BOI & PTSB approved to give negative equity loans

seamus

http://www.rte.ie/news/2012/0215/presswatch-business.html

NEW MORTGAGES AIMED AT TACKLING NEGATIVE EQUITY - The Irish Independent says home owners in negative equity have been given a lifeline after two banks were cleared to offer them new mortgages.

The paper says it has learned that Permanent TSB and Bank of Ireland have obtained permission from the Central Bank to offer a new type of home loan.

This will involve their negative-equity debt being tacked on to a mortgage for a new property, freeing them up to move.

The Indo says this offers a glimmer of hope for the depressed housing market, where thousands of professional young couples are trapped in homes that are worth less than the amount they originally borrowed. It is hoped the new scheme will allow them to think about moving, although they will carry their negative equity debt on to their new home.

Naturally this is one that's going to polarise people. You're effectively talking about 100%+ mortgages, again.

I think it was kind of inevitable - there was always going to be an issue with young families trapped in properties too small to accommodate a growing family, and the only option being to rent their current place out and rent a new property elsewhere. A reasonable solution, but it means that the rental market is flooded with unwilling landlords and so does very little to improve the already poor reputation of renting in this country.

I think it's all in the implementation really. If the borrowing is done sensibly, then there's no reason why someone shouldn't be given such a mortgage if the bank deems them to be capable of repaying the entire cost over the lifetime of the mortgage.

Though considering how tight lending is at the moment, I've no idea how anyone in NE will meet any criteria set out. Presumably they will have no savings (otherwise they would have used them against their NE), so the bank will be covering the entire mortgage on the new property, plus the NE carried over.

Zamboni

If the banks have the capital to do it then I am cautiously optimistic about this.
There is a group of people out there in negative equity but who can and are able to afford the repayments on their mortages without fail.
Once strict criteria apply, this could work in some cases.
At least it avoids debt forgiveness.

Just to add, I think anyone that avails of this is going to pay a massive premium, especially if they are losing trackers.
Imagine walking away from a property with €100k NE @ tracker interest rate and then adding this €100k to a new mortgage at current rates. Ouch. Maybe that 2 bed apartment might not seem like such a bad place after all...

zac8

The numbers who will be able to avail of this will be negligible and therefore it will have no impact on the market.

fricatus

seamus wrote: »

Presumably they will have no savings (otherwise they would have used them against their NE), so the bank will be covering the entire mortgage on the new property, plus the NE carried over.

It doesn't follow that someone in NE will automatically plough all their savings into the mortgage. My house is in NE, so we've been overpaying on the mortgage in the hope of getting out of NE as quickly as possible. We've also been saving like mad for the deposit on a bigger place, in the hope of renting out my place.

We've both been lucky in that we've suffered only a modest drop in income over the past few years, and our only financial problem is the negative equity on our house - and that in itself is only a problem because we need a bigger place.

seamus

No, they may not necessarily put it against the NE, but on balance unless someone has savings which are greater than their negative equity, the bank will be stumping up everything for these mortgages.

Spiritofthekop

The Irish Independent has learned that major lenders Permanent TSB and Bank of Ireland have obtained permission from the Central Bank to offer a new type of home loan.

This will involve their negative-equity debt being tacked on to a mortgage for a new property, freeing them up to move.

It offers a glimmer of hope for the depressed housing market, where thousands of professional young couples are trapped in homes that are worth less than the amount they originally borrowed.

It is hoped the new scheme will allow them to think about moving, although they will carry their negative equity debt on to their new home.

However, it could help kick-start the revival of the housing market if it improves people's chances of trading up to bigger houses to start a family.


The part in bold.


"Trapped in homes" What is this supposed to mean?

You have a home!! plenty of people cannot even afford a home in a still over inflated market were banks are only giving out small amounts.

djimi

Spiritofthekop wrote: »

"Trapped in homes" What is this supposed to mean?

You have a home!! plenty of people cannot even afford a home in a still over inflated market were banks are only giving out small amounts.

I suppose it means that there are a lot of people who spent a lot of money on starter homes who are now in negative equity, are in a position where they need to upsize due to having a family or whatever, but cannot do so because they cannot sell the house they are currently in. The wording is a bit dramatic, but its not far off the mark in the sense that anyone who has a home in negative equity is not selling it as things stand unless they can find a way to clear the NE.

