# Top up Mortgage on home with existing Tracker; have investment property



## AnneMc (11 Mar 2018)

We are a married couple in our mid 50's. We have applied to Ulster Bank for a €60,000 top up to our mortgage. We plan to use the top up to refurbish our home.
We have two tracker Mortgages with Ulster Bank:-
1. €157,000 remaining, pay €894 p.m. Interest Rate 0.95%. Our Family Home, Market Value  €380,000
2. €96,000 remaining, pay €702 p.m. Interest Rate 1.45 %. Investment Property, Market Value € 480,000. We receive € 1,600 per month rent
We are both self employed and our net earnings are € 5,500 pm approx.
We have additional savings of €15,000.
We pay two car loans, one is € 237 p.m until 2020 and the second is € 250 p.m due to finish this year. We have the usual outgoings and college fees of € 3,000 per year.
We clear our credit card bill each month....

We have been in negotiation with Ulster Bank for 6 weeks, and they have not yet approved the loan... we feel they are making unreasonable demands on us at this stage e.g requesting up to date credit card statements when we prove the card is cleared each month.

Any advice on what we should do ? Could Ulster Bank be playing "hard ball" i.e. hoping we will sell because of our low Tracker interest Rate? The agreed rate they offered us was repayments of € 428. 93 pm - discounted variable. Would it be worth our while trying else where?


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## Brendan Burgess (11 Mar 2018)

They are not under any obligation to give you additional credit. 

They are probably worried about your repayment capacity over 10 years of a €60,000 loan, when  you already have €260k in mortgages and other car loans. 

Another lender is unlikely to refinance these loans, and you would lose your tracker. 

You could try a credit union, but it would be very expensive. 

It might be worth doing a general review of your finances which could well lead to the conclusion that you should sell the investment property, clear your car loans and be, effectively, debt-free.

Brendan


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## AnneMc (12 Mar 2018)

Thank you Brendan... We had hoped to hold onto the investment property for another 3-5 years, it is increasing in value and because it's rented since 2005 we are liable for CGT.


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## Brendan Burgess (12 Mar 2018)

As I say, you need to do a complete review of all these facts and figures before arriving at a decision. Holding onto it might well be the right thing to do, but you should not automatically assume that. 

Brendan


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## AnneMc (12 Mar 2018)

Is that something we can do here or should we look for a local consultant?


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## Brendan Burgess (12 Mar 2018)

You can do it here. 

Set out your own thoughts on whether you should keep or sell the investment property and someone will review them for you.

Brendan


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## AnneMc (12 Mar 2018)

I suppose we have always looked on the investment property as our "pension".The rent of € 1600 covers the mortgage on the property and the mortgage on our current home . We bought it for 67,000 IR in 1994, lived in it for 10 years, and it now has a market value of around €480,000. We have both worked hard to hold onto it, making many sacrifices through the years to do so.
Our current home needs investment and we have juggled with the idea of selling both properties and buying a newer house.
Broadly speaking we would end up with around €150,000 after paying off mortgages and CGT. 
Holding onto the house for another few years would guarantee an ongoing profit; maybe a change in CGT rates but the option of being debt free is attractive while we're young (ish) enough and healthy,
Any feedback greatly appreciated!


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## Brendan Burgess (12 Mar 2018)

OK, so let's look at the investment property on its own

Rent received: €19,000 
Net rent after expenses - say €15,000 
Interest paid:  €1,500  €96k@1.45%
Rental profit - c. €14,000 

Net investment : €384k  (€480k -€96k) 

Yield before tax: 3.6% ( €14k/€384k) 

After tax: 1.8% 

*CGT - rough calculation *
Capital Gain: €400k 
Less family home relief: €160k ( 11/28 of €400)
Taxable gain: €240k 
CGT: €80k 

So you could argue that your yield is 4.6%  (€14k /€304k)
after tax: 2.3%

Is that yield worth the hassle of managing a property? Only you can decide. A good tenant probably means yes. A bad tenant, means no. 

Is it worth the risk involved in property? I would probably say no. You already have a €380k investment in property and want to increase that by €60k.  So you probably have too much exposure to the property market. 

