40 - Moving up Property Ladder

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castronaught

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Personal details
Age: 40
Spouse’s/Partner's age: 37

Number and age of children: 2 & 3

Income and expenditure
Annual gross income from employment or profession: 140k + 75k equity
Annual gross income of spouse: 47000 (this is on half time)

Monthly take-home pay: 8400

Type of employment: PAYE full-time

In general are you: Saving

Summary of Assets and Liabilities
Family home worth €650k with a €190k mortgage
Cash of €46k
Defined Contribution pension fund: €50k
Company shares : €51k

Family home mortgage information
Lender PTSB
Interest rate 2.2%
If fixed, what is the term remaining of the fixed rate? 2 years

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Yes

Other information which might be relevant
Childcare of 1100 per month

Life insurance:
Employer pays 4x annual salary

What specific question do you have or what issues are of concern to you?
Hi gang, we are looking to move up the property ladder and take on a bigger mortgage of around 650k (current mortgage is 190k). Want to buy a house with no work needed that will suit us for life and are willing to spend more to get it. New monthly mortgage payment would be around 3000 which looks doable.

Concerned that this could push out potential early retirement as we've no interest in working forever. Also conscious of overextending ourselves, in case of economic downturns, long term illnesses, etc. Appreciate all help and advice!
 
3k a month is a lot. When you say 75k equity in your salary info what do you mean?

If you are planning on the basis of your partner going back to work full time make sure you are both aligned, in my experience having kids at creche age is the easy part, its when they get to school that it gets harder to manage juggling 2 jobs and childcare etc.
 
castronaught said:
Income and expenditure
Annual gross income from employment or profession: 140k + 75k equity
Annual gross income of spouse: 47000 (this is on half time)

Monthly take-home pay: 8400
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Shouldn't this be higher?
Using this tax calculator and €140k + €47k (ignoring the equity which I presume is some stock incentive?) I get net monthly income of just under €10k.
Is it the pension contributions that reduces the net?
www.pwc.ie

Income tax calculator 2024

Use the interactive income tax calculator to estimate your tax position for the coming year in light of the measures announced in Budget 2024.
www.pwc.ie www.pwc.ie
 
Not so much a financial response, just a reflection from my own experience.

You are young, things are going well, it maybe financially challenging but it is not excessive, go for it. You have to believe in yourself and your family's future.

In 10 years time, your age will be against you and the whole primary school stage of your kids life will be gone.
 
cremeegg said:
Not so much a financial response, just a reflection from my own experience.

You are young, things are going well, it maybe financially challenging but it is not excessive, go for it. You have to believe in yourself and your family's future.

In 10 years time, your age will be against you and the whole primary school stage of your kids life will be gone.
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i would also agree with this sentiment, and its what we did a few years back, thankfully i have been in a position to aggressively pay down our mortgage and decrease the monthly committment aswell but i wouldnt still like to have to pay over 3k a month, decreasing it has given us options around my wife taking some time out to look after the kids etc.
 
Are you looking to buy a house for ~1.1m?

Current house Equity = 460k
New Mortgage = 650k
Total = 1.11m

You are in a great position of having substantial equity, I think you need to consider your long term objectives as you mention wanting to retire early, shop around and consider whether a cheaper house will balance out your goals.
 
You obviously have a high household income and a mortgage of €650k @40 doesn't look particularly excessive in your circumstances.

However, you only have €50k in your pension, which looks light for your age - it certainly doesn't scream "early retirement".

I guess you have choices to make - what's more important to you, an expensive house or early retirement?
 
@castronaught , I think you have a lot of conflicting lifestyle/financial goals that you need to sort out before you make your decision. Of course, you can buy at ~€1.2m and you should have no problem getting the mortgage but it will have a big impact on the rest of your plans.

Sometimes I find that looking back can be a good indication of what you are capable of achieving in the future such as:
- You "only" have €50k in your pension. You are way behind the curve for someone on your income with ambitions for early retirement
- You are 40, so I would assume you purchased your current home in the last 5-10 years. If true, then the market has done the heavy lifting in terms of current value but you have probably contributed ~€150k to that. Again, not bad at all but not great based on your ambitions
- So where has your money been going in the past 10 years considering you are 2 high earners?

A few other things to consider:
- A lot hinges on what you mean by the +€75k equity. If that is per year and your spouse intends to return to full time work then a lot of the concerns I have raised start to fall away
- If you buy the €1.2m, whether you like it or not, it will come with a "keeping up with the Joneses" effect. Your lifestyle will match your neighbours probably meaning private schooling, expensive cars and holidays and just a generally more expensive lifestyle
- Fast forward 15 years and you will be facing a €3k+ mortgage, 3rd level on the horizon and trying to heavily fund a pension. It will put a lot of pressure on you to maintain a very high income all the way into your 60's so you can say goodbye to early retirement
- If a 3rd child were to come along and your spouse gave up work completely for a few years, suddenly you become a single income household with 4 dependants.