Spiritofthekop

djimi wrote: »

I suppose it means that there are a lot of people who spent a lot of money on starter homes who are now in negative equity, are in a position where they need to upsize due to having a family or whatever, but cannot do so because they cannot sell the house they are currently in. The wording is a bit dramatic, but its not far off the mark in the sense that anyone who has a home in negative equity is not selling it as things stand unless they can find a way to clear the NE.

I know of a guy who is married with one kid who is living in a lovely 3 bedroom townhouse in a good area, he is always talking about debt forgivness & how he now wants to upgrade to a bigger house! He has no problem making his accounts look like he is in dire straits even though he can comfortable pay off his current house which is in neg equity. He feels like his house is not worth anything anymore and wants a bigger house simple as that. He has no problem with the tax payer buying his bigger house for him and will go down any free road to make this happen.

killers1

It's not a bad idea and will probably only be done in cases where the amount lent isn't being increased.. For example.. Couple bought a 3rd floor apt for €400k a few years ago, now worth €200k. The want to buy a house costing €200k as they recently had a child. Bank agree to allow them to sell Apt for €200k & lend €400k on the house worth €200k. Owners have no difficulty in repaying existing mortgage & also qualify to borrow €400k based on banks current income calculators. Net effect is couple have been able to move home as more space was needed and bank still have a debt out there for €400k. In reality the bank will be expecting the people who want to avail of this facility to be able to put down some sort of deposit so overall the banks exposure has been reduced.. This will also be exploited by the lenders to remove people from tracker rates as you can be pretty sure that while they'll allow you to take NE with you they won't let you keep your tracker!

Zamboni

So, in a nutshell.

Might as well be hung for a sheep as a lamb.

D3PO

Its a welcome step in my book but as with everything its only as good or bad as its implementation.

I really dont see much of a market for this. Id classify myself as being in the same position as Fricatus and Id suggest we are the kind of peopel this is targeted at.

Somebody who financially is paying their mortgage and saving comfortably aswell but yet is in negative equity. Im not sure the pool of people that are in that position is large.

And then how many of them would want to take this up ? I know I wouldnt .

As nice as it would be to upsize Im happy in the 3 bed semi D Im in plus I dont fancy losing the tracker rate I have which I'm sure I woould as the new mortgage would be based on new lending terms.

Good thing to have available but not a pancea to the housing crisis and likely to have poor takeup by a combination of eligible candidates deemed by the banks and willingness of people to use such a product.

seamus

D3PO wrote: »

As nice as it would be to upsize Im happy in the 3 bed semi D Im in plus I dont fancy losing the tracker rate I have which I'm sure I woould as the new mortgage would be based on new lending terms.

It's probably aimed more at people like me who would like to upsize to a 3-bed semi D.

The question really is whether it's a better option to sit on the property and rent it out, while renting a larger place for myself. My gut says it not, but there are always things to be considered. I have time though, at the moment upsizing would be "nice to have" rather than urgent. I know a fairly good number of people though with 1 or 2 kids and an apartment bursting at the seams, who would be the prime candidates for this kind of mortgage.

Whether they'll be able to avail of it is the big question.

D3PO

seamus wrote: »

It's probably aimed more at people like me who would like to upsize to a 3-bed semi D.

The question really is whether it's a better option to sit on the property and rent it out, while renting a larger place for myself. My gut says it not, but there are always things to be considered. I have time though, at the moment upsizing would be "nice to have" rather than urgent. I know a fairly good number of people though with 1 or 2 kids and an apartment bursting at the seams, who would be the prime candidates for this kind of mortgage.

Whether they'll be able to avail of it is the big question.

Id imagine most people in that position wouldnt be eligible though as it would imply they had a family after buying an apartment which means a) their affordability for a larger place is highly compramised and b) (and this is a sweeping generalisation) most people that bought apartments during the boom in my estimation did so not as a lifestyle choice but because they couldnt afford to buy a house.

so they are unlikely to be in a financial position to use this kind of mechanism. Again could be wrong I guess only time will tell.

Spiritofthekop

Economists on the radio telling people to stay clear of this new goverment ploy & stay on there tracker mortgages they currently have & not to lose the tracker rate!

