# Save for home or invest?



## Emily R (17 Jan 2019)

Age: 40
Spouse’s/Partner's age: 34

Annual gross income from employment or profession: 67,000
Annual gross income of spouse: N/A

Monthly take-home pay 3,100 euro

Type of employment: e.g. Civil Servant, self-employed –yes in private sector

In general are you:
(a) spending more than you earn, or
(b) saving?


I am saving €1k a month 

Rough estimate of value of home- €295k
Amount outstanding on your mortgage: €150k
*What interest rate are you paying? 3.1% variable*

Other borrowings – car loans/personal loans etc –no borrowings

Do you pay off your full credit card balance each month? Yes paid in full each month
If not, what is the balance on your credit card? 

Savings and investments: Circa €23k in savings; €30k in shares

Do you have a pension scheme? Yes-with my job in the private sector

Do you own any investment or other property? No

Ages of children: No

Life insurance: Need to sort this out as have none currently


*What specific question do you have or what issues are of concern to you?*

*Should I save for a house or invest in equities?* 

*Personal situation as follows:*

*Outgoings:* 

*I am currently letting out my only property to relatives at a discount-personal circumstances have lead to this. There is no quick way this would change over the next few years. My relatives pay me an amount that covers bulk of my mortgage payments. My net outflow on a monthly basis for the mortgage is €150. I also need to pay the yearly mgt fees for this property.*

*I pay rent of €600 monthly and live with my spouse. My spouse is not in a position to earn an income currently.*


*Savings:* 

*I am saving €1,000 each month and have savings of €23,000. I would like to buy a small property for circa €300k, perhaps in 12-18 months. Scenario in 12 months could be: €35k in savings, €30k  from sale of shares and €15k from my parents for a deposit of €80k. This would leave me with very little buffer. I could also wait 18 months to build up a larger deposit.*


*The downside is that the small property would not be my preferred home, merely somewhere to live till my spouse is able to earn an income. This is likely to be in the next 3 years.* 

*My question is should I continue to save as I have done and look to buy a small property to get us out of the rental rut… Or should we hold out for three years when we have better purchasing power with two incomes and in a stronger position to buy our long term home. The savings could be invested into equities for the next few years if this option is pursued.*



*Any thoughts appreciated.*


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## Brendan Burgess (18 Jan 2019)

Summary 
Equity in investment property: €150k 
Savings and investments: €53k
Total assets: €200k 

Salary €67k 
Potential mortgage - 3.5 times income: €230k 

Potential price of house: €430k 



Emily R said:


> I am currently letting out my only property to relatives at a discount-personal circumstances have lead to this. There is no quick way this would change over the next few years.



It seems to me that you have to resolve this issue first. 

As you have a mortgage of €150k, I don't think any lender will give you a mortgage of €230k or probably any worthwhile mortgage. 

It is shockingly inefficient for tax purposes to rent a property to occupy while letting a property that you own. 

You are paying tax on the rental income you receive while getting no tax deduction for the rent you are paying. 

Any increase in the value of the property will be subject to Capital Gains Tax for the period while it is let out. 
So to answer the question you asked - you will not be able to buy a property, so continue to invest. 

But to answer the question you should have asked - sell your current property as quickly as possible so that you can buy a family home.

Brendan


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## Laughahalla (18 Jan 2019)

Hi Emily,
Well done with saving €1k per month, having no consumer debt and a really healthy emergency fund/savings. Keep this up.

Unfortunetly, the main thing holding you back by the sounds of it is the rental property. This is costing you money each month when it could be generating income.

When you rent a property to family/ relatives or on the flip side if you borrow/loan from/to family/ relatives that changes the relationship with your family/relatives and usually not for the better.
You are sacrificing your wealth and by the sounds of it your wellbeing in order to subsidise your relatives.
Your relatives are not your responsibility. Your immediate family i.e yourself, spouse and children ( if you had  any children  )  is your repsonsibility. That's it.

