Am I in over my head ?

[cdoerr]

Hi,

Apologies for the personalised post but I'm worried and would like some help based on your financial expertise and hard-earned experience. I'm a youngish (26),single guy and recently my parents suggested on buying a second-hand house. So we've decided to look at purchasing a 3 bedroomed house, which is priced at €317,500 in the Maynooth region. Now my monthly salary is around €1800 and the bank will forward me €200,000. My parents will use some of the farm to provide security for the remainder of the price after the deposit.

Now what worries me greatly is that am I extending myself too far here? I might get around €600 in rent and the bank will give me a 39 year mortgage of €1068 per month. I have no other debts but I'll need to get furniture and a car. I have around €15,000 savings in my credit union. I'm not sure about mortgage relief or any other benefits I might receive.

So in a nutshell, I'm asking for advice. What would you do? Would you pull the trigger and hope all is well for the next few years or should I hold back until I'm more prepared(whatever that means) and more older?

Thanks in advance

 

[ClubMan]

Now my monthly salary is around €1800

Is this gross or net?

I might get around €600 in rent

I presume you mean under the tax free available to owner occupiers? Don't forget to allow for vacancy periods when you don't have tenants or the required level of rental income to supplement your other income.

the bank will give me a 39 year mortgage of €1068 per month.

What rate (APR)? What type (variable, tracker, fixed)? That's a loooong mortgage term! You will also have to pay other expenses when taking out the mortgage and thereafter (e.g. legal convenancing costs, mortgage stamp duty, surveyor/valuation - your own if not also the lender's, mortgage protection life assurance, home insurance etc.). See for more on such ancillary expenses.

I have around €15,000 savings in my credit union.

Why not cash these savings in to defray your mortgage and fitting out costs? It doesn't normally make sense to maintain savings while taking on debts. Neither does it make sense in this case as far as I can see to incur even more debt, especially with the CU who will insist that you keep the money on deposit while you also borrow thus increasing the effective cost of their credit.

I'm not sure about mortgage relief or any other benefits I might receive.

See [broken link removed].

So in a nutshell, I'm asking for advice. What would you do? Would you pull the trigger and hope all is well for the next few years or should I hold back until I'm more prepared(whatever that means) and more older?

Crunch the numbers even further, factoring in other expenses (e.g. bills, living expenses and so on) and see if this plan is viable. If it's not realistically viable then it's not a runner.

 

[AKA]

Hi there,

I believe you'll get €67 a month for mortgage relief. It's a little less after the first 8 yrs. You will need to pay for mortgage protection insurance which would be around €20 a month give or take a couple of euro so you're not going to get much there.

You'll also have to come up with house insurance...in or around €300+ per year...

Then there's bills on top of that. There's a few budget calculators out that would assist you here.

I'd be concerned if the mortgage interest rates went up...have you factored this into your sums...there's a few calculators out there that will do this for you.

What happens if you don't get someone to rent the place with you and you're stuck paying the mortgage yourself for a couple of months at a stretch...you'd have to live on the rest of your earnings. What's the rental market like in Maynooth?

Will your salary increase in the future by much?

Are you using your savings as the deposit or are your parents providing you with that?

Furniture isn't expensive...you can kit out a hse relatively cheaply depending on what your taste is...have a look at the argos catalog etc etc Sometimes with second hand hses they'll leave the fridge cooker etc...you can add pieces of furniture as you go along.

Personally, I'd buy somewhere smaller, perhaps a 2 bed for 250 K or less...the mortgage repayment will be a lot more managable...

I'm going to be buying by myself in the next yr or so, 235K or so is the budget...
800 a month mortage over 40 years with 20K or so deposit...in or around that.

I'd clear 350 more a month but I'd say I'll have another car loan that will eat up some of that for the first yr or so...I fall short for 235K by 10K at the moment so I'll have to wait for a wage increase in dec.

I wouldn't feel comfortable at all with a €1000 a month mortgage repayment...though I don't plan to rent a room out...esp with a mortgage increase forecast.

I've looked at the interest rate calculators for up to 2% increase in rates...that would bring my repayment up to €1000 a month...but by the time that happens if it does I will be earning more...In the north interest rates are 6% or so...

Best of luck with your hse hunting.

 

[cdoerr]

1. That figure for €1800 is net.
2. This is the worry. I would need rent and I'm counting that I should get rent in Maynooth. I suppose I should multiply 600 by 9 instead of 12, assuming 75% occupancy throughout the year.
3. Apologies. It's at 3.8% variable rate. ulster bank are offerring the loan, I suppose they are giving it based on my age profile etc.
4. I will use the € 15000 towards the furniture and hopefully on a car.


