Money Makeover - First time buyer

[Banner]

Personal details
Age: 34
Spouse's age: 34
Number and age of children: One. – 8 months old, plan to have one more.

Income and expenditure
Annual gross income from employment or profession: €100K
Annual gross income of spouse/partner: €54k

Monthly take-home pay: €4,800 + €3,100 = €7,900
Type of employment: Both semi-state, predominately working remotely in Clare, one day a week in the office in Dublin.
Employer type: Permanent employees


In general are you:
(a) spending more than you earn, or
(b) saving?
Saving – slightly over €3k per month (once we have purchased home will revert to €2k per month realistically with childcare, increase pension contributions etc.)


Rough estimate of value of home: N/A – Currently renting €1,500 per month
Amount outstanding on your mortgage: N/A
What interest rate are you paying? N/A

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

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

Savings and investments:

Savings- €200k (deposit account) incudes redundancy payment €76k

Do you have a pension scheme? Yes both have DC pensions - €84k and spouse €32k

Currently not maxing our pension as concentrating on purchasing home. Contributing 7% and 7% matched from employer and spouse is 5% and 5% matched from employer. These are max employer contributions. Plan to increase contributions once we buy a house.

Do you own any investment or other property? No, but spouse is an only child and will inherit house valued at approx. €260k in next number of years as father is quite elderly

Life insurance: Yes both have 4 times salary through work but an area we must review now that there are 3 of us.



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

1.We are currently in the process of purchasing our first home (mortgage approval for €535k), had originally set our budget between €450k & €550k range however a forever house has come on the market for €670k and would require no work on improvements. Contemplating making an offer but concerned it would put us under unnecessary pressure.

2. Had initially planned to have a smaller mortgage, using surplus to maximise pension and grow other investments with the hope of retiring at 60. Do you think the larger mortgage would significantly impact this?

3. Outside the above is there anything you advise we should focus on, all advise is welcomed!!

As a long term follower of the page, I’m really grateful for the resource and the knowledge of the contributors is remarkable.

Thanks

 

[thedaddyman]

Start with some basics, especially now that you have a kid. Update your will, including guardianship if the worst happens to both of you. I'd also recommend a tax review to ensure you are claiming all you can (Home working for example, are you claiming for broadband, electricity etc)

Assuming you bought the new house for €670k and used €150k of your cash against it (bear in mind legal and moving costs will be around €10K) you'll be well able to afford the mortgage by reducing the amount you save. Ballpark you are looking at around €8-900 a month on top of what you are paying on rent assuming a 30 year mortgage. An inheritance is always a risky plan to reduce the mortgage but assuming it happened in 5 years, your outstanding mortgage would then be around the €250k mark.

At that stage, and assuming both are still working, you should be able to increase the amount you are paying down.

 

[Zion2022]

Personal details
Age: 34
Spouse's age: 34
Number and age of children: One. – 8 months old, plan to have one more.

Income and expenditure
Annual gross income from employment or profession: €100K
Annual gross income of spouse/partner: €54k

Monthly take-home pay: €4,800 + €3,100 = €7,900
Type of employment: Both semi-state, predominately working remotely in Clare, one day a week in the office in Dublin.
Employer type: Permanent employees


In general are you:
(a) spending more than you earn, or
(b) saving?
Saving – slightly over €3k per month (once we have purchased home will revert to €2k per month realistically with childcare, increase pension contributions etc.)


Rough estimate of value of home: N/A – Currently renting €1,500 per month
Amount outstanding on your mortgage: N/A
What interest rate are you paying? N/A

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

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

Savings and investments:

Savings- €200k (deposit account) incudes redundancy payment €76k

Do you have a pension scheme? Yes both have DC pensions - €84k and spouse €32k

Currently not maxing our pension as concentrating on purchasing home. Contributing 7% and 7% matched from employer and spouse is 5% and 5% matched from employer. These are max employer contributions. Plan to increase contributions once we buy a house.

Do you own any investment or other property? No, but spouse is an only child and will inherit house valued at approx. €260k in next number of years as father is quite elderly

Life insurance: Yes both have 4 times salary through work but an area we must review now that there are 3 of us.



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

1.We are currently in the process of purchasing our first home (mortgage approval for €535k), had originally set our budget between €450k & €550k range however a forever house has come on the market for €670k and would require no work on improvements. Contemplating making an offer but concerned it would put us under unnecessary pressure.