So before deciding on whether to move or not, I think you need to prioritise the following:
- Family size: will a 3rd child be likely or not
- Do you plan on using fee paying schools?
- Spouse's work: Do they intend to return to full-time, stay part time or even reduce further
- Early retirement: Heavy funding required to achieve this. Are you happy to give this up to provide a better lifestyle for your family now
- Are you comfortable with working in a €200k+ role for the next 25 years?
- Can you afford all of the other "extras" that will come with your new home?
 
Looks like OP can have anything they want (expensive house or early retirement) but having everything they want will be difficult. He/she will have to decide what the priority is and then cut their cloth to suit their needs.
 
Appreciate everyone's answers and advice so far! Will try address some of the questions.

Blackrock1 said:
3k a month is a lot. When you say 75k equity in your salary info what do you mean?
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Restricted Stock Units as a part of compensation, they're treated like salary but they "vest" a couple of times a year, rather than being added into your monthly wages. They can be sold immediately and converted to cash, or held onto to sell later. 52% get sold to cover tax obligations.

DublinHead54 said:
Are you looking to buy a house for ~1.1m?

Current house Equity = 460k
New Mortgage = 650k
Total = 1.11m
Click to expand...
Yep you're right, about the 1.2m mark max.

Sarenco said:
However, you only have €50k in your pension, which looks light for your age - it certainly doesn't scream "early retirement".

I guess you have choices to make - what's more important to you, an expensive house or early retirement?
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I agree, it is - just checked and it's 54k. As to your question, possibly both? I figure there's always the possibility of downsizing in the future as our needs change and it's just the two of us at home.

_OkGo_ said:
- You "only" have €50k in your pension. You are way behind the curve for someone on your income with ambitions for early retirement
- You are 40, so I would assume you purchased your current home in the last 5-10 years. If true, then the market has done the heavy lifting in terms of current value but you have probably contributed ~€150k to that. Again, not bad at all but not great based on your ambitions
- So where has your money been going in the past 10 years considering you are 2 high earners?
Click to expand...
Only started building my pension 7 years ago, I'm contributing 5% which is the max my employer matches. My income is about 4x what it was 5 years ago. Spouse also has a pension fund, we're just not sure how much is in it at present (which we need to run down).

_OkGo_ said:
A few other things to consider:
- A lot hinges on what you mean by the +€75k equity. If that is per year and your spouse intends to return to full time work then a lot of the concerns I have raised start to fall away
- If you buy the €1.2m, whether you like it or not, it will come with a "keeping up with the Joneses" effect. Your lifestyle will match your neighbours probably meaning private schooling, expensive cars and holidays and just a generally more expensive lifestyle
- Fast forward 15 years and you will be facing a €3k+ mortgage, 3rd level on the horizon and trying to heavily fund a pension. It will put a lot of pressure on you to maintain a very high income all the way into your 60's so you can say goodbye to early retirement
- If a 3rd child were to come along and your spouse gave up work completely for a few years, suddenly you become a single income household with 4 dependants.

So before deciding on whether to move or not, I think you need to prioritise the following:
- Family size: will a 3rd child be likely or not
- Do you plan on using fee paying schools?
- Spouse's work: Do they intend to return to full-time, stay part time or even reduce further
- Early retirement: Heavy funding required to achieve this. Are you happy to give this up to provide a better lifestyle for your family now
- Are you comfortable with working in a €200k+ role for the next 25 years?
- Can you afford all of the other "extras" that will come with your new home?
Click to expand...
The 75k equity is indeed per year - we don't intend to have my spouse return to full-time work though, however it's an option in the event of something going terribly wrong.

I don't agree with the "keeping up with the Joneses" piece :p - no intentions of private schooling for the kids, current car is pretty modest. No third child planned either. I am happy to work another 25 year if needed, the scope for my own compensation to continue to grow is quite high also.

Thanks again all.
 
castronaught said:
I'm contributing 5% which is the max my employer matches
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You need to think about materially increasing your contributions if you want to have any realistic chance of retiring early.

At your age you could be getting tax relief on contributions of up to €28,750pa, in addition to your employer's contributions.
 
With the added information I would say go for it. You have the repayment capacity now with excellent potential to grow your salary. So in the coming years reducing your overall mortgage exposure is doable. Probably with bonus vesting you can either decide to reduce mortgage or add to pension. A balance between the two would work well for you.

You also seem realistic that you would downsize if your circumstances change and you seem to be very grounded on lifestyle creep.

I would also consider what your spouse can do about their pension - not good to maybe rely on one spouse alone. Having independent financial advice on pension planning is probably a good idea given your potential 25 year window and your exceptional earning potential. There are a couple of regular posters on the forum who provide that service.
 
