# Just about to buy a new Home for €600k. Can we afford it?



## Monte2014 (18 Jan 2018)

Age: 41
Spouse’s/Partner's age: 43

Annual gross income from employment or profession: €84k. I work as a Chartered Surveyor.
Annual gross income of spouse: €47k. Spouse works as a Risk Management Consultant.

Monthly take-home pay: €8k

Type of employment: Both in private sector

In general are you:
(a) spending more than you earn, or
(b) saving? We are saving approx €3k/mth.

Rough estimate of value of home: €600k
Amount outstanding on your mortgage: €400k or €2k/mth.
*What interest rate are you paying? 2.95%variable. *

Other borrowings – car loans/personal loans etc: None. 

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

Savings and investments: €220k on deposit, €26k in Rabo, €55k NTMA, €112k in equities. Own a site with planning permission in Munster and 6 acres of land which had planning permission for 12 houses on the edge of a rural village but has since expired. 

Do you have a pension scheme? Yes, we both have. 

Do you own any investment or other property? No

Ages of children: 10, 8, 6

Life insurance: Yes.

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

We have just received the contracts on a new 4 bed semi D house in Dublin 16 but we have yet to sign. Our initial plan was to build a house in Munster once we returned from overseas but since we returned to Ireland we feel Dublin meets our combined needs. My question is can we afford a house at this price or should we aim for something lower in price or look for a cheaper 2nd hand house which we can renovate?


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## RedOnion (18 Jan 2018)

Hi,

Just to be clear, what would your savings / investments be after you purchase? I'm assuming a large portion is going towards the house?


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## Monte2014 (18 Jan 2018)

We plan to put €200k our our savings into the house so after we purchase the house we will have €100k in savings. We will also have €112k in equities but our plan is not to sell these.


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## RedOnion (18 Jan 2018)

Why hold onto the savings? You need to be getting 6% interest to be earning as much as the Mortgage is costing you.
At a push you'd get under 50% LTV and benefit from best rates available.

You can well afford it. If you can't, then who is buying the 600k + houses?


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## Andy836 (18 Jan 2018)

66% LTV, 
€2k p.m. in mortgage payments. 
Mortgage service is only 25% of net income.
Kids all over the age of daycare. 
You'll still have >€100k in savings plus pensions.

You can most definitely afford it*
If you can't, then there's no hope for any of us.

*this is not legal or financial advice


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## Monte2014 (20 Jan 2018)

Thank you all for your responses. Whilst I appreciate I can probably afford the mortgage based on our current situation I am still told my others (especially my friends in Munster) that no 4 bed semi d is worth 600K. However, my Dublin friends have a different opinion. Maybe it a geographical opinion!


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## PaddyBloggit (21 Jan 2018)

Monte2014 said:


> I am still told my others (especially my friends in Munster) that no 4 bed semi d is worth 600K.



+ 1 (from another Munster point of view ... 'tis madness to pay €600k for a semi-d)


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## noproblem (21 Jan 2018)

Needs be. If there's a particular area you want to live in there's a premium to pay for it and there always will be.


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## cremeegg (21 Jan 2018)

While it is true that no 3 bed semi in Munster is worth €600k, I think the clue is in the OPs username.


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## gnf_ireland (24 Jan 2018)

@Monte2014  I think the answer is relatively straight-forward. You can afford a mortgage of 400k, and you will have roughly 200k in savings left over after the house is purchased. So you can afford the purchase.

Whether you feel the house is worth 600k or not is a different question and not one anyone here can answer. I could not justify spending 1m on a house in Dublin although I could probably afford it. I prefer an easily work/life balance that allows me to see my kids on occasion rather than working all hours just to reduce the associated debt.