2. Had initially planned to have a smaller mortgage, using surplus to maximise pension and grow other investments with the hope of retiring at 60. Do you think the larger mortgage would significantly impact this?

3. Outside the above is there anything you advise we should focus on, all advise is welcomed!!

As a long term follower of the page, I’m really grateful for the resource and the knowledge of the contributors is remarkable.

Thanks

Sounds to me like you’re doing everything right from a planning perspective prioritising the right things now, with the intention of shifting focus to pension provision once you’ve ticked off the house.

On the house front I’d strongly encourage going for house you want that will satisfy your needs for the longest period. Moving again would have frictional costs and just be a general pain with (hopefully) two kids. You can easily afford the repayments.

I’m assuming as semi state employees your employments are relatively secure and in all likelihood your salaries will continue to increase year on year.

We faced a similar decision 3 years ago, nearly backed out for a short term house but ultimately really pushed the boat out to get the house we wanted. It’s financially and emotionally the best decision we ever made. Every pay rise & every income tax band adjustment makes the mortgage ‘burden’ fade further from my mind.

In terms of your ability to retire. Never underestimate that your PPR is often an extremely tax effective long investment. Don’t just see it as a cost, as despite the protestations of some, it really is an asset!

 

[_OkGo_]

1 & 2 are competing objectives but that's not to say you can't achieve it. To retire at 60, you both need to be maxing your pension now and you need your mortgage cleared in 25 years.

If you were both maxing pensions , your take home pay would be more like €7.1k. Using most of your savings and taking out a 25 year €500k mortgage at 4% will have a monthly payment of ~€2650.

The next 5-7 years will include a lot of expenses with (potentially) 2 kids for childcare. Probably in the region of €1-1.5k.

It leaves you with €3-3.5k a month for everything else. That's not bad but it would mean being very prudent and regimental with your spending.

3. Outside the above is there anything you advise we should focus on, all advise is welcomed!!

I'm making assumptions but any house in Clare for that amount is presumably a fairly substantial size. Be prepared for utilities, maintenance etc being significantly more expensive. If your house is twice the size of an average house, you will use twice as much to heat it and run it. It's at least worth bearing in mind especially if the BER rating is not that good.

With 2 semi-state jobs, you probably have reasonable job security and potential for increasing income so you should be able to make it work but in the short term it might be a bit tight.

 

[Zion2022]

1 & 2 are competing objectives but that's not to say you can't achieve it. To retire at 60, you both need to be maxing your pension now and you need your mortgage cleared in 25 years.

If you were both maxing pensions , your take home pay would be more like €7.1k. Using most of your savings and taking out a 25 year €500k mortgage at 4% will have a monthly payment of ~€2650.

The next 5-7 years will include a lot of expenses with (potentially) 2 kids for childcare. Probably in the region of €1-1.5k.

It leaves you with €3-3.5k a month for everything else. That's not bad but it would mean being very prudent and regimental with your spending.


I'm making assumptions but any house in Clare for that amount is presumably a fairly substantial size. Be prepared for utilities, maintenance etc being significantly more expensive. If your house is twice the size of an average house, you will use twice as much to heat it and run it. It's at least worth bearing in mind especially if the BER rating is not that good.

With 2 semi-state jobs, you probably have reasonable job security and potential for increasing income so you should be able to make it work but in the short term it might be a bit tight.

The maximizing of pension contributions is often cited as universally the right thing to do but I’m not sure it is in this instance.

If we make some rough assumptions of 3% average wage inflation, 2% average price inflation and a 9% average equity return after fees.

If the OP maxed out his own contribs at 20% of salary (+7% employer), he’d be projected to have a nominal pension pot of €4.1m at age 60 or €2.5m in todays money. So you’re already up against the SFT and hoping it at least keeps pace with inflation (judging by recent history I wouldn’t be optimistic of this).

Add in his partner doing the same having a c1m pension.

This feels excessively prudent to me vs living life today and raising a family in the home they want.
Just putting away enough to get the employer match with the option to increase their pension provision in future when the expensive childcare years are over and salary increases seems a better course of action in my opinion.

Who knows, if SF get their way the OP could be asking their employer to stop pension contributions in lieu of salary by age 50 because they’ll already be over the newly lowered SFT!