You need to be getting a market rent from your property or if you really want to buy a house then maybe it's time to sell the property you rent out and use that towards your "small" 300k property.
Your rental property could be a tax liability for you that you may not have considered.

Emily, it's time to put your life first.   If you tell them that you are selling it will take a few months for it to sell so they will be getting plenty of notice to find somewhere else. (Just make sure you give enough notice and are compliant with the residential tenacies board)

On the insurance side of things. A term life policy is approx. €10 per month per €100k of cover so is relatively inexpensive for peace of mind. You might have a work life policy that will pay out in case of death in service so may not need to buy additional.


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## Protocol (18 Jan 2019)

Your net seems low given the 67k gross / 5583pm.

Maybe you are making large pension deductions?


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## newirishman (18 Jan 2019)

Protocol said:


> Your net seems low given the 67k gross / 5583pm.
> 
> Maybe you are making large pension deductions?



Indeed. A quick look using a tax calculator shows somewhere around 3700-4000 Euro take home monthly, with the upper figure if you are taxed as a couple and get all of your spouses tax credits (do this immediately if you haven't already!)


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## Emily R (18 Jan 2019)

Thanks for the honest advice everyone.

In relation to my net pay-I contribute a significant percentage to my pension. I haven’t availed of my spouse’s tax credits to date-but will claim them now. I think I can go back for the last four years.. will check this out.

Regarding my life assurance-work pay twice my annual salary in the event of death whilst in employment, so that should be okay. I would like to get cover in the event of illness. Work pay full pay for a certain period (6 months), then payment is limited to disability allowance.

To my original question about saving or investing:  I am disheartened to hear that no bank is likely to approve a mortgage/approve an unworthwhile mortgage. Is the fact that there are tenants covering the  bulk of my mortgage payments  taken into the account in the mortgage approval calculation by the banks?

If I was to get market rates in terms of rental income for my property, would this help my future application for a second mortgage? Or am I better off  just selling my property altogether? The property I own has good rental potential… so could be a long term investment if I could get market rates in terms of rental income.


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## Cervelo (18 Jan 2019)

Emily R said:


> To my original question about saving or investing:  I am disheartened to hear that no bank is likely to approve a mortgage/approve an unworthwhile mortgage. Is the fact that there are tenants covering the  bulk of my mortgage payments  taken into the account in the mortgage approval calculation by the banks?
> 
> If I was to get market rates in terms of rental income for my property, would this help my future application for a second mortgage? Or am I better off  just selling my property altogether? The property I own has good rental potential… so could be a long term investment if I could get market rates in terms of rental income.



Are you paying tax on the rental income at the moment ??, If not then this needs to be factored into your future plans


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## RedOnion (18 Jan 2019)

Emily R said:


> Is the fact that there are tenants covering the bulk of my mortgage payments taken into the account in the mortgage approval calculation by the banks?


Not really. They take a percentage of the income, but the full outgoing, stressed at about 6% interest rate. So it counts massively against you as you've an ongoing commitment before your mortgage.


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## Brendan Burgess (18 Jan 2019)

You have to be realistic here. If you want to buy a family home to live in, you have to sell your investment property. 





Emily R said:


> Age: 40





Emily R said:


> I contribute a significant percentage to my pension.



This is madness.  If you want to buy a home, then stop contributing to a pension until you have bought the home and sorted out the mortgage. 

Most lenders charge lower rates for lower Loan to Values. By having a bigger deposit, you will save interest on the whole mortgage. 

Brendan


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## messyleo (18 Jan 2019)

Brendan Burgess said:


> You have to be realistic here. If you want to buy a family home to live in, you have to sell your investment property.
> 
> 
> 
> ...




Agree with all this, though would suggest you still continue with the pension at a much lower level, especially if your contributions is matched by your employer, as you don't want to lose out on "free" contributions.


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## Brendan Burgess (19 Jan 2019)

If your employer's contribution is dependent on you making a contribution, you should contribute.

