The house I am purchasing is going through a difficult probate so my mortgage approval was due to expire next week, it was extended with no issues on request and provision of new bank statements

We had the bank on standby for draw down last month (which didn't proceed due to probate) and there was no indication they weren't willing to give us the money

Jen44 · 12-08-2015 9:32am

yes i agree we have had a very stress free process with the bank. I think the main point of my post is to advise the OP and whoever else is interested to go to the banks and talk to someone, explain your personal circumstance. Dont go by the online calculators and approvals as you cant input all your details. You may have one negative point with your application, in our case it was that we just had 10% deposit but on the whole you may have other positives that out way that one negative. Im no expert im just speaking from my personal experience

Michael D Not Higgins · 12-08-2015 9:53am

This is pie in the sky stuff. So if you rent out the new house too, can you go get another mortgage for 262k? When does it end?

Realistically, I expect either the bank expect you to sell the old house and bring the negative equity with you, or you haven't told them about the house ("completely separate and with a different bank" doesn't make any sense).

Jen44 · 12-08-2015 10:09am

Of course I told them about that house. Im not sure if you are familiar with the mortgage application process but its pretty hard to hide the fact that you have a mortgage when you have to supply bank statements etc. I also had to supply letters from the first mortgages bank clarifying the interest rate. I don't know what you are finding so difficult to understand I think i have been very clear in my posts. The mortgages are with two different banks. I didn't have the opportunity of taking the negative equity with me to the new house as the bank is no longer in the country. Bank of Scotland do not give mortgages in Ireland any more.

Michael D Not Higgins · 12-08-2015 10:50am

Jen44 wrote: »

Of course I told them about that house. Im not sure if you are familiar with the mortgage application process but its pretty hard to hide the fact that you have a mortgage when you have to supply bank statements etc. I also had to supply letters from the first mortgages bank clarifying the interest rate. I don't know what you are finding so difficult to understand I think i have been very clear in my posts. The mortgages are with two different banks. I didn't have the opportunity of taking the negative equity with me to the new house as the bank is no longer in the country. Bank of Scotland do not give mortgages in Ireland any more.

It's just not heard of recently with the application of the new CBI rules. It looks like you're one of the fabled 15% due to your high income. Congrats on the new house.

Make sure you look into the obligations of being a landlord. And remember that even though the mortgage is 660 and your rental income is 900 doesn't mean you're up 240, probably more like down 200.

Jen44 · 12-08-2015 11:37am

yes, maybe I was lucky but there are options out there! Luckily my husband is an accountant so familiar with the tax implications and such of renting! Im a very reluctant land lord and if it wasn't for the fact the house was so far from Dublin where we both work we wouldn't have moved at all, never minded the commute till we had a baby!! Fingers crossed we can sell it in in year or so! I'm also blessed that for some reason there aren't many houses available to rent in Drogheda so I should have no problems getting tenants in.

NyOmnishambles · 12-08-2015 12:45pm

Michael D Not Higgins wrote: »

Realistically, I expect either the bank expect you to sell the old house and bring the negative equity with you, or you haven't told them about the house ("completely separate and with a different bank" doesn't make any sense).

Neither are true in my case, the bank are aware of my existing mortgage and my intention to rent out the current property

As the rental income minus tax will cover the existing mortgage payments it wasn't treated as income for assessment purposes (and I wouldn't have wanted it to be) but the outstanding mortgage amount wasn't deducted from the 3.5 X income calc either

Pac2015 · 20-08-2015 2:55pm

amayb wrote: »

Maybe I'm completely wrong but I thought they would just count the monthly repayments as an expense e.g. He earns €50K per year, existing mortgage costs €7K per year so we will lend him €43,000 X 3.5?

Obviously all other expenses would be factored into the equation but I thought this is how the existing mortgage would impact it?

You are more or less correct if he earns 50K per year it will be 3.5 times that salary plus 3.5 times your salary banks allow only around 400 of the rental amount to be taken into consideration even if the whole rent is being covered. They will deduct the balance of what the rental mortgage amount per month is from his take home pay ex.

3 bed house, rent is 1400 you then half that because his friend pays 50% so he needs to come with 700 banks will only allow 400 of that and will factor in the balance of 300 its a stupid way to do things but that's how they work.

Pac2015 · 20-08-2015 2:57pm

Jen44 wrote: »

Ive just gotten approval on a new mortgage with 10% deposit even though we are not first time buyers. Our first house is in around 20k negative equity but is in an area with a good rental market so we are going to rent it out. We just rang banks directly and asked would they be willing to budge on the new mortgage lending rules based on individual circumstance. The bank were happy to go ahead and give us the mortgage at 90 % LTV as we were not looking to borrow more than 3.5 times our combined salary. My advise would be to ring around and explain your circumstance. AIB were iron clad on the new rules but a few of the other banks were willing to work with us and as I have said we have since been approved. Just to add if you are married you will not be able to apply for a mortgage on your own as a first time buyer. I bought our original house on my own but as we are now married my husband is also not considered a first time buyer even though he has technically never bought a house. If you are not married and you still want to go ahead and buy on your own you will not be able to use any of your partners earnings towards the new mortgage so the will reduce the amount you are able to borrow significantly! Hope this helps and good luck!

This is really good to know cause I am in the situation as yourself but we were advised that we need to sell the apartment in order to get the 10% deposit now we are not in negative equity of that much only about 6K but this is really useful to know.

