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  • irishtimes.com - Posted: February 17, 2012 @ 10:59 am

    Negative equity mortgages – does the shoe fit?

    Edel Morgan

    THE ANNOUNCEMENT this week that a few of the banks will be offering negative equity mortgages to people trading up must have come as a momentary chink of light to growing families trapped in confined spaces, until, that is, they realised it doesn’t apply to them.

    This product is unlikely to spark a buying frenzy of family-sized homes because although half of mortgage holders are in negative equity, the number of people who will a) get approval from the limited number of banks offering it  and b) have the stomach to take on that extra debt, will be relatively small.

    At this stage anyone who bought their house after 2002 with a mortgage is probably in some degree of negative equity. This mortgage product is only suited to people in a relatively small degree of negative equity who can now avail of much lower house prices. But how many of these families will actually qualify for the mortgage? The banks will be looking for a blemish-free credit record and with many families now part of the so-called squeezed middle, impacted by wage cuts, job losses, increased taxes and levies,  how many will be able to show the banks prompt bill payments, a pristine credit-card statement  and decent savings?

    If they have all this, the banks will be then looking at how stable their employment is and it’s well known that they favour government employees and certain IT workers (Google,Ebay etc ) which narrows the field even further. Even if you’re lucky enough to be a couple working for Google with a pristine financial track record, are you going to want to land yourself in more debt for the sake of a bigger place? Say for example a couple buy a new house for €240,000 and owe  €60,000 after selling your previous home.  This  amount would be added to the new mortgage, which would then amount to €300,000 or 25pc more than their new house is worth –  in line with the new, 125pc loan-to-value limit which Bank of Ireland has outlined. They would also have to factor in stamp duty and legal fees.

    A couple would qualify for tax relief at €900 per year  to 2017 when the tax relief ends while a  single person trading up with a €300,000 mortgage could claim €2,700  relief over the next six years if they buy before the end of this year.

    For those stuck in a small  apartment with small children, getting out might seem a  pressing  issue but as we haven’t yet reached the bottom of the market, many will want to wait to see what happens. Some might take the option of letting out their property and renting another place – although this depends on whether you can afford to cover any shortfall, if the rent doesn’t cover the mortgage.

    Then there will be people with tracker mortgages who won’t want to lose them by taking the negative equity mortgage route and others might be put off by tax relief implications, depending on when they bough their property. All in all, it seems to me that this mortgage is for such a select group that the impact won’t so much be big bang as a damp squib.

    • David O'Brien says:

      Madness. It’s like a perverse game show. “Got debt? Want some more? Well come on down the price is right.”

    • Paul says:

      Or how about the rarely mentioned Double Negative Equity group.

      The couple who bought a house each during the boom, before they met. Now they own two houses deep in negative equity.

      They live in one and rent out the second. They’re being hit by double household charges and a the non principal private residence charge. They have to pay two sets of management fees and make up for the shortfall between the rent on the second house and it’s mortgage.

      The cruel twist, both houses are 2 beds. Neither meant as family homes, where’s the option for raising a family?

      Bankruptcy isn’t an option as parents are joint holders on both mortgages, so they would be hit for any shortfall.

      Neither is suicide, that would void the mortgage protection policy and also see the parents hit for the shortfall.

      It’s like Jean Paul Satre’s play, No Exit.

    • Edel Morgan says:

      I recently wrote a blog about someone who rented her first house when she got married, thus becoming a landlord, and the financial trouble she and many find themselves in now who have two properties in negative equity, but the comments I got were largely unsympathetic to their plight – but maybe if I’d called them “the double negative equity group” and not mentioned the “L” word (ie landlord) , there would have been more sympathy. You paint the situation in such stark and poetic terms, and parents who are joint-holders on mortgages or guarantors add another dimension to the problem…

    • David O'Brien says:

      The reason people are unsympathetic is that, by and large, they’re a shower of begrudgers. Irish people hate seeing anyone getting on or trying to get on in life. If a little piece of them dies when a friend succeeds then strangers hold no hope.
      Most people weren’t greedy — all they wanted was a little security in their dotage so they wouldn’t have to solely rely on the State’s pension pittance or something for their children to have to give them a leg up.
      A lot of people won’t understand this as they’re too busy patting themselves on the back for not investing back in the day. Well done you people. Ireland salutes you.

    • Karlos says:

      What rubbish David! While there is definitely a begrudging streak to Irish people, you are completely misinterpreting begrudgery for antipathy. Why should other people care how you invest for your pension? Lots of others invested in bank shares and lost their shirt, others invested in the stock market and lost a decade of contributions. Are they constantly on the pages of our newspapers harping on about how hard they have it?

