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Trading up. Mortgage.

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  • 05-09-2009 6:53pm
    #1
    ,mnb
    Registered Users Posts: 142 ✭✭


    Im sitting on negative equity of about 100K. I want to trade up in the medium term future, and buy a better house when prices are low.
    So far Ive been told that Il have to raise the negative equity sum plus the 10% on the new house plus the stamp duty all in cash, which makes it impossible for me.
    Is this other people experience of the banks approach in this situation. To me it seems that sitting on a 100K loss in one house I might as well be sitting on the same loss in another and paying the bank a bigger mortgage payment.


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    #2
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,285 Mod ✭✭✭✭The_Conductor


    Lets look at this from the banks perspective.
    At present you owe them (for arguments sake) 400k.
    You have 300k of assets to backup this loan- which means you are for all intensive purposes mortgaged to 135% of value of the property (LTV).

    If I was a banker (and I'm not), the only way on earth I'd countenance giving you more money to buy a bigger/better property (irrespective of how more affordable it might be in the long run)- would be if you were in a rock solid job, and willing to pay a considerable premia (possibly as high as 3-4% over base) for the privilege of me investing in what I would consider to be a gamble.

    Even those in rock solid jobs are having difficulty securing more than 5 times annual gross income + 1.5 times second income, to a max of 80-90% of the LTV of the property.

    You are in an unfortunate situation- along with vast numbers of other people. I alluded to this situation over 2 years ago- of all the people caught out in falls, those in unsuitable property who bought with the intention of moving in the short/medium term, are screwed. I bought 10 years ago myself- and am in an identical situation- though obviously my LTV wouldn't be in a bad position- I'm stuck in a property that is far from ideal to my current stage in life, but I can't see myself being able to move.

    When you say you are sitting on a 100k loss on house 1 and may as well be sitting on a 150/200k loss on house 2- from your perspective this makes perfect sense. From a banks perspective however- its viewed as throwing good money after bad, on a depreciating asset- why should they lend you even more money- when you don't have an equivalent asset on which to fund the loan? The sums don't add up- unless they add a serious risk price to lending the money- which would be crazy.

    I imagine as soon as NAMA gets its show on the road- and a little more liquidity enters the markets again- there will be a brief flurry of interest precisely in your/my market- offering greater than 100% LTV products, at increased rates, to those in rock solid jobs, solely for the purpose of allowing to trade up from one PPR to another. The Irish lending institutions are being hamstrung politically at present- and are lending at artificially low spreads. This is also going to change.


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