PoleStar

D3PO wrote: »

Id imagine most people in that position wouldnt be eligible though as it would imply they had a family after buying an apartment which means a) their affordability for a larger place is highly compramised and b) (and this is a sweeping generalisation) most people that bought apartments during the boom in my estimation did so not as a lifestyle choice but because they couldnt afford to buy a house.

so they are unlikely to be in a financial position to use this kind of mechanism. Again could be wrong I guess only time will tell.

You are right, it IS a sweeping generalisation. There are many young professionals who bought apartments for anything between 250 and 600 thousand who would have probably planned to have upsized around now.

I am one of those. With wife and 2 kids in small apartment, we could afford to save a deposit and pay a mortgage on a house, carrying over our negative equity. The alternative as people is to wait until negative equity clears and suck it up in a 2 bed apartment which is not a viable solution OR rent apartment and rent somewhere for ourselves. The latter option obviously results in the rent we pay sucking up our chance of getting a decent deposit.

I think it is a good option but again with very strict criteria being applied in terms of ability to pay.

Spiritofthekop

http://www.southernstar.ie/article.php?id=3249

Raheny

I agree with a lot of what's been said heretofore: good idea, but devil is in the detail.

I bought at the height of the bubble, give or take 12 months, and had always planned on my current house (a modern 2-bed semi) as being a 'stepping stone'. It's not that I now need more space - and I feel for those who do - but I would now like to move to something different, a period house fixer-upper within walking distance of the city. I've spotted exactly what I'm looking for. My house has fallen by 50% in value since I bought it and, even though I just had an 80% LTV mortgage, I'm now in €100k negative equity. I would have no problem with the notion of carrying this debt with me to a new property of similar value to my current home.

However, it is OUTRAGEOUS that the banks are not willing to let homeowners retain their tracker on a new home of equivalent value. Only those with very large disposable incomes would be in a position to forfeit the tracker given the very high variable and fixed rates on offer, especially for high LTV ratios. I would have thought that those with high disposable incomes could probably plough a lot of their disposible income and savings into their negative equity debt and trade up without forfeiting the tracker. So, all in all, it sounds like a bit of a damp squib to me.

killers1

Raheny wrote: »

I would have thought that those with high disposable incomes could probably plough a lot of their disposible income and savings into their negative equity debt and trade up without forfeiting the tracker. So, all in all, it sounds like a bit of a damp squib to me.

Raheny I agree with your post apart from the part above. Anyone trading up or down to a different property whether transferring NE or not will be subject to taking one of the Banks current products. So even people who paid down their loans and want to move house still have to forfeit their existing tracker and take whichever products are available now. This initiative is really to suit 2 categories of people 1) those who need to move house for work reasons and 2) people who may have since had children and need more space

seamus

Raheny wrote: »

However, it is OUTRAGEOUS that the banks are not willing to let homeowners retain their tracker on a new home of equivalent value.

IMHO, that's probably the least outrageous part of it. I would never expect to be able to carry a tracker rate to a new homeloan.

The most bizarre part of this is the 25% figure mentioned in the Indo.

Since prices have dropped 50% since the peak average figure of €400,000, it stands to reason that the average NE is in the range of €100k - €200k.

This means that unless they can afford to service a mortgage of €500k - €800k at current rates, they can't avail of this scheme. Nobody in the "average" zone has a hope of coming anywhere near this, no matter how well they may be able to afford their current mortgage.

Given these facts, I suspect that this new "product" is calculated lip service to make it appear to politicians that the banks want to lend.

As has been mentioned by others here, a more sensible product would allow someone to move while maintaining the same mortgage they have now - e.g. sell the city centre 2 bed apartment and move to a 3 bed house in the commuter belt which costs the same. Assuming that they are well able to support the mortgage on a variable rate, the bank wins without having to stump up more cash.

killers1

seamus wrote: »

[

As has been mentioned by others here, a more sensible product would allow someone to move while maintaining the same mortgage they have now - e.g. sell the city centre 2 bed apartment and move to a 3 bed house in the commuter belt which costs the same. Assuming that they are well able to support the mortgage on a variable rate, the bank wins without having to stump up more cash.

