Advice sought - upgrading but sell first or not

Hi,

Any advice would be greatly appreciated. Ive booked time with a financial advisor also, but have been reading posts and obviously clever people participating might be able to help. I apologise if I am way off the pace in financial knowledge or if my question seems ridiculous.

Girlfriend and I placed booking deposit on a house where we would be happy to live for the rest of our days. (approx 290,000)

Bank have been todate very good dealing with us. And we dont need to sell our existing smaller house to finance this new house. We can afford to carry both. Maybe tight for a while, but even if with the dangerous assumption that both our jobs are safe, it can be done with some room, not an extraordinary amount, but some.

At the moment in our current home, we have a tracker mortgage (ECB +.75%) and this starter home (2 bed) would now be valued by auctioneer at approx €140-145,000.

We paid €180,000 back in the day, and can cover the outstanding mortgage should the house sell at that price. We had been overpaying on our mortgage for a year, to the extent that we were still comfortable, and able to save somewhat.

I suppose we always had it in our heads that we would need to sell to trade up, and have got the ball rolling on this process recently, once the booking deposit was paid. However, this might not be the case. Renting at an average level in the area would roughly finance the monthly mortgage payments.

And I am having second thoughts about giving up this nice position we are in. We have some money saved in PRSAs and contributory pensions from previous jobs but not enough to be complacent - far from it, and I suppose the question is: should we try for as long as possible to hold onto our first property as the stereotypical pension fund (very celtic tiger attitude i know), given that there is about 15 years term to be paid. We could sell, come away with little enough savings now and start working on the pension fund in our own time.

I hope that the question makes sense or is answerable in some way, but would appreciate any food for thought on this.

Many thanks for reading

Hi - are you sure the bank will defo give you a mortgage for the new home if you keep the first one and don't sell. It's harder these days to get 2nd mortgages. Were you approved for a 2nd mortgage or is any approval based on selling the first home? Also if you rent the 1st home out will you lose the tracker, if you do the repayments will increase so you need to factor that in. check the T&C of tracker agreement.
Finally consider the hassle / expense of becoming landlords and the risk that involves with regard to future property prices, having no tenants, covering repairs etc. Also if you did sell the 1st home and cover the mortgage 40k or so will you still have enough left for the deposit on the 2nd home?

Thanks for the reply fizzelina.

Have confirmed that the second mortgage and the first mortgage are independent and t&c of mortgage on current home is not effected in any way by the second. We have been approved. They have done the stress test and feel we can finance both. I hope they are right!!

We arent relying on the sale of the first home for the deposit on the second. I suppose we have been ok with savings (not fantastic, but ok and both of us would have pretty much average paying jobs, going by the press) but obviously selling the home would give us more to work with. Part of the reason why we can save is that our mortgage repayments arent very high, and I suppose I just want to be sure as we can be that we are doing the right thing in giving that position up.

Yes they may be independent mortgages but did you check the first tracker mortgage is still a tracker if the home becomes an investment property rather than the main residence? This should be on your tracker mortgage T&C. Sometimes they have a condition added that the home needs to remain your residence and if it becomes an investment then you lose the tracker rate.
Do you want to be landlords with all the potential hassle that entails? Or should you sell the 1st home and move to the new home? Only both of you can answer that.
You could sell the first home, save any extra money each month after the new mortgage is paid (well done on saving so far) and have that as a nest egg rather than take the risk on a property but that depends on your views on risk.
Also renting out the property incurs a tax liability so you need to factor that in as it may be that when you pay the relevant income tax on the rent received then you are not covering the mortgage (only the interest on the mortgage would be deductible as an allowed expense before calculating the tax, not the full repayment)

Thanks again. I will check that out in the tracker t&c.

I suppose my natural reaction is that we wouldnt want to be landlords, but its the relinquishing of a position that we think we have done well/been lucky enough to find ourselves in (especially given the situation in general) that I want to be sure is the right more.

And have discussed the tax liabilities with my solicitor. Always a factor.

Just get the impression that selling the house could be seen as a "bonehead" move by some.

If you dont like the landlord bit and feel your house in time will be an investment worth hanging onto then I suggest you sign up to the ten year deal with the local authority as discussed here. This exonerates you from some charges and also day to day maintenace. Of course the house may decline in value also. You only get 80% of income but over ten years you would make up for the gaps in tenancies. Your only outlay would be the tax liabilty and insurance/outside maintenance as the CC would look after the tenants needs for that period.

Thanks Elcato.

That may become a very attractive option shortly.