Apartment Purchase Scenario

Daddy Ireland

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Just wondering about this situation being a runner or not for my daughter and would banks entertain this scenario.

3 bed apartment cost 260k.
Deposit 26k.
Borrow 234k over 20 years.
My daughter lives in it and rents other 2 beds 1,500 per month. So tax free income 14k p.a Tax on remaining 4k income of 20%.
My daughter is earning 29k.
Would any bank take into consideration these rental sums and give her a mortgage of 234k over 20 years.
 
The intention would be in 5 years time or so that my daughter would get married and move out andvl continue to rent the 3 rooms then at a higher rent which would all be taxable income at the higher rate.
 
No. Can't see any bank lending that amount. Most are pretty regimented to the 3.5 times income, as per central bank regulations
 
Even if they did she would be well short of the required income.

47k x 3.5 = 164.5k
 
But a certain amount of that income is tax free. The rental alone from 2 occupiers is 18k pa so say 16k after tax x 20 yrs equals 320k for an amount borrowed of 234k.
Means nothing ?
 
I don't think it would. Anybody looking to purchase a home could come up with such projections for a couple of empty rooms. 18k seems very optimistic for two rooms in an apartment of that value.
 
There is too much risk involved.

She might have void periods, non-paying tenants, etc. Rents can fall. They fell 25% from 2008 to 2011 which seems to have been forgotten.

Your daughter's personal circumstances might change as well.
 
So no bank full stop will lend based on rental income to a first time buyer who would rent out two rooms in a three bed apartment ?
 
Also a 2 bed apartment in its entirety will yield a higher monthly rent that 2 bedrooms within a three bedroom, shared with the owner on a licensee basis - licensees have no tenant rights so rent is typically lower.
Point taken but I doubt two professionals could not be found to pay 1,500 between them even under a licensee situation.
 
So no bank full stop will lend based on rental income to a first time buyer who would rent out two rooms in a three bed apartment ?

Banks have to look at two criteria! Affordability and ratio to income (both are really looking at how sustainable the loan is)

On the first, yes they will look at total income your daughter has in order to judge affordability.

On the second, there is little chance they will grant a loan at 10x income. Unless you provide a guarantee... Then they might if the first bit is ok.

But I'd also say... Have a think about it. Is it really a good idea right now?
 
But I'd also say... Have a think about it. Is it really a good idea right now?

No, for several reasons:
  1. In her mid-20s she is likely to want to move for work/personal reasons in the next decade
  2. She might want to travel/change career and a mortgage is a heavy millstone
  3. Tenants can go bad
  4. Apartments can come with hidden surprises - where would she find €5k for fire safety works?
  5. House prices can fall and she has no equity cushion
It's a bad idea for her and thankfully the banks will not touch it.

Average full-time wages in Ireland are €50k. She should wait a few years when she'll probably be closer to that, more settled in her career and maybe personal life too. It's a much better time to buy then.
 
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