Negative equity: a positive outcome
Elayne Devlin and Mike Connolly had jobs, savings and a property yet couldn’t afford to buy a suitable family home – until they managed to procure a rare ‘negative-equity mortgage’
Elayne Devlin and Mike Connolly moved back to Ireland from London in 2004, as “first time buyers”. They were planning on getting married, and had been house-hunting in Dublin for some time.
In June that year, they bought a three-bed duplex in Dublin 5 for €370,000, with the mortgage coming from one of the main national Irish banks.
They put €100,000 deposit towards it, from their combined savings over seven years, and a contribution from family
“We didn’t want to over-extend ourselves when we borrowed originally, and we didn’t want to borrow too much money,” says Devlin, sitting at the kitchen table of the house they now own in Dublin 16. “We have always been reasonably careful with money, and we save when we can.”
They married the year after buying the duplex. In November 2006, the couple saw ads run by National Irish Bank (NIB) offering a “loan-to-value mortgage”.
“If the value came in above your mortgage, you could move your mortgage to them and they’d give you a preferential rate,” she says. The duplex was valued by NIB at €510,000. “We saw buying the duplex as a good investment at the time we bought it.” They were ready to sign papers with NIB that Christmas, but due to the premature birth of their first child, they never did sign.
They soon started to think about moving from what was not a child-friendly property. The 16 steps to the front door were a daily challenge, and “there was a very large balcony with a drop at the back,” Devlin explains. When still a toddler, their child managed to climb over the railing into a neighbour’s apartment.
“There was no way to adapt the space to a growing family. You can’t extend a balcony,” Devlin points out.
In 2009, when Devlin was expecting their second child, they got the house valued again, with the intention of selling and moving to a house with a garden.
“We were fully aware it wasn’t worth €510,000 any more,” Devlin says. In January 2009, the property was valued at sums ranging from €395,00 to €350,000. “It was a massive shock to us,” she admits.Her husband recalls: “At that time, valuations were like pinning a tail on a donkey. There was no way of telling who was right and who was wrong.”
It went on sale for €395,000 in March 2009. There was one expression of interest, at €275,000. By November, when their second child had arrived, the price had dropped to €330,000. There were no offers.
They rented the duplex out in July 2011, found a school for their child closer to their workplaces, and rented a house on the south side of the city.
“We were both landlords and tenants,” says Connolly. “We never wanted to be landlords. We just wanted to live in a family home. We lost our mortgage interest relief. We had to pay the second home charge, and at the end of the year, had to pay tax on the rental income. We also still had to pay the property management fee on the duplex, which was €1,000 a year.”
After a year of renting themselves, with one child in school, they were anxious to try to buy a permanent family home.
“In March this year, we heard some talk of negative-equity mortgages,” she says. “We went to our bank to discuss it.”
They were asked by the bank how much negative equity they thought they were in. “We literally pulled a figure out of the sky of €30,000. That was a guess. We hadn’t had the property valued again at that point,” says Connolly.
The bank said it would look at their case, but made clear to them that their property would have to be sold before any further mortgage could be granted.