First Time Buyers For House Deposit

[SuperMario]

Age: 25
Spouse’s/Partner's age: 27

Annual gross income from employment or profession: €24,000
Annual gross income of spouse: €28,000 - €30,000 (approx.)

We are both in full time positions.

Both sets of gross income should increase over the medium term. Mine should increase significantly, hopefully to €50,000 salary within 4 years. Partner should increase over time once she gets into a public school.

Monthly take-home pay: €1744 + €1979 + €583 = €4306

Note that I have a part time job that pays cash. There is an annual income of €7,000 per year (€583 per month)

Type of employment:

I recently joined the civil service. Taking a pay cut in order to do so. I used to work in IT but the job was extremely unsecure.

Partner is a teacher in a private school. Not the most secure position but hopefully will get a CID next September.

In general are you:
(a) spending more than you earn, or
(b) saving?

We are saving at a rate of approx. €3,000 per month.

Our savings/expenses for the past 12 weeks are:

Income Expenses Difference

Week 1 €3,569 €654 €2,915

Week 2 €260 €246 €14

Week 3 €1,179 €225 €954

Week 4 €170 €347 €-177

Week 5 €1,815 €225 €1,590

Week 6 €1,073 €366 €707

Week 7 €3,180 €565 €2,615

Week 8 €0 €667 €-667

Week 9 €2,463 €600 €1,863

Week 10 €170 €228 €-58

Week 11 €981 €238 €743

Week 12 €200 €190 €10

Total €15,060 €4,551 €10,509

Note we both live at home so pay no rent.

The majority of the expenses are: public transport/car, food and general living expenses.

The above expenses are slightly above normal because they include Christmas, a short holiday and car tax.

Savings and investments:

Savings of €57,000 – all held in online savings accounts. The interest rates are very poor. Yet we don’t want to invest this in a less secure option because we hope to use it as a deposit in late 2017.

Do you have a pension scheme? My public sector job has a full pension to which I pay into every month.

Rough estimate of value of home: N/A
Other borrowings – car loans/personal loans: N/A
Do you pay off your full credit card balance each month? N/A
Do you own any investment or other property? N/A
Ages of children: N/A
Life insurance: N/A

What specific question do you have or what issues are of concern to you?

We hope to purchase a house in Dublin in late 2017.

Below is our calculations and we would like somebody to check/analyse them.

Mortgage

By 2017 our salary’s will be €28,000 + €30,000 = €58,000

Maximum mortgage will be €58,000 *3.5 = €203,000

Savings

We hope to have €120,000 in savings. 21 months * €3,000 a month = €63,000

€63,000 + €57,000 (current savings) = €120,000

House Value

Therefore €203,000 + €120,000 = €323,000

Help from parents

Our parents will hopefully be able to add to the deposit. They will add €50,000 to the deposit. What is the most efficient way to complete this?

House Value with help from Parents

€323,000 + €50,000 = €373,000

We are aware this is expensive for a first time buyer. Yet by saving a little longer we are hoping to avoid having to move up the property ladder in a few years.

To summarise what information we are looking for:

· Is purchasing a house in late 2017 realistic?

· Is there an alternative/better way reach the same goal?

· Is there anything about the above that a bank would not like when applying for a mortgage?

· What is the most efficient way of parents helping with a deposit?

· Any other constructive feedback is also welcome.


Thanks

SuperMario

 

[Dave_Curry_IMC]

· Is purchasing a house in late 2017 realistic?

Yes, this application should absolutely sail through. Unless there is a substantial increase in interest rates, or your partner doesn't get her contract renewed, I can't see any problem with this one.

· Is there an alternative/better way reach the same goal?

Yes. The banks are allowed to make exceptions for the 3.5 times income (LTI) rule for up to 20% of their total mortgage lending in a given year. Based on the repayment capacity that you will be demonstrating, I would say you would have a great chance of getting approved for an exception, e.g. for 4 times your income. Your mortgage would be bigger, of course, so you would need to be comfortable with that.

· Is there anything about the above that a bank would not like when applying for a mortgage?

No - it looks just about perfect.

· What is the most efficient way of parents helping with a deposit?

The most tax-efficient way is for them to give a gift of €3,000 this year, to benefit from the annual exemption from gift tax. The balance could be paid next year, and the first €3,000 could be exempt again. For more info, here's the link to the Revenue page.

