Would we get a mortgage?

L

Lolly

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We are a married couple with two children under 5. Our childcare costs are €1200 pm.
We currently own a property that is in negative equity by around €30k, currently valued around €150k. We have a variable rate mortgage on it for €180K. We don't want to sell this yet as we have really good tenants in there and they pay €700 pm in rent, the shortfall for the mortgage is around €250 pm which we pay.

We are living in a different county and really want to buy. I have just started a new job and my salary is €37k, it is private sector although I have been offered a job in the public sector but the salary is only €21k.
My husband earns €30k.

We have no loans and have €20k saved.

Would we get a mortgage? We would be looking for around €200k.

Thanks in advance for any advice
 
On combined salaries of €51k, you would be crazy to borrow more money.

Who is your lender? You may qualify for a negative equity mortgage. But you would be borrowing 4 times your income which is in excess of the Central Bank guidelines of 3.5 times.

Brendan
 
I agree with Brendan but would also make the point that your rental property is a terrible investment and you should sell it regardless.

€700 per month rent on a property with a current fair market value of €150k equates to a gross yield of 5.6 per cent (which was exactly the national average at the end of October 2014 per Ronan Lyons). Allowing 25 per cent for all costs (actual and imputed) related to holding the rental, other than your mortgage repayments and income tax, leaves you with a net yield of 4.2 per cent. You don't say what your mortgage rate is but I'm guessing it's around 4.5 per cent on the basis of the figures presented.

You are, in effect, paying interest on a loan at a rate of around 4.5 per cent to buy an asset that is producing an income stream at a rate of around 4.2 per cent. And that's before taking income tax (and the fact that 25 per cent of your mortgage interest payments are non-deductible) into account. In other words, it's a dog of an investment!

I would have thought that you would be good candidates for a negative equity mortgage. I suspect you will have to lower your expectations though - I can't see any lender advancing you more than the amount outstanding on your current mortgage.
 
In terms of jobs, a lender may expect you to at least have passed your 6 months probation and be confirmed as permanent in your new role. You can't afford to take the job in the public sector. Given your child card costs you'd be paying the bulk of your salary to the childminder

I'm assuming over the next 2-4 years there is an opportunity for your childcare costs to drop once they start going to school. With property prices creeping up you may slowly move out of negative equity. Are you paying back any capital? ,€950 pm seem low for €180k. If you are paying back some of the capital then you will move out of negative equity quicker.

Personally, I'd be inclined to put my head down for a couple of years, try and get the rental mortgage negative equity down, increase the rent on the house at the next chance you get (even if only by €50 a month) and not worry about buying for now. It's tight at the minute but in 3/4 years time you might break even on the rental property, your child care costs will be down, potentially you will have had some pay rises and tax cuts (hopefully) and you would be in a more comfortable position
 
Thanks for all the replies and advice. Just to clarify our combined earnings are €67k although that probably doesn't make much difference.
We are paying capital off the property we own and not interest only.
The reason we were hoping not to sell yet is because we have tenants who are set on staying andwe're very happy with them. We were hoping we could hold onto it until the negative equity figure comes down.
I've been told by mortgage store that we could use the rental income as income and they would count the difference as outgoings when assessing our mortgage suitability.
Any thoughts?
 
Lolly said:
Thanks for all the replies and advice. Just to clarify our combined earnings are €67k although that probably doesn't make much difference.
We are paying capital off the property we own and not interest only.
The reason we were hoping not to sell yet is because we have tenants who are set on staying andwe're very happy with them. We were hoping we could hold onto it until the negative equity figure comes down.
I've been told by mortgage store that we could use the rental income as income and they would count the difference as outgoings when assessing our mortgage suitability.
Any thoughts?
Click to expand...

Lolly

It is certainly understandable on a human level that you do not want to cause unnecessary difficulties for your tenants. However, the bottom line is that it is costing you money to keep them housed.

I still think you would be crazy to take out a further mortgage in your current circumstances - even if a lender was prepared to give you an additional loan. There are simply too many things that could go wrong and, frankly, you have insufficient resources to absorb any unforeseen expenses or loss of income. To take out a further mortgage in your current circumstances would be reckless in my opinion.

It seems to me that you have two options:- (a) establish if you would be eligible for a negative equity mortgage and sell your rental property with a view to purchasing a house in your current location; or (b) keep going as you are now in the hope that your financial position improves with time.

I know that's not what you wanted to hear but it seems clear to me that taking on more mortgage debt is not the way forward in your case.
 
All your replies make sense. I'm just wondering if we are leaving it too late to get a mortgage if we wait a couple if years. We're both 38 years old. Our childcare won't come down for another four years because out youngest is one.
I think you have all convinced me to sell the property that we have though.
I'm sorry for all the stupid questions but I'm clueless about this stuff.
 
The banks will calculate do you have enough income to service a mortgage of 380000. They will take half rental income into account. Therefore your income is 55000x let's say 4 you can borrow 220000.

There is no way you will get near the money you need. Also your child care is huge. That goes against you big time.

Your only option is to wait for another 18 month's keep savings hope priperty prices go up to clear off negative equity. Then sell that house and buy another. You have no other option.
 
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