Buying the house is also likely to be a significant pension asset which they can release equity from when older in addition to getting utility from for 20-30 years.

 

[tom1220]

How certain are you that you will continue to be allowed to work only one day a week in the Dublin office? Is that contractually agreed? Was this the case before Covid as well that only one day a week in the office was sufficient? Were you to lose your job or decide to change it, what other job opportunities would you have while based in Clare, at what salaries?

Your whole plan is based on your current job (at a Dublin salary) that currently permits you to work from home 4 days a week. Organizations are still in the process of figuring out what their long term WFH model is going to be. Changes are likely going to happen in the years to come.

 

[Banner]

Thanks for all the feedback, some great observations and advice!!

Overall the feedback is that increasing our budget to get the ideal house is the right decision and achievable in our financial position.

However, the conflicting opinions on whether to max pension contributions or not are very interesting. Will need to do the sums on it but may only start to max pension when childcare costs have past.

Start with some basics, especially now that you have a kid. Update your will, including guardianship if the worst happens to both of you. I'd also recommend a tax review to ensure you are claiming all you can (Home working for example, are you claiming for broadband, electricity etc)

Assuming you bought the new house for €670k and used €150k of your cash against it (bear in mind legal and moving costs will be around €10K) you'll be well able to afford the mortgage by reducing the amount you save. Ballpark you are looking at around €8-900 a month on top of what you are paying on rent assuming a 30 year mortgage. An inheritance is always a risky plan to reduce the mortgage but assuming it happened in 5 years, your outstanding mortgage would then be around the €250k mark.

At that stage, and assuming both are still working, you should be able to increase the amount you are paying down.

Along with arranging life cover, a will is something we must arrange. Spouse is quite good at claiming tax relief so all good there.
Agree regarding inheritance, would tend to be cautious when including it in planning. However, in truth the decision will be if we sell or keep it as a rental (€1,400 current rental price.)

Sounds to me like you’re doing everything right from a planning perspective prioritising the right things now, with the intention of shifting focus to pension provision once you’ve ticked off the house.

On the house front I’d strongly encourage going for house you want that will satisfy your needs for the longest period. Moving again would have frictional costs and just be a general pain with (hopefully) two kids. You can easily afford the repayments.

I’m assuming as semi state employees your employments are relatively secure and in all likelihood your salaries will continue to increase year on year.

We faced a similar decision 3 years ago, nearly backed out for a short term house but ultimately really pushed the boat out to get the house we wanted. It’s financially and emotionally the best decision we ever made. Every pay rise & every income tax band adjustment makes the mortgage ‘burden’ fade further from my mind.

In terms of your ability to retire. Never underestimate that your PPR is often an extremely tax effective long investment. Don’t just see it as a cost, as despite the protestations of some, it really is an asset!

On review I think your right, getting the home we want will be a lot less stress in the long run eliminating the need for home improvements/ upgrade in a number of years. Yes both very secure jobs, with yearly salary increases (2% to 4%).

1 & 2 are competing objectives but that's not to say you can't achieve it. To retire at 60, you both need to be maxing your pension now and you need your mortgage cleared in 25 years.

If you were both maxing pensions , your take home pay would be more like €7.1k. Using most of your savings and taking out a 25 year €500k mortgage at 4% will have a monthly payment of ~€2650.

The next 5-7 years will include a lot of expenses with (potentially) 2 kids for childcare. Probably in the region of €1-1.5k.

It leaves you with €3-3.5k a month for everything else. That's not bad but it would mean being very prudent and regimental with your spending.


I'm making assumptions but any house in Clare for that amount is presumably a fairly substantial size. Be prepared for utilities, maintenance etc being significantly more expensive. If your house is twice the size of an average house, you will use twice as much to heat it and run it. It's at least worth bearing in mind especially if the BER rating is not that good.

With 2 semi-state jobs, you probably have reasonable job security and potential for increasing income so you should be able to make it work but in the short term it might be a bit tight.

Getting the balance right between both objective is the challenge but would lean towards having a nicer home over early retirement, if both weren't attainable.

Yes for that amount we're in the fortunate position of getting a substantial house, one of the main reasons we left Dublin alongside family support. However would expect bills to be similar to current rental not as big but D rated vs A rated.

