Exemption from new central bank rules

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Lin83

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I am wondering if anyone has been successful with getting an exemption from the 20% deposit requirement for second time buyers.
Our situation is as follows:
Joint income of 115K, 1 child, no childcare costs. Savings of 38000 ( 10% ). I am Civil Service, Partner is private sector.
I own an apartment I bought by myself 8 years ago for 240k, I'd say I'd get 190k for it now so the preference is to keep it and rent it out. The mortgage is about 1000 adding back in the TRS that's left, and the rent would be about 1300. I am fully aware of all tax obligations etc.
We want to buy a new house for 385,000. We have a deposit on it but the contract is subject to loan approval and drawdown. Since we put our deposit down the same houses have gone up to 420k. I've been told that it is loan to price, and not loan to value that will be considered.
We have been turned down for an exemption for the 20% by Haven, however when I contacted EBS directly the manager in my branch said they would consider it. I'm getting everything ready to submit to them.
KBC and Ulster have turned us down because of a revoked credit card on my partners history. This happened in 2011 and was repaid in full 3 months later. Classic case of head in sand, basically he changed his current account and never changed the direct debit. We have a letter from BOI stating that it was repaid in full quickly, but the broker told us it was an immediate decline from KBC on this basis.
We could possibly borrow the additional 10% from my Dad but I am very reluctant to do this. During the time that we were getting our application ready the broker told me he was very confident we would get an exemption but not we have been declined and are not sure what to do.
Has anyone looked for an exemption and got it? I'd appreciate any advice.
Thanks.
 
I presume that your apartment is on a cheap tracker with EBS?

If so, you should look at porting the tracker to the new house. The rate would be increased by 1%, but it might make EBS more inclined to lend to you.

The 80% rule does not apply to homes in negative equity. But I don't think you are being caught by the 80% rule here. You are being caught by EBS's internal rules.

Brendan
 
Hi Brendan, thanks for the response.
I am on an SVR with EBS. I am raging over that but don't remember ever even asking about a tracker at the time.

The broker has told me that to avail of the exemption from the 20% we need to have over 3000 disposable income after all bills are taken into account and we don't quite fit in there. He said Haven have recently increased this to tighten up on it. Do I have any come back here in terms of appealing the decision?
 
The Central Bank rules do not apply to trade ups. So trade up your apartment.

Your broker should not be involved in a transaction between you and your current lender.

Brendan
 
Absolutely agree with Brendan - the OP should not be looking at ways to get around any lending restrictions to keep the apartment as a rental.

Even if it was possible to do so, the apartment would almost certainly be cash-flow negative on an after tax basis. The fact that 25% of mortgage interest payments (and LPT) are non-deductible for income tax purposes really kills this as a viable investment option.
 
I am jumping in on the discussion here - we are looking to trade up also. Have a 2 bed apartment in approx. €5k negative equity on a tracker rate with AIB. Are we exempt from the 20% deposit also? We currently owe €178 and would look to borrow €250 approx. We have no deposit secured, I can imagine saving €25k being possible for €50k seems too far away to ever be achievable.
 
If you are in negative equity and if you have no deposit, then you will not be able to trade up.

By the time you have accumulated €25k, you will probably be out of negative equity, so the 20% rule would apply to you.

The only thing you can do is to start saving hard and see what happens.

Brendan
 
Thanks Brendan - we are currently saving hard but with 2 small kids it's very difficult. Property in our area has recently increased in value, 2 months ago we seemed to be in €25k negative equity, now it appears to be only €5. Obviously an increase in value is great news but it looks like we are moving out of the reach of the negative equity trade up and thus facing a need for a 20% deposit which just seems impossible. I wonder how others in the same situation cope?
 
If you can't save with two kids and a €178k tracker mortgage, how could you expect to meet the repayments on a mortgage of €250k , €70k of which would be at SVR, and the balance at 1% more than you are paying at present.