The product you've outlined above does exist although not publicised. Banks will look on these types of requests on a case by case basis. I got approval from Ulster Bank for a client to move 100k of negative equity from an apartment to a house. Only conditions were that clients qualify for total borrowing based on income using current bank calc and that they used €20k they had in savings. Net result was clients got the bigger home they needed and banks overall exposure to the client was reduced by €20k. They did have to give up their tracker as they would have had to if trading up in any case.

fricatus

seamus wrote: »

The most bizarre part of this is the 25% figure mentioned in the Indo.

Since prices have dropped 50% since the peak average figure of €400,000, it stands to reason that the average NE is in the range of €100k - €200k.

This means that unless they can afford to service a mortgage of €500k - €800k at current rates, they can't avail of this scheme. Nobody in the "average" zone has a hope of coming anywhere near this, no matter how well they may be able to afford their current mortgage.

Not necessarily. Take a scenario like this, which I think is fairly typical in the case of a couple who haven't lost their jobs:

House bought 2007, in NE of €100k. Mortgage paid on time, because of two wages coming in. Savings of €35k but the house is now unsuitable (work has moved, kids have come along, want to be nearer elderly parents, etc.)

€65k of a shortfall in negative equity is too much to make up in one go, so they're forced to stay where they are up to now.

Nice big house in the perfect area comes on the market for €280k, which will get you something quite decent these days. Under this scheme, they can do the following:

NE: 100k
Savings: 35k
New house: 280k
New mortgage: 345k
NEW LTV: 123%

It's within the 125% LTV criteria and a 25-year variable at 3.25 has payments of €1,680 a month. That shouldn't be too much of a stretch for two wage earners on a combined €90-100k a year.

Eddie2008

Here's a question for you killers. We have an apartment with about 80K NE. Last summer we decided to rent and rent with a view to getting a 2nd mortgage. This NE mortgage sounds like a tempting option but dont know if we could get one cause the mortgage is with EBS. Our finances are roughly as follows:

Mortgage on rented apt: 235K
Worth: 150K thereabouts
Savings: 65K
Combined salary: 100K (husband started a new job last Oct, maybe an issue)
Rent received: 1000 per month
We Pay on Rent: 1625 per month
Save: 500 per month
CC Balance: about 1-2k
Loans etc: None
Status: Married with one child
Creche fees: 500 per month

We didnt tell EBS we are renting it out as on tracker (recommended by a member of their own staff, believe it or not...)

I would be grateful to get your opinion. Part of me thinks hold on to apt, good location etc but it is effecting how much we can borrow. We would be looking for a 3-4 bed home in the 300-400k bracket depending on its state, size etc.

killers1

Eddie2008 wrote: »

Here's a question for you killers. We have an apartment with about 80K NE. Last summer we decided to rent and rent with a view to getting a 2nd mortgage. This NE mortgage sounds like a tempting option but dont know if we could get one cause the mortgage is with EBS. Our finances are roughly as follows:

Mortgage on rented apt: 235K
Worth: 150K thereabouts
Savings: 65K
Combined salary: 100K (husband started a new job last Oct, maybe an issue)
Rent received: 1000 per month
We Pay on Rent: 1625 per month
Save: 500 per month
CC Balance: about 1-2k
Loans etc: None
Status: Married with one child
Creche fees: 500 per month

We didnt tell EBS we are renting it out as on tracker (recommended by a member of their own staff, believe it or not...)

I would be grateful to get your opinion. Part of me thinks hold on to apt, good location etc but it is effecting how much we can borrow. We would be looking for a 3-4 bed home in the 300-400k bracket depending on its state, size etc.

Hi Eddie2008,

A couple of questions which will help me figure out how you are fixed;

Whats the monthly repayment on your existing mortgage?
What term is left on the mortgage?
What age are you both? (just so I can work out term available)
How long have you been renting @ €1,625?
Was the full €65k built up from savings using your own resources & doesn't include gifts, inheritances etc?
You say your combined income is €100k, how does that breakdown between the two of you? i.e. €50k each? Just asking as your husband isn't long in his new job.
Was your husband employed in the same line of work previously prior to taking up new job?
Is he subject to 6 months probation & is it likely that he will be made permanent at the end of this?

