Trading up when not in negative equity

dufferlover

Hi all,

Right before we officially start the process I'd love to know what the stance is on this.

We paid 159,000 for a four bedroom detached property in 2012 in Kildare and borrowed 130,000 to buy it. Judging by the sale of neighbours' houses we could potentially now sell it for 230,000. We want to trade up and are looking to spend 250,000 on a bigger family home in a county where property prices are currently significantly lower.
What I want to know (loosely) is do the banks take in to consideration the profit of the sale of our current place. Basically can we use that as a deposit and borrow the remaining for the new house.
We are both working full time and earning small bit more than we did in 2012, however we do have two children now, which I know changes things a lot.
Hope I'm making sense and thanks in advance for any advice/replies.

Michael D Not Higgins

Short answer, yes.

Even if you only did interest only payments for the last 4 years and still owe 130k, if it sells for 230k then 130k goes to clear the mortgage and 100k can be used to purchase the new house. As the new house is ~250k, your deposit requirements would be 20%, i.e. 50k. This would require an income of 57k to get the 200k mortgage but if you use the whole 100k then the income needed would drop to 43k.

Edit: With two kids, the minimum salary might go up due to the underwriting criteria within the banks. For a family of four they would estimate ~2500 a month on living expenses, so you would probably need a higher salary than what I've listed above. If you salary is a good bit above this then I wouldn't worry. It's worth talking to your bank about the affordability criteria.

dufferlover

Michael D Not Higgins wrote: »

Short answer, yes.

Even if you only did interest only payments for the last 4 years and still owe 130k, if it sells for 230k then 130k goes to clear the mortgage and 100k can be used to purchase the new house. As the new house is ~250k, your deposit requirements would be 20%, i.e. 50k. This would require an income of 57k to get the 200k mortgage but if you use the whole 100k then the income needed would drop to 43k.

Thanks a million for that. That's good to know. We stupidly or maybe not stupidly (who knows) got very bogged down by not having any other loans other than the mortgage after we drew down. As a result, we bought our car outright and paid ourselves for everything and anything without borrowing. So while we only have a mortgage, we cleaned ourselves out otherwise. Along came two kids and the cost of childcare so we are presently very much so restricted on saving due to childcare costs. We were afraid we'd need a 20 per cent deposit in an account before even applying.

Out of interest, what way would we even start? Do we go to the banks, tell them the story and apply or would we be required to sell our place first?

We've found our dream property at our new location, Tullamore, but sadly it's on the market now, so it's probably too soon for us even though I'd jump at it now but we have no ground work done.

Michael D Not Higgins

I'd talk to the bank first, you can then get a reasonable idea of what you can afford. You would be in a chain, where signing of contracts would be contingent on getting the other property to that stage too. If you bid on this house now, you're not going to be anywhere near completing when it comes to it and you'd likely lose out when the delay might mean they pull out of the deal. Nothing is final in house buying until you've signed the contracts and handed over keys.

I've done the same as you, looked for a property before doing all the other work first. You see some lovely places go without any chance to even bid on them. In general, I would say you should really be making bids around the time you expect to start receiving bids.

dufferlover

I've just had a loose web chat with AIB who are saying the opposite. We would have to sell first before applying for a new mortgage

The Mulk

dufferlover wrote: »

I've just had a loose web chat with AIB who are saying the opposite. We would have to sell first before applying for a new mortgage

I'm in the same process at the moment, i'm using the equity from my home to upgrade, but i still needed 10% of the purchase price for the solicitors.
I also needed a non-conditional contract signed by my buyer, failing that it would need to be done in 2 separate transactions.
These can be done a couple of weeks apart though

Lumen

dufferlover wrote: »

I've just had a loose web chat with AIB who are saying the opposite. We would have to sell first before applying for a new mortgage

Try a different bank or a broker. I'd suggest applying with multiple banks anyway - we started out with KBC, they were great to start with then got really slow so we switched to Ulsterbank who were happily offering a lower rate.

This isn't going to be easy. Timing house purchases is very hard, delays all over the place.

The selling EA will at least want to see that you've got your house on the market before accepting a bid, so get that sorted first.

DanielDI

Depending on the size of the extension, you may not need planning permission. In a nutshell, if the extension is to the rear of the property, no more than 40sqm, does not exceed the height of the house or reduce the remaining garden to less than 25sqm, then it is likely to be exempt. You should employ an architect to provide an exemption certificate which will be required by any future purchaser on the sale of the property.