Otherwise, don't make any contributions.  You can resume contributions at a later stage.

Brendan


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## Sarenco (19 Jan 2019)

Brendan Burgess said:


> Otherwise, don't make any contributions.  You can resume contributions at a later stage.


With over €200k in available assets, I don't see any reason why the OP couldn't buy a house for €300 - €400k AND continue maximising her pension contributions.

I think your advice to defer making pension contributions while carrying a mortgage is bonkers.  It ignores:- (a) the "use it or lose it" nature of the tax relief on pension contributions; and (b) the "time diversification" benefits of investing in equities over an extended period of time.


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## Brendan Burgess (19 Jan 2019)

Emily R said:


> I would like to buy a small property for circa €300k,





Emily R said:


> The downside is that the small property would not be my preferred home, merely somewhere to live till my spouse is able to earn an income. This is likely to be in the next 3 years.



Hi Sarenco 

He should not be buying a small house for the next three years. 

He should be trying to buy his final home or at least a home for a good few years. 

Therefore the priority for him is to maximise the cash available for him to do so as soon as possible subject to the matching the employers contribution caveat. 

Whether he should pay down the mortgage in full or not, is discussed in this thread: 
https://www.askaboutmoney.com/threa...-a-pension-but-dont-leave-it-too-late.189981/

But the one thing is clear, he should not be making unnecessary payments to his pension fund now.

They key thing about paying down a mortgage is that he is getting a tax-free return on his money equal to the mortgage rate.  
He has plenty of time for "time diversification". 

Brendan


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## messyleo (19 Jan 2019)

Sorry to be a pedant but I imagine the OP is a she??


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## Sarenco (19 Jan 2019)

Brendan Burgess said:


> He has plenty of time for "time diversification".


I strongly disagree.

The OP is 40.  Accumulating retirement savings over the next 25 years and spending down the pension pot over the succeeding 25 years, represents an investment time horizon of 25 years.  That's not a particularly long time period from an investing perspective.

You are also ignoring the "use it or lose it" nature of the tax relief on pension contributions.

The OP has €200k in available assets.  She can buy a €400k property with a 50% LTV mortgage.  That's a pretty decent budget, even in Dublin.  

She can always trade up to a more expensive property in the future if her household income increases.

In any event, there is no good reason for the OP to defer maximising tax-relieved pension contributions.


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## Brendan Burgess (20 Jan 2019)

Sarenco said:


> You are also ignoring the "use it or lose it" nature of the tax relief on pension contributions.



I am not. I have referred you to the extensive discussion of it on the other thread. 

Buying and selling a home have big transaction costs and  financial risks. Moving home is very disruptive.  The priority for the OP now is to buy a house which is well suited to her long term needs.  Halting pension contributions now will make that easier for her. 

When she had bought a house, she can then read the other thread and make up her mind whether she should be paying down her mortgage or contributing to a pension scheme. 

Brendan


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## Sarenco (20 Jan 2019)

Brendan Burgess said:


> I have referred you to the extensive discussion of it on the other thread.


Where you conceded that pension contributions should be the priority from around 40. 

The OP has available assets of over €200k and is currently adding to her after-tax savings and home equity.  Whether she buys now or defers the decision for a few years is beside the point - she has and will have ample resources to purchase a house with a sensible level of mortgage financing. 

In the meantime, there is no logical reason to forego the advantages of contributing the maximum tax-relieved amount to a pension.


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## Brendan Burgess (20 Jan 2019)

Hi Sarenco

We are obviously not going to agree on this, but I will try one more time.

If she contributes to a pension now, she will lose access to that cash. If she keeps it, she will have access to 50% of it immediately.

Her plans are unclear and uncertain.  The lender may give her a loan of €234k and she may be happy to buy a house for €434k.  

But lots can change...

The lender may not give her €234k 

She may not get what she wants for €434k. 

She may want to spend money on doing up the house 
Flexibility and access clearly trump the other considerations in my opinion.  

Brendan


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