An ambitious plan to buy a bigger house might be a step too far

We bought a two bedroom apartment in 2013 as a family home at the start of the takeover so the price was right – € 135,000. It would now be valued at around € 350,000 and we will be mortgage-free in the coming months.

I tried changing my mortgage in 2018 to get cash back and lower the rate I was paying – currently 3.6% – with Permanent TSB, but the bank said no because I was the only one working because my wife was sick for a long time about it. step.

I decided to forget about the change and instead save and pay off the mortgage sooner.

Now he will be mortgage free. I work in the public sector with an annual gross income around € 44,000. I reduced parental leave hours last year, but I can still work them if I need the money. My wife now receives € 5,500 in disability and € 1,200 per year from another injury she suffered a few years ago. We have three children.

And I will continue to save around € 20,000 per year.

I want to buy a larger property and would like to know how much could I borrow. My plan is have around € 40,000 in savings next year. I want to rent the apartment. Rents are currently € 1,700 to € 1,800 in the region.

Mr. GL, email

I think you’re going to have a hard time here despite your very impressive savings record – at least if you’re going to keep your current home.

Setting aside an additional $ 20,000 per year to pay off your mortgage in advance on a family income of around $ 50,000 is underway. You’ve effectively paid off your entire mortgage in just eight years.

But, as you found out when you tried to change in 2018, the banks were very cautious for a while about what they would sanction. In large part, this is because they are still recovering from the apocalyptic losses they suffered during the financial crisis.

As you say, the fallout from the real estate crash allowed you to acquire your current home at a very competitive price, but then the banks were facing a lot of people who had bought during the Celtic Tiger years and could no longer pay. their mortgages.

Permanent TSB and others are still facing some of these losses and have sold other loans at a great price to other companies just to take the bad debts off their books.

When looking to change, you had two thoughts in mind from what you said in your letter: get a lower interest rate and get cash back. But at the time, as you said, your wife was sick and had been for about a year.

The advantage for you is that you are working in the public sector, so any lender can take comfort in your income security.

I can see why your wife’s illness and inability to work would make the lender think twice. As impressed as they would have been with your loan payment and savings record, any uncertainty like your wife’s prospects of returning to work would be a wake-up call. Under these circumstances, most lenders would tend to submit a long-term application until a clearer view of long-term income becomes available – either because your wife has returned to work, or because she has returned to work. was confirmed that she would not do this in the long run and the costs involved in any care for her would be.

And cautious as they were in early 2018 when you tried to secure change, they are even more risk-averse now with much of the population either out of work, on salary support, or working in areas of the world. economy where there is very significant uncertainty about the medium-term outlook.

In your own case, it has now been confirmed that your wife will not be returning to work and she is now receiving long term disability allowance as well as annual income related to a previous injury.

The advantage for you is that you are working in the public sector, so any lender can take comfort in your income security. Likewise, there is now clarity about your wife’s long-term, albeit reduced, income.

Central bank rules

But you still risk being forced by the Central Bank’s mortgage rules. They state, among other things, that you can only borrow 3.5 times your income. With a family income of around € 50,000, that would limit you to a mortgage of € 175,000.

You say that you are currently working reduced hours on parental leave and that you could switch to full-time hours. I don’t know if the income you gave me is the reduced hours or full time, but anyway it looks like you would be limited to a mortgage between € 175,000 and € 200,000.

Yes, there are limited possibilities for exemptions from these rules, but, even if granted, that would hardly be enough to bring any loan to a level that would allow you to go from a € 350,000 two-bedroom house to a larger to better suit the needs of your growing family.

And while banks will certainly be impressed that you found $ 20,000 a year in savings – or $ 20,000 more than your existing mortgage liabilities even better – to speed up mortgage payments, they won’t accept that you can generate the same savings. . before.

Rental income

They are also not likely to give you credit for anything approaching the $ 1,700 to $ 1,800 per month that you expect to receive in rental income on your current home.

In the first place, there is no guarantee that the apartment will be rented permanently. Even in today’s hectic rental market, there are regular gaps between one tenant leaving and another moving in.

There are also costs that would be incurred for the upkeep of the apartment and for paying for things like management fees, insurance, legal fees for drafting contracts and real estate agent fees in connection with the contract. rental, etc. And that’s before paying tax on what’s left.

That doesn’t mean you should just give up.

I suggest you go to a mortgage broker who can present you with the best case based on your family income and what one might reasonably expect in terms of net rental income and savings.

I suspect, however, that in order to move into your large family home you may need to withdraw money from the apartment. This would give you a net amount of € 350,000 – or close to it after expenses incurred on the sale – as you will not have an outstanding mortgage and no tax bill as this is your family home ( main private residence).

With a mortgage of $ 175,000 and the additional savings of $ 40,000 you expect to realize next year, that would give you a minimum pot of $ 565,000 to buy a new home. And given that the loan you would get would be much less than 60%? 100 of the value of the new home, you would be in line for the most competitive rates on the market.

As of now, 1.95 percent is available from Avant. This is a fixed rate and will limit your option to expedite payments. Avant does not yet allow additional lump sum payments, although it plans to do so in the near future. Rival Finance Ireland allows one-off payments each year up to 10 percent of the outstanding loan.

So you certainly have the resources to buy the biggest family home you want. the only question is whether you can find a way to do this while still keeping your current home as an investment. I don’t think you will, but don’t take my word for it: get professional advice from a mortgage broker.

Please send questions to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email [email protected] This column is a reading service and is not intended to replace professional advice. No personal correspondence will be exchanged

About Gene Schafer

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