# Stretch myself financially to buy a 2nd house?



## aristotle (11 Jun 2014)

Hi,

 I am looking to purchase a 2nd house which will be my new primary residence. I intend to rent out my current one.

 The thing I am struggling with is should I borrow a lot and put 95%+ of my savings into this new house or buy a cheaper one. Most of the house I see around Kildare for less than 350k are not what I have in mind.

 I am looking for a nice house on at least an acre and most of them are in the 450k price range.

 If I was to pay say 450 then I would have to borrow 270 and put 180 into it myself, leaving me 10k in the bank.

 I am thinking if I go for the 450k house then worst case I can always sell my current house if I need to (currently in around 20k positive equity on cheap tracker). My girlfriend (we have 1 child and another on the way) also has a house with 30k equity on cheap tracker so that too is another safety valve in the future if we need to sell that.

 I know interest rates will go up over the medium term so the repayments on a new mortgage will go up.

 Not sure what exactly my question is but is it silly to consider raiding the bank accounts to fund a purchase of a house I would like to live in long term or don't do that and buy a house I would not really be happy with long term?

 With keeping the existing two houses they can be sold if we need to in the future. Also, my girlfriend is not working by choice (raising the family instead) so she will have an income in 5 years time or so.

 Thanks


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## Steven Barrett (11 Jun 2014)

Hi Aristotle

There's so many variables to your question to give a full answer on a forum but I would ask:

Why do you want 3 houses? 
What if interest rates went up 1%? What financial position would you be in then? 
What if your girlfriend doesn't go back to work? Can you afford 3 mortgages indefinitely? 
What if there is another housing crash and you can't offload the other properties? 

Pursue your dream home but don't put your financial future at risk. I have never met someone who complained about having too little debt. 

Best of luck, I hope you get your dream home. 


Steven
www.bluewaterfp.ie


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## aristotle (11 Jun 2014)

_Why do you want 3 houses?_ 
As we currently don't need to sell the two current houses and I think we can rent them out then they would be investment properties. Over time the mortgage will reduce and hopefully the equity in them will go up. If we sell both of them we take out around 40-50k equity today but in 5-10 years time the mortgages will be less and hopefully prices higher so that equity could be more.

_What if interest rates went up 1%? What financial position would you be in then?_ 
I would consider selling either or both houses if we need to but that assumes the prices of houses don't drop very significantly from here.

_What if your girlfriend doesn't go back to work? Can you afford 3 mortgages indefinitely?_ 
Plan is to rent out the two houses. At todays mortgage repayments the two properties cost 600 and 900 per month (at peak ECB rates they used to be 1000 and 1400). A third property I am planning for will cost about 1500 per month. So if both are not rented out I need to cover 3k per month in total approx. today but if rates go back up then it would be nearly 4k. My net income is averages around 5.3k per month so it would be possible but not sustainable. There is a risk of a salary reduction of course in the future.

_What if there is another housing crash and you can't offload the other properties?_ 
The price of the properties would have to drop 10% and 15% from todays prices in order to go back into negative equity. But my remaining mortgage is also dropping by 4% per year at the moment. 

Thanks for the pointers.


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## Brendan Burgess (11 Jun 2014)

A very difficult one. 

Normally it would be correct not to have three houses and three mortgages. But when you have cheap trackers, the situation is very different. 

Most of the lenders now allow borrowers to port their trackers to a new home at an additional cost of 1%. If your lender allows you to do this, then this would be the best option. You get the house you want, and the mortgage repayments will be low. 



> buy a  house I would not really be happy with long term?



I don't think you should buy a house you are not happy with long term. You should stay where you are until you are happy to buy the long term house.  Is there any urgency to move from your current home? 



> The thing I am struggling with is should I borrow a lot and put 95%+ of my savings into this new house
> ...
> If I was to pay say 450 then I would have to borrow 270 and put 180 into it myself, leaving me 10k in the bank.



If you can't port your tracker...

Yes, you should put all your savings into the new house. 

Can you afford the repayments on €270k? Presumably if you have saved up €180k you are on a good income. 

I presume that the rental income on your existing home would cover most of the repayments as it's a cheap tracker? 