Did you actually apply for a mortgage and were turned down because of the negative equity?

Apologies for all the questions but in order to give you an accurate assessment I'll need the above info

Thanks

Eddie2008

Whats the monthly repayment on your existing mortgage?
About €1100 per month

What term is left on the mortgage?
Loan 1 (150k): 20 yrs and Loan 2 (85K): 25 yrs

What age are you both? (just so I can work out term available)
Me: 37 in Sept 2012 Husband: 39 in March 2012

How long have you been renting @ €1,625?
June 2011

Was the full €65k built up from savings using your own resources & doesn't include gifts, inheritances etc?
35-40K our own savings, rest redundancy

You say your combined income is €100k, how does that breakdown between the two of you? i.e. €50k each? Just asking as your husband isn't long in his new job.
55K Husband, 45K me

Was your husband employed in the same line of work previously prior to taking up new job?
Yes all his life and was off work for only 2 weeks

Is he subject to 6 months probation & is it likely that he will be made permanent at the end of this?
Yes and yes

Did you actually apply for a mortgage and were turned down because of the negative equity?
Yes last year, hence we decided to rent and rent to prove we could manage 2 properties comfortably

Thoughts?

killers1

Eddie2008 wrote: »

Whats the monthly repayment on your existing mortgage?
About €1100 per month

What term is left on the mortgage?
Loan 1 (150k): 20 yrs and Loan 2 (85K): 25 yrs

What age are you both? (just so I can work out term available)
Me: 37 in Sept 2012 Husband: 39 in March 2012

How long have you been renting @ €1,625?
June 2011

Was the full €65k built up from savings using your own resources & doesn't include gifts, inheritances etc?
35-40K our own savings, rest redundancy

You say your combined income is €100k, how does that breakdown between the two of you? i.e. €50k each? Just asking as your husband isn't long in his new job.
55K Husband, 45K me

Was your husband employed in the same line of work previously prior to taking up new job?
Yes all his life and was off work for only 2 weeks

Is he subject to 6 months probation & is it likely that he will be made permanent at the end of this?
Yes and yes

Did you actually apply for a mortgage and were turned down because of the negative equity?
Yes last year, hence we decided to rent and rent to prove we could manage 2 properties comfortably

Thoughts?

Thanks for the details Eddie2008, heading out to a meeting will be back to you at lunchtime...

killers1

Eddie2008 wrote: »

Whats the monthly repayment on your existing mortgage?
About €1100 per month

What term is left on the mortgage?
Loan 1 (150k): 20 yrs and Loan 2 (85K): 25 yrs

What age are you both? (just so I can work out term available)
Me: 37 in Sept 2012 Husband: 39 in March 2012

How long have you been renting @ €1,625?
June 2011

Was the full €65k built up from savings using your own resources & doesn't include gifts, inheritances etc?
35-40K our own savings, rest redundancy

You say your combined income is €100k, how does that breakdown between the two of you? i.e. €50k each? Just asking as your husband isn't long in his new job.
55K Husband, 45K me

Was your husband employed in the same line of work previously prior to taking up new job?
Yes all his life and was off work for only 2 weeks

Is he subject to 6 months probation & is it likely that he will be made permanent at the end of this?
Yes and yes

Did you actually apply for a mortgage and were turned down because of the negative equity?
Yes last year, hence we decided to rent and rent to prove we could manage 2 properties comfortably

Thoughts?

Hi Eddie2008,

I've had a look at your figures etc. I can understand why you were declined last year when the property was in negative equity and you hadn't been paying additional rent at the time or hadn't been paying it long enough to prove you could afford the repayments. Your combined incomes given your ages, the fact you have a child and the term available allow you to borrow €479,000. This is the figure you would qualify for say if you were a first time buyer taking out a mortgage with no loans. When I factor in the existing property it works something like this...