Brendan
 
I have spoken with a few people about this today and have been told that, because the banks can only offer the exemption to max 15% of customers they can, and are being extremely selective with who gets it. I've been advised to jump at the 80% offer, given the ICB black mark. We are lucky that we are in a position whereby family can help out. We need to pay them back but not in the short term.
 
Lin83 said:
I have spoken with a few people about this today and have been told that, because the banks can only offer the exemption to max 15% of customers they can, and are being extremely selective with who gets it. I've been advised to jump at the 80% offer, given the ICB black mark. We are lucky that we are in a position whereby family can help out. We need to pay them back but not in the short term.
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The fact that your apartment is now worth less than its original purchase price is not a good reason to hang on to it as a rental property.

I would strongly recommend that you run through a tax calculation on your potential rental profits. Even though you may not do much better than break even on a cash-flow basis, I suspect you will be surprised at the likely income tax liability.

I would suggest that a significant additional tax bill is the last thing you will want if you are already borrowing to the maximum of your affordability limit on your new family home.

If I am reading your figures correctly, you will end up with total mortgage borrowings equivalent to around four time your gross household income (including rental income). That seems excessive to me.
 
Hi Sarenco, I know the tax on the apartment will be significant, I have worked it out and I am a CTA so I know what I'm doing but at the moment if I sell it I will lost about 50k, plus the agents fees and solicitors fees on the sale. I bought it for 240, I owe 210 and I'd say I'd get about 190, maybe 200k. It's in Dublin and there is a good bit of work going on near to my apartment at the moment that I think could impact the value over the next few years. I am hoping it will recover some, if not all of it's value and I intend to sell it as soon as it does.

I have just started on a new salary scale that will see decent increments over the next few years too, which is also a factor and I expect take home pay to *marginally* increase with this years budget.

Is 4 times gross income really that excessive? It's only just above the LTI rules and even a few months ago would have been viewed as within our comfortable range.
 
Lin83 said:
at the moment if I sell it I will lost about 50k, plus the agents fees and solicitors fees on the sale. I bought it for 240, I owe 210 and I'd say I'd get about 190, maybe 200k.
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Hi Lin

These are simply not relevant factors. It is either a good investment today, or it's not. What you paid for it is just not relevant.

The only tiny relevance is that any increase in value from 190 to 240 would be exempt from CGT. But if you port it to a family home, that would also be exempt from CGT, so I don't think that is even relevant.
 
I said it years ago and I'll say it again.
If you are going to rent a property then you're going into business and need a business plan.
Don't fall into/for this "accidental landlord" so called "trap".
Go in with your eyes open.
And it the figures don't add up don't go in at all.
 
Lin83 said:
Hi Sarenco, I know the tax on the apartment will be significant, I have worked it out and I am a CTA so I know what I'm doing but at the moment if I sell it I will lost about 50k, plus the agents fees and solicitors fees on the sale. I bought it for 240, I owe 210 and I'd say I'd get about 190, maybe 200k. It's in Dublin and there is a good bit of work going on near to my apartment at the moment that I think could impact the value over the next few years. I am hoping it will recover some, if not all of it's value and I intend to sell it as soon as it does.

I have just started on a new salary scale that will see decent increments over the next few years too, which is also a factor and I expect take home pay to *marginally* increase with this years budget.

Is 4 times gross income really that excessive? It's only just above the LTI rules and even a few months ago would have been viewed as within our comfortable range.
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Hi Lin

Loss aversion is a perfectly normal human reaction to any financial decision - frankly, we're all wired that way - but that doesn't mean it's rational.

It strikes me that you may be trying to rationalise your decision to retain your apartment, citing peripheral facts, in order to avoid crystallising a loss that has already been incurred.

Put it this way; would you buy your apartment at its current value, financed at the same rate, as an investment given the current tax regime? If the answer to that question is "no", then you shouldn't be trying to retain it either.

It's not that long ago that mortgages were limited to 2.5 times gross earnings so, yes, I do consider a mortgage of 4 times earnings to be excessive. Bear in mind that interest rates in most developed countries are at historic, multi-century, lows - nobody knows how long that will remain the case.

Best of luck.
 
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