I would welcome more feedback. I mean I will be purchasing a house at 10 times the price of my salary. Is this a viable or sensible thing to do?. Assuming I occupy the house what benefits or relief do I expect to get?

 

[ClubMan]

You'll also have to come up with house insurance...in or around €300+ per year...

See here and the [broken link removed].

Then there's bills on top of that. There's a few budget calculators out that would assist you here.

See and here for example.

I'd be concerned if the mortgage interest rates went up...have you factored this into your sums...there's a few calculators out there that will do this for you.

See Karl Jeacle's mortgage calculator for example.

 

[ClubMan]

1. That figure for €1800 is net.
2. This is the worry. I would need rent and I'm counting that I should get rent in Maynooth. I suppose I should multiply 600 by 9 instead of 12, assuming 75% occupancy throughout the year.

Why assume 75% occupancy? It could be worse or better on average. You would need to research this for your area.

3. Apologies. It's at 3.8% variable rate. ulster bank are offerring the loan, I suppose they are giving it based on my age profile etc.

That is not cheap by any means although perhaps it's all that you'll get in the circumstances?

I would welcome more feedback. I mean I will be purchasing a house at 10 times the price of my salary. Is this a viable or sensible thing to do?.

More to the point it will cost you up to 60% of your disposable income (excluding rental income) to service the loan and this is quite a bit higher than what many people would consider prudent.

Assuming I occupy the house what benefits or relief do I expect to get?

Mortgage interest tax relief as mentioned earlier, no tax on rent a room income up to €7,620 (above this and it is all assessable for income tax as normal rental income), no CGT on any gain arising from the eventual resale of the property, no stamp duty on the purchase of a new house or a second hand one up to €317,500.

Do a detailed/honest/objective/conservative costing of the scheme to get a better handle on how viable it is. Factor in the possibility of a few percentage points increase in interest rates and the effects that this might have on your figures just to stress test things.

 

[oysterman]

Amn't quite sure where the purchase price will come from. A 92% mortgage of €317.5k would be €292k, leaving you €92k short. You talk about your parents being prepared to provide security for the remainder of the price after the deposit but that's surely different from them actually raising this money for you.

Re the cost: according to http://www.jeacle.ie/mortgage/eu/ €292k over 39 years would cost you €1,100 per month (and an extra €560 if rates rose 3%). If you're confident you can rent the room and get €600 per month initially then this looks affordable if you are good at living on a tight budget.

If your CU €15,000 is the result of consistent savings then you are showing good signs of being a suitable candidate.

But do bear in mind that you might be buying at the top of a bubble - nobody can tell. What's certain is that you should not proceed if you couldn't cope with a plunge into negative equity if property prices did crash.

Also, how safe is your job?

Are you certain you won't want to pack it all in for a year and travel around the world?

Buying has a lot to recommend it but only for thr right house in the right place at the right time.

 

[legend99]

I'll give you my simple thoughts after literally scanning through your posts....I think you're nuts. Maybe you'll even pull it off, but at what cost to your quality of life man.....don't let your parents force you into this. Sit down with them, present the numbers.
As a matter of interest where do you work? Maynooth or Dublin?

 

[cushtie]

WOW tough decision indeed. Don't forget the parents aspect, if your parents are putting up some of the farm as security does that mean they have a claim on the house. what happens if you end up falling out with them or something like that

 

[Sarah W]

Please be aware that there are many, many rooms ads published daily. When I last let a room nearly four years ago I was overwhelmed with calls. I wanted to relet it last year and ran an ad in the Herald. Over three days guess how many calls I got? One. Check on daft.ie and with local colleges and employers and see what the demand is like in Maynooth.

Sarah

 

[B. Bub]

What is your occupation?

What are your salary prospects?

If they are likely to rise in the coming years and your job is reasonably secure, you could take the first few years of the mortgage on an interest only basis, bringnig down the monthly outgo until you are in a better position. It's not likely to be you last mortgage so the 39 year term shouldn't bother you. The average first time buyer holds the loan for approx. 7 years (open to correction) before changing it/re-mortgaging/trading up etc.

Bub.

 

[Unregistered]

I've been a home owner since 1998. It is only now that I am looking at buying in at over 300k.

Buy smaller for now, and use equity if it materialises to trade up later. If it does not materialise, then you might be glad you started off smaller.