How certain are you that you will continue to be allowed to work only one day a week in the Dublin office? Is that contractually agreed? Was this the case before Covid as well that only one day a week in the office was sufficient? Were you to lose your job or decide to change it, what other job opportunities would you have while based in Clare, at what salaries?

Your whole plan is based on your current job (at a Dublin salary) that currently permits you to work from home 4 days a week. Organizations are still in the process of figuring out what their long term WFH model is going to be. Changes are likely going to happen in the years to come.

Contractually agreed when joined just after covid, if I was to look at more senior roles would be onsite 2 days a week and include a c.€40k salary increase. However, spouse isn't as secure with discussion over increasing to 2 days a possibility. Though, there are a large number of opportunities available in her field in the private sector where she would achieve a salary of €70k-€80k. She plans on reassessing this once maternity benefits are no longer require, very strong in current role.

Regards my opportunities current position is very secure but there are a number of suitable options closer to home however would result in a salary reduction approx. 30%. Do

 

[Bronte]

What size is substantial? And what Banner do you believe are its benefits?

The mortgage in steady jobs is easily managed.

 

[_OkGo_]

If we make some rough assumptions of 3% average wage inflation, 2% average price inflation and a 9% average equity return after fees.

If the OP maxed out his own contribs at 20% of salary (+7% employer), he’d be projected to have a nominal pension pot of €4.1m at age 60 or €2.5m in todays money. So you’re already up against the SFT and hoping it at least keeps pace with inflation (judging by recent history I wouldn’t be optimistic of this).

While I agree with the general point you are making that @Banner could have a well funded pension, I think the assumptions you make are very optimistic. On the other end of the scale, a lot of the online pension calculators are far too conservative and would make you believe that you need to work forever.

Somewhere in the middle is a better place to start. It's a very different picture if inflation is adjusted to 3% and returns are 6%. Understanding the range of what the final pot could be is important but ultimately the only control anyone has is the amount they contribute (and what it is invested in)

I also think it doesn't take into account the lifestyle choices you will make along the way. For instance:
- OP plans on a second child so there will be maternity and possibly unpaid maternity to cover which can reduce pension contributions
- As kids get older, they may choose to work fewer hours or 4 days a week to facilitate school runs etc...less pension contributions
- OP may eventually decide to take the 30% pay cut to have a job closer to home...less pension contributions.

No single approach is right but at least being aware of your choices and the impact is important.

If I was the OP, I would probably buy the house and gradually increase my pension to 20% over the next 3-4 years and then on to 25% from 40.

 

[Clamball]

I would buy the house too, be comfortable with the repayments and gradually over the next 10-15 years increase pension contributions. With child care, holidays, school costs etc, it can be very hard to free up substantial pension payments without sacrificing something on the home front.

However if you want to retire by 60, then you may need to seriously consider your day to day spending to put every spare penny into pension planning.

 

[Brendan Burgess]

You are 34! Stop thinking about what will happen in 26 years. You can think about it, but no need to plan it.

1.We are currently in the process of purchasing our first home (mortgage approval for €535k), had originally set our budget between €450k & €550k range however a forever house has come on the market for €670k and would require no work on improvements. Contemplating making an offer but concerned it would put us under unnecessary pressure.

Annual gross income from employment or profession: €100K
Annual gross income of spouse/partner: €54k

You have €200k cash + €535k = €735k - so you can buy the house if it goes for €670k

A mortgage of €500k over 30 years at 4% would have repayments of €2,400 a month, so you can comfortably afford them.

So go for it.

the alternative is a cheaper house and trading up later which is much more expensive due to the costs and risks of buying and selling

 

[Brendan Burgess]

Currently not maxing our pension as concentrating on purchasing home. Contributing 7% and 7% matched from employer and spouse is 5% and 5% matched from employer. These are max employer contributions. Plan to increase contributions once we buy a house.

You are doing exactly the right thing. Contribute only the 7% and the 5% at this stage. That will result in a significant pension pot on retirement.

€500k is a high mortgage although comfortable enough when you have two semi-state salaries.

To increase your flexibility, I would aim to bring this down to a more comfortable level - maybe €400k - before increasing pension contributions any further. A lower mortgage, for example, would allow you spouse quit her Dublin job and take a lower paid job locally.

So for me a comfortable mortgage would be one which is comfortable on one salary.

When you have achieved that, then you can increase your pension contributions.