Banks ease open door to a mortgage

Get out from underwater

They have been particularly slow in coming but there are now signs that, finally, borrowers are being offered negative equity mortgages.

This means that, if you have considered yourself, heretofore, “trapped” in your apartment or house, there is now a solution.

However, as with everything else in the mortgage market at present, banks will cherry pick the best clients. And there are also restrictions.

For example, the highest LTV you can get is 175 per cent, which means that the total amount you borrow cannot exceed the value of your new property by more than 75 per cent.

This means that, if you currently live in an apartment valued at €185,000, but you have a mortgage outstanding of €300,000, if you sell, you bring negative equity with you to your new home of €115,000.

If you buy a new home, which is on the market for €375,000, with a down payment of €50,000, the value of your new loan, as a proportion of the value of the house, would be 117 per cent. So the 175 per cent limit is quite generous and should facilitate many buyers.

In addition to the LTV limit, however, banks will typically apply a value limit. At Permanent TSB, for example, the total value of your new loan cannot exceed €550,000, while at AIB the maximum loan allowed is €700,000.

And there are also some quirks. At Permanent TSB, for example, you will only get such a mortgage if you are trading down to a smaller property, while at AIB, the new property needs to be of greater value than your current one.

If you are currently on a cheap tracker in your own home, you can forget about bringing that with you.

The banks will impose new lending rates should you succeed in getting such a mortgage.

But the real stickler is that you will typically need to sell your current home before being deemed eligible for such a mortgage.

For those in apartments outside of the main urban areas, such an option will just not be available.

How about a short sale?

If you simply want to get out from the burden of your home, and buying another property is the last thing on your mind, some banks might consider a short sale.

AIB, for example, says it will facilitate customers who wish to sell their property at the open market value, and then enter an arrangement for full payment of the residual debt.

This is likely to take the form of a personal loan.

Danske will also consider it, but “available customer cash-flow” will be its main criteria.

Buying at auction?

If you have been perusing the brochure for the latest Allsop Space property brochure, you might have come across a property you’d like to bid on.

But if you don’t have the full cash amount, can you get financing for the purchase?

Well, in principle, the answer should be yes.

Banks like Bank of Ireland, KBC and Danske indicate that they do lend for auction purchases, provided you get a valuation of the property, and have mortgage in principle approved before you bid.

Given that bidding at an auction is a legally binding contract, you would want to make sure your “approval-in-principle” will stand up should you be successful at the auction.

Be sure you have already provided the bank with all the documentation they might require – sometimes approvals don’t get as far as mortgage drawdowns.