 

[JAG]

I agree with last post. I think that by posting your worries and the questions you have asked gives an indication that you know deep down what the answer is already.

I bought my first house at your age and it was for far less money than what you are considering at the moment. Buy small for now, get used to the monthly repayments and all that come with a mortgage. A few years of that under your belt you will then be able to decide if you want to trade up and you'll know all the pros and cons. We only stayed in our first house for two years before trading up but having been through the experience of buying "small" first time round, made the task of purchasing our second home much less daunting.

Best of luck

 

[casiopea]

Hi Cdoerr,

Ive been reading this post with interest. I cant really advise you but I can tell you what happened to me. I was in exactly the same position as you 6 years ago. I really wanted to get on the property ladder. I had a deposit, Id tried to buy once before but it all went pear shaped and it seemed that market was always one step ahead of me price wise, ie I got a payrise and could have afforded the house I wanted a year ago but couldnt afford it this year. In the end I took the leap.

- I borrowed the difference from my parents (there was no way I could do it otherwise), this was a loan to be paid back (about a tenth of the value of the house).
- Every month after I paid my mortgage I had the equivalent of 500 euro to live on
- I took a 25yr mortgage.
- I rented a room.

500 euro was simply not enough to live on even with rent. Between bills, buying furniture, house repairs, and every day living, within 3 months I was living at least half the month off my credit card.

I really worried about interest rates, what would happen if.... etc.
I really worried about paying my parents back.

In the end, I decided to address the situation. I rented out the whole house and decided to work abroad (taking advantage of the tax relief for working abroad that is no longer in existence now). I figured, rent the house out good contribution on mortgage, get my tax back for working abroad (savings), be able to afford ssia and pay my parents back and good career prospects from within my company for doing the travel. Return in 2 years with a better quality of life.

However due to work and personal reasons Im still away (5 years now). I still have the house, Ive paid my parents back, its still rented out. I can now afford the mortgage now so I dont regret buying the house but ironically if I hadnt had bought a house in Dublin then, which so severely effected my quality of life, I probably would be living in Ireland now!

This will effect the quality of your life and you are stretching yourself. You will have problems, as will many, if interest rates rise. This doesnt mean you cant do it. I am happy I did. However, dont be afraid to go to your parents and say no this is not for you now, if this is how you feel.

Good luck.

 

[sluice44]

I'm a youngish (26),single guy and recently my parents suggested on buying a second-hand house. So we've decided to look at purchasing a 3 bedroomed house, which is priced at €317,500 in the Maynooth region.

Don't take this personally - I don't know you! It may be that your parents are from a different generation and are worried that you're 26, single, and living at home. Your parents probably had a home and 2 or 3 children by your age. They may be, gently (or not), encouraging you to leave home.

As a single person, I wouldn't buy a 3 bed home. A home is a place where you live - it's not an investment property for you (or your parents).

Tell your parents you're going to buy a 1 bed apartment 50 miles away and see how enthusiastic they are about you leaving!

 

[GeneralZod]

Hi,

So we've decided to look at purchasing a 3 bedroomed house, which is priced at €317,500 in the Maynooth region.

Now what worries me greatly is that am I extending myself too far here? I might get around €600 in rent

What market research have you done to come up with the €600 figure?

A quick check of www.daft.ie shows rent-a-rooms in Maynooth going for between about €300 - €400.

The advice you got above about going for a cheaper property sounds prudent given your present circumstances.

 

[ixus]

Hi cdoerr, do you mind me asking where abouts in Maynooth you're thinkin of buying i.e. which estate?

I'm from Maynooth myself and there are a lot of houses for sale at the moment (both new & old).

There are currently 3 estates in the process of construction and another 2 I know of which will get underway soon.
If you drive around the older estates you will see plenty of for sale signs too.
You should also take into account the type of estate you're looking at. There are 1 or 2 that are mainly full of students. This can be a big deal in terms of night time activities!

I don't believe the rental market is that strong at the moment to be expecting 600/pm or 125/pw. It would be more like 80/100 pw = 320/400 pm. And for the higher rent, the house would have to be of quite good quality.
Some of the older houses can have problems with heating etc. so this should be seriously looked at.

I would have a serious look at the new houses being built. There's a new one out the Moyglare road getting started and also one on the Celbridge road.
Also, I hope you don't mind me suggesting Clane as a place to look, it's only another 5/10 minutes by car and there's some very nice devlopment going out there.

Saying all that, Maynooth is a great place to live.
Sorry I can't help with the financial aspect.