I would point out a few things to consider though
(a) how secure are your jobs and what are the career prospects for your wife and yourself? Is your plan to stay working and until what age ?
(b) how long is the mortgage for? Given your relative wealth, I would target being mortgage free by 60 if you can. You never know what can happen health wise beyond that
(c) your kids are approaching secondary school age - are you planning fee paying v public schools? Any increased costs coming down the track you need to be careful of. Any cars needing replacement any time soon
(d) You say you have pensions but dont say how big they are?
(e) I would personally disagree with keeping 115k in equity outside a pension fund while carrying debt of 3 times your combined salary. Personally (and we have done this in the last 12 months) is bring down our equity investments outside a pension fund to next to zero and have paid it off against our mortgage. The mortgage is now negligible, and we are still carrying deposit reserves. The equity markets are at all time highs, so why not take the profit and releverage yourself. As others have said you would need 6% before tax risk free to equal the saving you would make on the mortgage.
(f) You dont say what your saving level will be post mortgage, but I assume you would still be saving funds. I would debate you should increase pension contributions towards your maximum. You will still have close to 100k in savings (assuming e above) and this should be sufficient for most people unless you have clear financial objectives you are trying to meet and need access to large cash reserves to accommodate them.

The last thing I would say is my kids are 5 & nearly 4. By reducing the mortgage by such a considerable amount, it allowed by wife to easily go part time with no impact on our financial position. We have probably more disposable income since my wife went part time. It is definitely worth considering and something we are delighted we done.


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## Monte2014 (24 Jan 2018)

Yes, I agree that there is a premium to live in a particular area etc so there are obviously trade offs between Munster vs Dublin; a conversation for another day in terms of country vs city living and I am sure this has been covered extensively elsewhere. 

Ggnf_Ireland. Well done on having the option of buying a €1m house in Dublin. I presume you are living outside of Dublin? We have considered staying in Tipperary but my wife's job is in Dublin and I will be working in Dublin also. She has the option of working 1 to 2 days from home and I will have the option of working 1 day from home; so it is possible to live in Tipperary and work in Dublin. To answer your other questions:

(a) Our jobs are secure but my wife's jobs is more secure as she works in the Insurance Industry. I, on the other hand, work in the construction industry which is very cyclical as we know! However,  I hope we don't return to a boom - bust situation as before but unfortunately that seems to be the nature of the construction industry.

(b) Mortgage is for 20 years, which brings us up to 61 and 63 respectively. 

(c) We will probably send our children to public school up to Junior Cert and maybe decide private education thereafter. However, we will keep both options open for now. If we were to stay in Tipperary we would consider Rockwell College. 

Cars are in good condition but replacement of one car is coming up in 1 year or so. 

(d) Our pensions are cumulatively worth about €250k but we have not contributed to them since 2012 when we left Ireland. Now that we are back in Ireland I need to get my PRSA back up and running. My wife is part of a pension scheme in her new job where she is contributing 15%.

(e) good point regarding our equities and releverging ourselves. We will have to look at this further. 

(f) Post Mortgage we will still be able to save €2k-3k per month excluding any work bonuses we might receive.


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## gnf_ireland (25 Jan 2018)

Monte2014 said:


> I presume you are living outside of Dublin? We have considered staying in Tipperary but my wife's job is in Dublin and I will be working in Dublin also. She has the option of working 1 to 2 days from home and I will have the option of working 1 day from home; so it is possible to live in Tipperary and work in Dublin.



No, actually I live in South County Dublin. I was away for a number of years, but came back as the Celtic Tiger was losing its roar and bought in 2011. We could consider upgrading the house to one that breaks the 1m mark, but we are happy with where we are. We would love a slightly larger house with rear access etc. If we were down the country, the house and plot would be double the size and would cost about 30% of what the house is now worth and we could laugh all the way to the bank.

Realistically, you are in the same boat as many people who would prefer not to be in Dublin but have to be for work. Yes you could commute into Dublin on a daily basis, but that brings its own stresses. The M7/M9 road in the morning and evening is not for the faint hearted. Of course you could consider the train up if you worked close to Hueston, but that brings about other challenges also. So ultimately it will be a trade off, and one that is not always an easy choice to make. We are happy with our decision to live in Dublin, but also know others who are equally happy with theirs to live in satellite towns such as Naas or further down the country. Its just a different life and different challenges.