You have €190k cash.
You have  €20k equity in your current home
You a cheap tracker, which means that your repayments are going mostly to paying off the capital on your tracker. 
You presumably have a good income 

It seems to me that you can afford to handle the downsides if things go wrong.


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## Brendan Burgess (11 Jun 2014)

aristotle said:


> _What if interest rates went up 1%? What financial position would you be in then?_
> I would consider selling either or both houses if we need to but that assumes the prices of houses don't drop very significantly from here.



SVRs are currently 4.5% based on an ECB rate of 0.15%

I think you should think about what would happen if SVRs increased to 7.5%

Brendan


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## aristotle (11 Jun 2014)

Current lender is a bank who don't alow porting option to a new house.

I will have to look at the numbers if rates go to 7.5%.

Rental income on my house would be about 1100 per month, repayments currently 900. There is a risk that I would be moved off the tracker if I rent out the house so that would move repayment probably up to 1000-1200 so that would be loss making overall.

I am confident I can afford repayments on 270k. My gross income has been 100-130k p.a. over the last 6 years. 

I still have it in my mind that we can sell both houses if we need to raise more money if for some reason we are struggling to keep the 3rd house.

 I am hoping to have a long term house sorted before our first child starts school in 3 years time. But I would buy now if I find what I am looking for.


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## Brendan Burgess (11 Jun 2014)

aristotle said:


> Rental income on my house would be about 1100 per month, repayments currently 900. There is a risk that I would be moved off the tracker if I rent out the house so that would move repayment probably up to 1000-1200 so that would be loss making overall.



There is an important distinction between "profit" and "cash flow" 

If you have a €200k mortgage at 1% with 20 years left, the repayment is €900 , but only €166 is interest. So you are making a monthly profit of €950 

If that is changed to SVR of 4.5% , the repayment rises to €1,200 but the interest rises to €750 which reduces the profit to €350 

This much reduced level of profit would not justify the additional risk and the cash outflow. So if the rate changes to SVR, then you should almost definitely sell your existing house.


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## Brendan Burgess (11 Jun 2014)

aristotle said:


> Current lender is a bank who don't alow porting option to a new house.
> 
> .



This is another complicating factor. Presumably it's Danske or Bank of Scotland. 

Both want out of Ireland. There is a chance that they might sell your mortgage and the buyer might do a deal to get out of the cheap tracker. 

This would argue for deferring the purchase of a new home, so that you could take advantage of any such offer.


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## aristotle (11 Jun 2014)

Brendan Burgess said:


> This is another complicating factor. Presumably it's Danske or Bank of Scotland.
> 
> Both want out of Ireland. There is a chance that they might sell your mortgage and the buyer might do a deal to get out of the cheap tracker.
> 
> This would argue for deferring the purchase of a new home, so that you could take advantage of any such offer.


 
 Yes and that's something I had in mind too. But it might not happen at all so it is hard to know.

 Some people also are of the view that if they sell the mortgage book on that the new company would try to get people off the tracker by for example proving the LTV no longer meets the requirements of the contract.


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## Brendan Burgess (11 Jun 2014)

aristotle said:


> Yes and that's something I had in mind too. But it might not happen at all so it is hard to know.



Agree fully. You can't plan for this, but it's one factor to consider. You would be raging if you sold the house and repaid the mortgage in full, only to hear an announcement the following day of an incentive to people to repay early 





> Some people also are of the view that if they sell the mortgage book on that the new company would try to get people off the tracker by for example proving the LTV no longer meets the requirements of the contract.



Again, this is possible but unlikely. If they do succeed in getting you off the tracker, then you can sell the house.


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## serotoninsid (11 Jun 2014)

If both cheap trackers with Danske and you end up renting both of those houses out, then there is the potential that they will kick you off those tracker rates and put you on investment mortgage rates.  May never happen but something to also bear in mind.


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## aristotle (11 Jun 2014)

serotoninsid said:


> If both cheap trackers with Danske and you end up renting both of those houses out, then there is the potential that they will kick you off those tracker rates and put you on investment mortgage rates. May never happen but something to also bear in mind.



That is a risk. But a) they need to know about that first and b) always have the option to sell them if needed.


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