Advice on 2nd mortgage

[bodisgod]

Hi all, I know I would be better off approaching my bank for advice on this matter but I thought I might throw it up here to see if anyone has previous experience in this area before we get all formal about it!

Myself and mrsbodisgod are thinking of building a new house on a site which we own and have planning permission on but we also have a mortgage on our current house. Ill throw our details down below for anyone who can help, but basically we have a little over 4 years to prepare for the new build and wanted to get our financial ducks in a row between now and then.

Combined Salaries : €110k pa both permanent public servants (boo hiss) paying into pensions
Current Mortage: €185K remaining, 34 years left tracker @ 1.15 +ecb
Current Value of house: Hard to say but conservatively somewhere near €250K
Build cost for new house: Approx 200K

Loans: Car loan of 6k will be gone before christmas, no other borrowings
Savings: Around 20K
Kids: 2 under 5

Advice required: Our overall plan is to begin the build in about 4 years time and may not live in it for another 3 or 4 years at which stage we are looking at 2021 or so. We would be looking to sell our current property (hopefully into a better sellers market) at that stage to reduce the overall mortage amount, if not we may rent our current house (dont really want to be a landlord though). Does anyone have any idea of the best strategy to follow in order to secure a mortgage. Should we pay off more of the current mortgage, or open a regular savings account over the next number of years, how much should we be saving monthly for 24 months prior to the mortgage application?
I know its a vague enough question, but any advice would be greatly apreciated, particularly from those who have done this themselves!

Thanks in advance

bodisgod

 

[goingforgold]

First thing you need to do is see if you can secure a mortgage, ie talk to the bank. They will tell you what mortgage you can get and based on your salaries (and the fact you are public servants) you should secure a mortgage. You also have equity in your current property so this is positive too.

I was in a very similar situation to you and all I will say is be sure to understand the costs associated with building a house. You already had the planning costs but you'll have engineer fees, council development fees, as well as the build costs which could be a lot more than you think. Have you factored in costs to finish and landscape the site, complete the interior of the house etc...it all adds up.

Best of luck.

 

[Bronte]

Low tracker, large salary, low savings. Long term mortgage.

I think a broker may be the way to go for you, you're dragging it out a lot though with the 8 year plan. We have no idea what the rules will be in borrowing to build in 4 years time. So large savings would go a long way in building costs. You'd have to draw the money down in stage payments, and with your 4 year build, that's a long time to be paying 2 mortgages. Wouldn't it be better to save for 7 years and do the build in year 8. At year 7 your curent mortgage will be reduced 27 years, but if you over paid it could be a lot less, though with such cheap money I'd be loath to pay it back early.

 

[bodisgod]

Thanks for the input folks,

@goingforgold, - Ive already been through the building process and believe me I will be going in with my eyes wide open regarding finishing costs etc! I believe the new changes to the planning laws will also be a factor with some saying it may add 25% to the cost of a new build!

@Bronte - I hear what you are saying regarding the 8 year plan! Our problem is that we have a little over 4 years left on the planning after already getting an extension on the original 5 years last year. Whatever about the rules regarding borrowing changing, i wouldnt count on the rules regarding planning in the country remaining the same. It looks like if we're going to do it at all, it will have to be in the next 4 years. I accept your suggestion that it will be a long time to be paying two mortgages.

Another option would to spend 3 1/2 year saving up and eventually getting a loan from the CU to get the house built to a water tight state (approx 80-100K) and then leave the site for a few years until we are ready to sell up where we are now (hopefully at a higher price). Its risky borrowing that amount but if we can save up half of it and borrow the rest it might be an option (CU interest rate is 4.5% Pa). Any suggestions on this?