      Some chose to keep their property and buy another one. As an investment, property is poor. It has ongoing costs, huge entry and exit costs in terms of stamp duty, hassle in terms of looking after tenants, it is illiquid and takes a long time to get access to the money in times of need. So why someone would choose to invest in property for their pension? Huge capital gains of course. Property was a one way bet, easy street to double digit annual growth, and for a little while you are a paper millionaire. Until it comes down.

      The first time buyers that were either priced out of the market or forced to compete and pay over the odds for a starter home by all these amateur landlords have a right to have no sympathy for this class of people who probably spent longer researching their latest plasma TV than the ins and outs of property investment.

      I hope that clarifies things.

    • Dylan says:

      It’s worth pointing out that even if the rent received does cover the mortgage on the apartment (i.e. no shortfall), the rental income is treated as income and taxable. This further penalises families in negative equity. The government should consider tax relief for families in negative equity who need to rent a bigger house.

    • Karlos says:

      why should the government give tax relief to the profits on an investment property that is “washing its own face”? How is the negative equity penalising a family in that situation? Was this tax a new and unexpected development or has it always been there, and should have been taken into account when you or anyone decided to become a property investor?

      House number one is being rented, the mortgage is covered by the rent. The family are renting a home to live in and can claim rent relief on that like every other renter…

      Rental income is income! Whether the owner of the property has a giant mortgage to cover or not is irrelevant.

    • laura says:

      As one half of a couple with two mortgages both in negative equity this new mortgage product is a chink of light at the end of the tunnel. My husband owned an apartment with a member of his family when we met. After we got married, we bought a new build duplex apartment. Our reasoning was that hopefully, after a few years, we would be able to sell both properties and use any equity built up to off set what were at the time, crippling levels of stamp duty. We are now in the “evil” category of landlords. Landlords who must be rich! I wish. I was made redundant whilst on maternity leave. We have a toddler and another baby on the way. Neither of our properties are suitable for our family needs (you try hauling a buggy up ten steps to a front door and then another ten steps to an inside landing). We have one income and will remain on one income until I can return to work which, hopefully will be at the end of this year. But, will the banks want to lend to us again? Fingers and toes crossed. People (and the banks) are being very short sighted in regard to negative equity, if you take it with you to a bigger property, then you are likely to get out of negative equity more quickly if the property market ever starts to recover……. it’s simple stupid. Allow people to trade up. It doesn’t take a genius to work out that a two bedroomed apartment is always going to be worth less than a three or four bedroomed house (unless it is in a trohpy development in Dalkey or Killiney) that someone could easily trade up to if only allowed to take their debt with them.

    • Katya says:

      We are currently living in a 2 bed apartment with 2 small children. We have a small deposit saved which we would love to use to buy a house but if we use it to cover the negative equity on the apartment, we have no deposit left and I don’t think we will be ever be able to buy again. We have a tracker mortgage and quite frankly I would be happy to give it up, if we would not have to become landlords and would be able to buy a house in which I plan to live in for the foreseeable future.
      I rang PTSB is some excitement after last week’s IT article saying the BOI and PTSB would be offering this and PTSB have not put it in place and have no dates set for it.
      Why is it taking the banks so long to put anything in place? There is not a hope of this country improving if the banks do not start having lending products that people actually need.

    • Paul says:

      We’d gladly walk from our properties and take the €140k hit. We could rent somewhere suitable to raise a family and never buy again.

      I calculate the hit to be the difference between Cost of Renting – Cost of Owning two 2-bed apartments in Dublin since 2007.

    • Patrick McNamara says:

      Your investment may go up as well as down!

    • Patrick McNamara says:

      And by the way, Karlos is on the money.
      If people buy properties and all of a sudden things aren’t working out well I’m sorry but tough. You couldn’t wait to get on the ladder. Well, you’re on it now. Something tells me if the boom was still on, people who couldn’t make the excessive rent wouldn’t be getting cut much slackk by the “landlords”.

    • Eimear says:

      Karlos you say the family can claim rent relief like every other renter but rent relief has been abolished for new renters.

    • Kathleen says:

      Is anyone else in my situation? I had paid my mortgage off having worked for years in uk. I then was encouraged to come home after 25 yrs. In UK I had a lovely 3 bed house but when I moved to Ireland I sold it and had to take out another mortgage just to buy a one bed apt. I am now 62 and have a 200,000 mortgage on a property that is now in negative equity. I paid a deposit of 200,000 from the sale of my uk house and the apt cost 400,000 in 2008. It is now worth 150,000 so all my cash has disappeared. I have no idea how I will pay the mortgage when I have to retire in 3 years.

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