Meredith2016

We were in very similar situation to you Dufferlover- own a house, wanted to trade up but would be relying heavily on proceeds of sale of our house to secure the 20 percent deposit required by the bank. In our case, we talked to the bank to seek approval in principle..no harm to go through the process, least then you know what you can afford and the offer ( if approved) stands for six months. If you end up not buying ( I.e. Not drawing down the funds), no loss. However, if your dream home were to come on the market, it is better to have AIP so you are not wasting time waiting for the bank to review your application.
In our case, our dream home came up & banks approved the mortgage on condition that the 20 pc deposit would be payable by us ( like you, we cleared all our loans and have one child which has taken its toll on our savings!) EA selling the house had a chat with us & we advised that we would need to sell the house to buy the new property. EA said that he was confident he would be able to sell our house very quickly ( based on recent property sales made by his company in our estate), and he suggested not putting our house on market unless we were the successful bidders. He also discussed our situation with the seller who was happy to deal with us in the event that we were highest bidders. I understand the house was ex rental property and landlord was under no major pressure to sell.
In the end, we were outbid which was a little disappointing, but we were lucky that we didn't waste time or money putting our house on the market.
I suggest talk to a few banks ( maybe use a broker?) and get your approval in principle. Contact local estate agents and get your property valued ( most do for free).
Bank had suggested that we might have no option other than to sell the house to secure the deposit, then rent for a while until a house came on the market. I'm sure you may have considered this, but in our case we were nervous about selling our house and being stuck renting for potentially years until something came up that we were interested in buying and lucky enough to secure- not to mention that you may well end up paying more in rent than your current mortgage!
Best of luck with it all.

April 73

It's do-able. You just need to find the right bank.

We only put our house on the market when we were the successful bidders on the house we wanted to buy. The sellers were happy to wait for us to sell. We used the equity in our house as the deposit for the next house. We ended up with a LTV ratio of 50% which may have helped our case with the bank (KBC through a broker)

However we did have to put up 10% of the value as a deposit when we signed contracts. That might be difficult if you don't have savings to do this outside of your equity.

whippet

Sell, rent and then buy .. The surplus from the sale will be your deposit and while renting save a few bob and wait for the right house to buy. You'll be in a stronger position as you will not be in a chain when buying

4ensic15

whippet wrote: »

Sell, rent and then buy .. The surplus from the sale will be your deposit and while renting save a few bob and wait for the right house to buy. You'll be in a stronger position as you will not be in a chain when buying

Have you tried renting recently?

Michael D Not Higgins

4ensic15 wrote: »

Have you tried renting recently?

A short term let would probably be easier to get, but will cost a bomb while they're house hunting.

whippet

4ensic15 wrote: »

Have you tried renting recently?

not that exact formula, but something similar.

I rented out my house, rented another and then bought a new home and sold the original afterwards; too k about 18 months from start to finish.

I was fortunate in that I had a deposit already saved up for the new house.

If you rent it will allow you to get the cash deposit from the sale of your house and put you in a much better place when looking to buy or when talking to the banks .. as the money will actually be in your account rather than a notional amount subject to a sale.

BTW .. the banks really want to see a history of saving when applying for a mortgage, its all about affordability and financial prudence. You might use the time renting to put away a few quid each month to show you can do it.

whippet

Michael D Not Higgins wrote: »

A short term let would probably be easier to get, but will cost a bomb while they're house hunting.

if you are willing to sacrifice short term to purchase long term there is better value for renting out of the main urban areas.

4ensic15

whippet wrote: »

if you are willing to sacrifice short term to purchase long term there is better value for renting out of the main urban areas.

The costs per square meter might be lower but the inconvenience of travel and isolation can make it unworkable for many people.

whippet

4ensic15 wrote: »

The costs per square meter might be lower but the inconvenience of travel and isolation can make it unworkable for many people.

in that case the option is to stay put.

Some people are willing to sacrifice a little inconvience in the short term for longer term goals.

Like back in the old days when most couples lived on beans and toast with cardboard furniture while saving every single penny for a couple of years to get get a mortgage.

It seems that people are still blinded by the incessant need for immediate fulfilment.

The OP is living in Kildare and I am sure there is plenty of reasonable rentals available which wouldn't be too inconvenient.