Net Monthly Income €5,855
Less Creche Fees €500.00
Less Defecit on Inv Prop €1,006.93 (This is the repayment on €235k stressed at 2% and allowing 50% of the rental income you currently receive)
Less Living Exp €2,250 (Guideline what the bank consider a couple with 1 dependent need to have left over each month to live off)
= Disposable Monthly Income €2,098.07

The €2,098.07 is what the bank see you have available to put towards a new mortgage repayment each month. This equates to a loan amount of approx €365,000 given the term available to you. Now, if you go back to the first calculation where you qualified for €479,000 & subtract the €235,000 (currently o/s) it gives you a borrowing of €244,000. If I add €235,000 (existing) + €365,000 (proposed) = €600,000. The Bank would probably take the view that the gap between €479k (income multiples) & €600k (based on net incomes & outgoings) is too large, but they certainly would look at giving you something in the region of €244k to maybe €280k. When you add this the your savings you are looking at a purchase price in the region of €330,000 or so. They will want to see that you have a proven repayment capacity for the 2 mortgage repayments. You have been paying €1,625 (Rent) + €500 (Savings) + €500 ( Creche) which total €2,625pm. The combined stressed repayments on existing property & new proposed mortgage of say around €280k are around €2,580pm which you have already proven you can afford €2,625 so that's good. You would need to consider applying though on the basis that the creche fees wouldn't be continuing or else start saving an additional €500pm if this isn't possible to prove you can afford everything. The main thing is that your Husband is made permanent in his job first of all. If you can increase the savings by an additional €500pm (I know very easier said than done!) I think you are in a good position. Even though you have NE of circa €100k if you can prove that you can afford the stress repayments on a C&I Basis on both properties the NE isn't the end of the world from the Banks point of view.

Apologies, I know I have bombarded you with figures here and I hope you can make sense of it all?! If you need anything else let me know... thanks

Eddie2008

Thanks Killers

Your figures are very similar to my own when calculating what we could get but a little higher. I notice that you are using the fact the bank would take some of the rental income into consideration. Every bank I have spoken to said no to including an iota, except for perhaps KBC, am I missing something?

We want to start acting fast and are going seriously look at this in June, following my Husbands probation. BOI said they may look it our app a few months prior to his 12 months to at least get things moving. We bank with AIB but since they only lend up to 65, it may be a no no. Also with the AIB and EBS merger going on, dont want to lose the tracker... Do you know what the plan is?

Thanks for your help, I take it you are a broker, can you pm me your details?

PS The creche is mate rates and can be hidden altogether

daltonmd

Eddie2008 wrote: »

Thanks Killers

Your figures are very similar to my own when calculating what we could get but a little higher. I notice that you are using the fact the bank would take some of the rental income into consideration. Every bank I have spoken to said no to including an iota, except for perhaps KBC, am I missing something?

We want to start acting fast and are going seriously look at this in June, following my Husbands probation. BOI said they may look it our app a few months prior to his 12 months to at least get things moving. We bank with AIB but since they only lend up to 65, it may be a no no. Also with the AIB and EBS merger going on, dont want to lose the tracker... Do you know what the plan is?

Thanks for your help, I take it you are a broker, can you pm me your details?

PS The creche is mate rates and can be hidden altogether

But you pay them do you not? This is kinda how we got here in the first place, best advice, declare everything.

killers1

Eddie2008 wrote: »

Thanks Killers

Your figures are very similar to my own when calculating what we could get but a little higher. I notice that you are using the fact the bank would take some of the rental income into consideration. Every bank I have spoken to said no to including an iota, except for perhaps KBC, am I missing something?

We want to start acting fast and are going seriously look at this in June, following my Husbands probation. BOI said they may look it our app a few months prior to his 12 months to at least get things moving. We bank with AIB but since they only lend up to 65, it may be a no no. Also with the AIB and EBS merger going on, dont want to lose the tracker... Do you know what the plan is?

Thanks for your help, I take it you are a broker, can you pm me your details?

PS The creche is mate rates and can be hidden altogether

Sent you a PM...

Eddie2008

Honesty is the best policy I agree. But the banks dont play fair. They have messed us around for the last 3 years and I have little respect for them. Sorry thats just how I feel. If they choose to ignore rental income, I have no problem ignoring creche fees to get past the post.

BTW We wont be paying anything from Sept.

killers1

daltonmd wrote: »

But you pay them do you not? This is kinda how we got here in the first place, best advice, declare everything.

I totally agree, you should never enter into borrowing money without factoring in all your outgoings, expenses & allow for a substantial rise in interest rates before making the decision to proceed.