*What could you do with the equity released? 
*
Use €60k for your extension - that would be like investing it at 3.5% net. 

Pay off your car loans - don't know what rate you are paying on them. 

It seems to me that you should sell, pay off your car loans and either do your extension with cash or move if that is what you want. 

Brendan


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## Brendan Burgess (12 Mar 2018)

AnneMc said:


> I suppose we have always looked on the investment property as our "pension".



Sometime, I will get around to writing my book on great financial myths and mistakes. This must come in at number 1 on the list.

You have €304k net invested in your property.  It's subject to income tax and CGT.

It would be far better to have this in a pension fund.

You would get tax relief putting it into the fund 

It would grow tax-free 

You will probably get 25% of it tax free when you retire
And as you draw it down, it may well be taxed at a lower rate than you are paying now.


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## AnneMc (12 Mar 2018)

Thanks again Brendan. It makes a lot of sense!


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## AnneMc (12 Mar 2018)

I might go on the money makeover thread to get feed back on the bigger picture. We do have a substantial pension with over 25 years contributions... I didn't mean to give the impression that the investment property was our pension.... more our "running  away" from three adult children fund !!!


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## peemac (21 Mar 2018)

Just a point on this.

Next year you'll have had the investment property for 29 years - 11 as family home .

So family home relief would then be 11/29 and at same value,  cgt would be on 249k, so extra 3k due in cgt making current rental return very poor. The following year it will be 11/30 and so on.


One option,  as both of you are self employed is to sell property,  use some of surplus cash as loan to company paid back monthly at 1% interest and at same time reduce your salaries below the higher tax rate and increase payments into pension fund for using from age of 60.

I'm doing this with a lump sum from tracker redress and its all above board.


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## moneymakeover (21 Mar 2018)

I guess lenders are more strict than back in the boomtime but worth sticking with it

Why sell a good asset which is still appreciating as well as rental income


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## thos (22 Mar 2018)

Brendan Burgess said:


> Sometime, I will get around to writing my book on great financial myths and mistakes. This must come in at number 1 on the list.
> 
> You have €304k net invested in your property.  It's subject to income tax and CGT.
> 
> ...


I want to piggback on this question as someone who also has an invement property (read: unwanted previous apartment), and also consider this as a long-term 'pension', however I am also maxing out AVC's, so when factoring in relevant taxes, I am still looking at the apartment as either a future income stream (albeit taxed) or an asset for future disposal for purpose of lump-sum (subject to CGT).
So to be clear about the myth or mistake in question, it is relying solely on property investment, without taking into account relevant taxes, and without utilising other more tax advantageous pension options before hand - am I right in that?


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## Alicedshealey (30 Mar 2018)

The bank cannot be held to account for failing to offer a product that is not on its books so you have no case against the bank at this stage.


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## Gordon Gekko (30 Mar 2018)

thos said:


> I want to piggback on this question as someone who also has an invement property (read: unwanted previous apartment), and also consider this as a long-term 'pension', however I am also maxing out AVC's, so when factoring in relevant taxes, I am still looking at the apartment as either a future income stream (albeit taxed) or an asset for future disposal for purpose of lump-sum (subject to CGT).
> So to be clear about the myth or mistake in question, it is relying solely on property investment, without taking into account relevant taxes, and without utilising other more tax advantageous pension options before hand - am I right in that?



Yes.

In very basic terms and assuming a simplistic 50% tax rate, the choice is:

- Earn €100, end up with €50 after tax, buy a house for €50 which pays rent of €2.50 per year which is €1.25 per year after tax

Earn €100, buy something for €100 which pays an income of €5 per year, and at the end extract that value on favourable terms.


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## DublinD (30 Mar 2018)

Just reading original post...outside of affordability etc...is it that difficult to give them the CC statements to show they are paid off (rather than showing money going from CurrentAcc).....it’s standard to see CC statements-not unreasonable...


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## thos (30 Mar 2018)

@Gordon Gekko - cheers


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## Alicedshealey (3 Apr 2018)

@Gordon Gekko - I would like to appreciate about your well explained comment.


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