I would tend to go for it as well.

But it's important that you are both on the same page.

You must acknowledge the risks up front.
  1. Interest rates may rise further and put you under pressure
  2. A recession may hit your incomes
  3. You underestimate your living costs and are under pressure
But you seem flexible - you can work longer than you plan and your spouse could return to full time employment. And you could trade down if you had to. Most people might think that they would do this, but when push comes to shove, they prefer to restructure their mortgage.

While your pension is very light, given that you will have a very large mortgage, you should focus on getting that down to a more comfortable level before you increase your contributions. However, you can't wait too long as you won't have enough time to make up the "deficit".
 
Brendan Burgess said:
While your pension is very light, given that you will have a very large mortgage, you should focus on getting that down to a more comfortable level before you increase your contributions. However, you can't wait too long as you won't have enough time to make up the "deficit".
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I strongly disagree.

Firstly, the proposed mortgage will be less than 2.5 times their joint income. That’s very manageable.

And secondly, the OP is 40 - he simply doesn’t have time to defer making appropriate pension contributions (the relief on which applies on an annual “use it or lose it” basis).

There is no reason why the OP couldn’t comfortably service a €650k mortgage and maximise his pension contributions.
 
Hi Sarenco

While they are on their current salary and while interest rates are at or around the present rate, his mortgage is manageable.

But things go wrong and ,in my opinion, his priority is to get the mortgage down to a more comfortable level.

But I do agree that his pension is underfunded at present. So he can't prioritise the mortgage too long.

Brendan
 
There seems to be a black hole into which your money is going. It should be possible to buy the house and maximise pension contributions at those salary levels.

Maxing out your AVCs at source through payroll makes a huge amount of sense. Once you get going, you forget that you ever had the money because you never see it. It’s a decent but very basic psychological trick.
 
castronaught said:
My income is about 4x what it was 5 years ago.
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This explains a lot. Your pension, savings and equity are more in line with a well paid but lower income. You now want to take advantage of your recent and significant pay increase.

I would tend to agree with @Sarenco in that your new mortgage would be manageable and your priority should be the pension savings. If a comfortable or early retirement is part of your plan, then you both need to maximise your pension asap. You at 25% of €115k (€28.75k) and your spouse at 20% of €47k (€9.4k).

You also need to be very regimental about the equity compensation and treat it as income. You should not be holding a single share in the company either through misguided loyalty or on the hope that they skyrocket. You need to sell immediately at each vest date and use the proceeds to pay down the mortgage. It doesn't need to be any more complicated than that.

Back to pensions, you can make AVC contributions for 2022 for both of you before end of October and there will also be scope to top up the unused relief for 2023 also. This should be a priority and you should be selling existing shares to achieve this. Also, there may be a bit of sense in your spouse allocating tax bands/credits to you to ensure they get full 40% relief on their contributions going forward

The benefit of maxing pension contributions and overpaying the mortgage until it is a bit more comfortable are that it prevents lifestyle creep like Gordon has mentioned. If you can live without it, you are living within your means and you open up a lot of options for early reitrement or taking a step back.

It really shouldn't make a big difference to you anyway. Your combined income is €262k. Maxing pension contributions still leaves you with ~€224k gross income to live on. And because your rise in income has been sudden and recent, your lifestyle has not grown to match it yet.
 
Brendan Burgess said:
So you get €75k a year in shares instead of salary.
How long do you have to hold onto these shares for?
If you are getting €75k a year, it seems odd that you have only €51k at the moment.

Are you cashing them immediately you get them or as soon as they vest?
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castronaught said:
Restricted Stock Units as a part of compensation, they're treated like salary but they "vest" a couple of times a year, rather than being added into your monthly wages. They can be sold immediately and converted to cash, or held onto to sell later. 52% get sold to cover tax obligations.
Click to expand...

Is the 75k the fixed annual euro amount pre tax?

I am in a similar position and there is significant price risk between vesting periods. In my situation I have an annual fixed Euro amount that is converted into a number of share based on the closing price at a fixed date. This leaves significant price risk e.g. the share price could drop significantly between the award date and the vesting date.

This was the case in 2022 with the broad based market and tech sell off. Of course the share price can go up, however we are in a challenging time vs the last 10 years.

The point being I would not build your financial calculations on a guarantee static RSU income, but rather adjust it down 20-30% to account for the variability.
 
In relation to stock incentive schemes, there's a strong argument for liquidating shares in your employer's company at the earliest opportunity - even if it means reinvesting elsewhere - because depending on one company for your salary/remuneration and for capital appreciation of the shares is concentrating risk in one place unnecessarily. It was on that basis that I always did this when I was a member of a stock incentive scheme.
 
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