Michael D Not Higgins · 20-08-2015 3:00pm

Pac2015 wrote: »

This is really good to know cause I am in the situation as yourself but we were advised that we need to sell the apartment in order to get the 10% deposit now we are not in negative equity of that much only about 6K but this is really useful to know.

Keep in mind the bank has made them an exception to the rules by including them in the 15% allowable above the 80% limit. This is because of their low LTI. Your mileage may vary and even if you're in the exact same situation doesn't mean the bank will approve you for an exemption also.

Pac2015 · 20-08-2015 3:07pm

Michael D Not Higgins wrote: »

Keep in mind the bank has made them an exception to the rules by including them in the 15% allowable above the 80% limit. This is because of their low LTI. Your mileage may vary and even if you're in the exact same situation doesn't mean the bank will approve you for an exemption also.

I understand that I have gone to a mortgage broker and gotten advice from him but its just good to know there is some banks willing to negotiate as it means for some people its not as bad as it once seemed, we are still a long way off being ready to purchase it will be 2016 so we are just ploughing along saving and we will see what happens with the rules next year maybe some things will change via the central bank if not then we will have to change plans.

sailing · 20-08-2015 3:12pm

Pac2015 wrote: »

I understand that I have gone to a mortgage broker and gotten advice from him but its just good to know there is some banks willing to negotiate as it means for some people its not as bad as it once seemed, we are still a long way off being ready to purchase it will be 2016 so we are just ploughing along saving and we will see what happens with the rules next year maybe some things will change via the central bank if not then we will have to change plans.

I also recently got approval for a second mortgage with my other house in negative equity. I don't quite have the 20% deposit but they were happy to offer based on what I have saved and my current salary. It's best to talk to each bank and see what they'll offer.

Pac2015 · 20-08-2015 3:19pm

sailing wrote: »

I also recently got approval for a second mortgage with my other house in negative equity. I don't quite have the 20% deposit but they were happy to offer based on what I have saved and my current salary. It's best to talk to each bank and see what they'll offer.

Which bank was that with ?

sailing · 20-08-2015 3:19pm

Pac2015 wrote: »

Which bank was that with ?

BOI

Pac2015 · 20-08-2015 3:22pm

sailing wrote: »

BOI

Same as previous poster.
My current mortgage is with KBC and the broker we went deals alot with them too.
He was very honest and truthful and told us to clear all debts from any savings we had which at the time was around 10K and then start saving again and if my apartment was in neg equity then we could do a switch up mortgage which would mean selling my apartment and buying at the same time and then qualify for the 10%.
I suppose everyone's situation is different.

sailing · 20-08-2015 3:28pm

Pac2015 wrote: »

Same as previous poster.
My current mortgage is with KBC and the broker we went deals alot with them too.
He was very honest and truthful and told us to clear all debts from any savings we had which at the time was around 10K and then start saving again and if my apartment was in neg equity then we could do a switch up mortgage which would mean selling my apartment and buying at the same time and then qualify for the 10%.
I suppose everyone's situation is different.

One of the requirements I had was to clear a small personal loan I had outstanding. After that they seemed happy to talk. No harm calling into the different banks yourself as well as using the broker. They will give you a picture of where you're at and if required what's needed to secure a mortgage.

Pac2015 · 20-08-2015 3:32pm

sailing wrote: »

One of the requirements I had was to clear a small personal loan I had outstanding. After that they seemed happy to talk. No harm calling into the different banks yourself as well as using the broker. They will give you a picture of where you're at and if required what's needed to secure a mortgage.

That's very true we are not debt free after taking the advice of the broker we cleared his loan and the credit card so all we / I owe is the mortgage on the apartment which in one sense feels great knowing we dont owe any loans etc as we both own our cars.
We wont be ready to buy or even look at buying till summer 2016 but I think after x-mas I will go talk to some banks and also the broker again.
We pay 1100 rent each month and have done since July 2012 yet banks were not willing to take that into consideration when we went the last time the system keeps changing all the time it was never this hard when I was buying in 2008.
It seems not all is lost so I will take your advice and speak to banks also.

Pac2015 · 20-08-2015 3:34pm

sailing wrote: »

One of the requirements I had was to clear a small personal loan I had outstanding. After that they seemed happy to talk. No harm calling into the different banks yourself as well as using the broker. They will give you a picture of where you're at and if required what's needed to secure a mortgage.

That's very true we are now debt free after taking the advice of the broker we cleared his loan and the credit card so all we / I owe is the mortgage on the apartment which in one sense feels great knowing we dont owe any loans etc as we both own our cars.
We wont be ready to buy or even look at buying till summer 2016 but I think after x-mas I will go talk to some banks and also the broker again.
We pay 1100 rent each month and have done since July 2012 yet banks were not willing to take that into consideration when we went the last time the system keeps changing all the time it was never this hard when I was buying in 2008.
It seems not all is lost so I will take your advice and speak to banks also.

Jen44 · 21-08-2015 6:49am

I know KBC will take rent paid into account as they took the mortgage payments we were paying on our first property into consideration along with our monthly savings together to show our ability to pay off the monthly new mortgage payments

Pac2015 · 21-08-2015 8:26am

Jen44 wrote: »

I know KBC will take rent paid into account as they took the mortgage payments we were paying on our first property into consideration along with our monthly savings together to show our ability to pay off the monthly new mortgage payments

Thats also good to know as KBC are the bank the broker does the switch up mortgage with I already have a small mortgage with them for my apartment since 2008 so they can see I am a good payer plus we pay rent of 1100 each month too.

Does the 20% deposit apply in this case?

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