Equity release and interest only mortgage

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SunnySouth

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Currently have a tracker mortgage to the sum of 220k (property worth 400k), this is our primary residence for the last four years and is located in Bray. We're moving to the country so we're thinking of converting this property to an investment property with an interest only mortgage. As an investment property the monthly income should be €1200 per month. Our combined income is 100k per annum along with 65k in savings.


If I wanted to release equity from this property is it best to do so before converting to an interest only mortgage or does it matter ?
We want to use the equity released to go towards the construction costs of our new house (approx 320k), does this matter ?
Finally, is it worth releasing all the equity out of the property to go towards the build costs of our new house ?

Any advice much appreciated.
 
SunnySouth said:
Currently have a tracker mortgage to the sum of 220k (property worth 400k), this is our primary residence for the last four years and is located in Bray. We're moving to the country so we're thinking of converting this property to an investment property with an interest only mortgage.
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Bear in mind that if you rent this property out within 5 years of purchase as an owner occupier property then you will be liable for a clawback of stamp duty. As such it may make sense to wait until 5 years are up before renting it out.
As an investment property the monthly income should be €1200 per month.
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Gross or net (e.g. of tax and espenses)?
If I wanted to release equity from this property is it best to do so before converting to an interest only mortgage or does it matter ?
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If you mean in relation to setting mortgage interest against rental income then it doesn't matter as only interest on the currently outstanding mortgage balance will be allowable against rental income.
We want to use the equity released to go towards the construction costs of our new house (approx 320k), does this matter ?
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Again if you mean in relation to tax relief you can claim owner occupier mortgage interest tax relief on any top-up but you cannot offset interest on this amount against rental income since the money is not being used to buy/renovate the investment property (former PPR).

Have you read this thread?

Sell home or keep as an investment?
 
You are looking at a 3.6% gross return on a 400,000 investment. Take off the costs interest and tax and there won't be much left. Plus you have to be a landlord. look at the threads on the Irish property market before you make your final decision. You look like you could be almost mortgage free if you sell your current house to build the new one, you can put your spare cash in a pension, AIB will give you 5.5% on a regular savers account, there are lots of risk free investments out there. Look at all your options. You are putting a lot of eggs in the property basket. Interest only loans on investment properties are for speculators, betting on a rising market, they have enough properties that they can afford to take a risk. Just because the bank will give you the money doesn't mean it's wise to take it.
 
Clubman apologies for posting in the wrong section.

If I decide to rent, will the CGT be 4% rather than 20% due to the fact that this property was our primary residence for 4 of the required 5 years ?
 
SunnySouth said:
Clubman apologies for posting in the wrong section.

If I decide to rent, will the CGT be 4% rather than 20% due to the fact that this property was our primary residence for 4 of the required 5 years ?
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You wont have a CGT liability unless you sell.

You will have a Stamp Duty Liability, presuming that you were exempted or paid a lower rate of stamp duty due to you being an owner occupier at the time.
 
SunnySouth said:
If I decide to rent, will the CGT be 4% rather than 20% due to the fact that this property was our primary residence for 4 of the required 5 years ?
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As mentioned above CGT kicks in when you sell an asset. If, for example, you rent the property out in year 5 of ownership (having had it as a PPR for the previous four years) and then sell if 6 years later having rented it for 6 years of your 10 years of ownership then (6-1)/10 = 50% of any capital gain (less the usual allowances/costs etc.) will be assessable for CGT at 20%. Note that the first year after vacation as your PPR is exempt from CGT even if the property is rented out.

In this case (renting it out in year 5 of ownership) also means a clawback of stamp duty as explained above.
 
Guys thanks for clearing that up.

I think its time to sell, build my house with small mortgage and pay off comfortably over the next 5-10 years.
Was only interested in keeping existing house from a capital appreciation point of view and clearing my main mortagage in possibly 10 years. I can achieve this regardless, without being a landlord and the constant monitoring of the property market.
 
SunnySouth said:
Guys thanks for clearing that up.

I think its time to sell, build my house with small mortgage and pay off comfortably over the next 5-10 years.
Was only interested in keeping existing house from a capital appreciation point of view and clearing my main mortagage in possibly 10 years. I can achieve this regardless, without being a landlord and the constant monitoring of the property market.
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Many people(including the banks and estate agents) are forecasting slowing of capital appreciation to low single digits at best. I wouldnt buy/hold a property for capital appreciation going forward in this market, Its your decision and risk though. Maybe diversify into foreign property or other asset class?
 
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