I would also ask how long you have been back in Ireland and how well you have settled into life back here? It takes a while to readjust and sometimes its easier to readjust where you know people - and sometimes its harder



Monte2014 said:


> (a) Our jobs are secure but my wife's jobs is more secure as she works in the Insurance Industry. I, on the other hand, work in the construction industry which is very cyclical as we know!



So realistically, if either/both of you were let go in the morning, how long would it take to secure another similar paying job? you need to keep this in mind when considering the amount of cold hard cash you are keeping on deposit. And this is not only about getting a job, but a similar job at a simple level and pay grade



Monte2014 said:


> (b) Mortgage is for 20 years, which brings us up to 61 and 63 respectively.



understand, but given your projected saving potential you should give serious consideration to clearing this down quicker. I still believe with your savings 60 is a very good target, or even 55 if you want to be properly aggressive. We have ours effectively cleared at 42 and is a massive weight off our shoulders



Monte2014 said:


> (c) We will probably send our children to public school up to Junior Cert and maybe decide private education thereafter. However, we will keep both options open for now. If we were to stay in Tipperary we would consider Rockwell College.



The location of the house, primary schools etc are all factors in the secondary school decisions you make. It is not always easy to get into private secondary in senior cycles only and is dependent on economic cycles. It is something that you will need to consider at some point and have back-up options for. Schooling in Dublin is very different from the country and something I found out to my surprise. Your 10 year old will be looking at secondary school places probably next September - I think its the start of 5th class they are allocated in most places



Monte2014 said:


> Cars are in good condition but replacement of one car is coming up in 1 year or so.


Need to think of this in terms of your cash deposits also



Monte2014 said:


> (d) Our pensions are cumulatively worth about €250k but we have not contributed to them since 2012 when we left Ireland. Now that we are back in Ireland I need to get my PRSA back up and running. My wife is part of a pension scheme in her new job where she is contributing 15%.


15% is a decent contribution for your wife, but you should give consideration to upping this to the maximum 25%. There is an earnings gap between you both, and women have a longer life expectancy, so that is worth considering.
250k is roughly a pension of 12k a year [ball-park]



Monte2014 said:


> (e) good point regarding our equities and releverging ourselves. We will have to look at this further.



If you decide to keep the equities I think you have to consider why you are doing so? Do you expect to see considerable more upside on them? The tax on any profits is 40%. Do you expect the dividends to be high on them? The difference paying 100k off your mortgage would make would be massive:
- 400k @ 2.99% over 20 years = 2216 per month
- 300k @2.99% over 20 years = 1662 a month => that is 550 euro a month difference
- if you maintained the same mortgage repayment after your lump sum of 100k, it would save 65k in interest alone and allow you pay off your mortgage over 6 years earlier.



Monte2014 said:


> (f) Post Mortgage we will still be able to save €2k-3k per month excluding any work bonuses we might receive.



This does surprise me. Based on the salaries above, you should be receiving around 7350 a month net (before any pension payments taken into account). Add 420 childrens allowance onto that.
Mortgage is 2200 roughly, so leaves 5550. Take off 2500 for projected savings is 3000, is around 36,000 a year to run the house and spending money
Annual expenses of 2 cars (Tax, Insurance, Servicing, Tyres etc), Health Insurance, Property Tax, House Insurance, Back to School for 3 kids etc has to be a couple of grand. I also expect you will spend a grand or so on Christmas. That's down to say 30k for the year - so roughly 2.5k a month. This excludes holidays but includes all costs to run the household and all personal expenditure. It seems a bit low for me for a family with 3 kids.
I am not sure how you are handling full time childcare but that would put a serious hole in a 30k budget. The kids are too young to be minding themselves I am sure and you both work full time. I assume both of your families are in Tipperary. I am not 100% sure, you will save as much as you think you will and suggest maybe you do a household budget and track it to see how you are getting on. I know we would not run our household for that amount - especially when childcare is factored in.

And this is before any additional pension contributions are taken into consideration. I think you need to step back and look at all the household numbers again. This is where paying that 100k off the mortgage could make a massive difference to you all and just take pressure off financially for a few years.


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