· Any other constructive feedback is also welcome.

This looks like the perfect preparation for a mortgage application. Probably needless to add, but I have seen a few applications that had to be postponed because the applicants were so focused on saving that they left themselves short in their current accounts a few times, resulting in several unpaid direct debits, and the use of a credit card to withdraw cash. These are red flags for the banks, so you should always make sure to have enough in your current accounts to cover all your outgoings. Another obvious tip is to avoid taking out a short term loan, for example to buy a car, as this would reduce your borrowing capacity for a mortgage.

Best Regards,
Dave Curry, Irish Mortgage Corporation
https://ie.linkedin.com/in/davecurryirl

 

[Boyd]

Rather than adding up the maximum money you could have to spend, shouldn't you focus on setting a maximum you want to spend? If you keep thinking "I can get a max mortgage of x, plus y savings plus z money from parents", then you'll definitely buy house for x+y+z. Shouldn't you start with "I am willing to pay up to X, above that is too much. OK, now, what can I buy for X".....? As Irish people, we seem obsessed with getting maximum allowed mortgage and spending it. Every advisor and bank seems to start with "let's see what is max you can borrow". Madness. Just my two cents. Everything else re: savings etc looks good. Very handy living at home to save, from a financial sense at least.

 

[SuperMario]

Dear David, thank you very much for your reply.

Yes. The banks are allowed to make exceptions for the 3.5 times income (LTI) rule for up to 20% of their total mortgage lending in a given year. Based on the repayment capacity that you will be demonstrating, I would say you would have a great chance of getting approved for an exception, e.g. for 4 times your income. Your mortgage would be bigger, of course, so you would need to be comfortable with that.

Are there any guidelines on the exceptions? I have read lots of information but have yet to find any defined criteria that an applicant must meet.

The most tax-efficient way is for them to give a gift of €3,000 this year, to benefit from the annual exemption from gift tax. The balance could be paid next year, and the first €3,000 could be exempt again. For more info, here's the link to the Revenue page.

Thank you very much for the link, it was very useful.

So the revenue would have no problem with the following transfer of €24,000? Also could this be completed via bank transfer with no need to inform the Revenue?

2016

Parents A to Me (€3,000)

Parents A to Partner (€3,000)

Parents B to Me (€3,000)

Parents B to Partner (€3,000)

2017

Parents A to Me (€3,000)

Parents A to Partner (€3,000)

Parents B to Me (€3,000)

Parents B to Partner (€3,000)


What would be the most tax efficient way of transferring the remaining €26,000?

 

[SuperMario]

Dear Username123, thank you very much for your reply.

Rather than adding up the maximum money you could have to spend, shouldn't you focus on setting a maximum you want to spend?

We completed agree with your point in general people tend to set the maximum as the target.

Our plan is to buy in an expensive part of Dublin for which our budget will get a small house.

The benefits of this include:

· We can then walk/bike to work.

· Rent out the spare bedrooms in the years before we have kids.

My salary will hopefully increase significantly over the next 3-6 years, reducing the LTI ratio.

For these reasons we are not too worried with a relatedly high LTI ratio when we take out our mortgage.

We may end up finding a “fixer upper” house and take out a significantly lower mortgage or deciding to purchase outside Dublin with little or no mortgage.

 

[Dave_Curry_IMC]

Are there any guidelines on the exceptions? I have read lots of information but have yet to find any defined criteria that an applicant must meet.

There are no publicly available criteria or guidelines. The situation is so fluid that the banks are constantly monitoring and changing the criteria, as they have to stay with the exception limits (15% LTV, 20% LTI). The only certainty is that the banks will have a higher bar for exceptions than for non-exceptions. Just keep doing what you're doing, and shop around when you're ready to apply.

Thank you very much for the link, it was very useful.

So the revenue would have no problem with the following transfer of €24,000? Also could this be completed via bank transfer with no need to inform the Revenue?

2016

Parents A to Me (€3,000)

Parents A to Partner (€3,000)

Parents B to Me (€3,000)

Parents B to Partner (€3,000)

2017

Parents A to Me (€3,000)

Parents A to Partner (€3,000)

Parents B to Me (€3,000)

Parents B to Partner (€3,000)

I can't advise on the intricacies of this - I would recommend consulting a tax advisor.

What would be the most tax efficient way of transferring the remaining €26,000?

Again, I'm not a tax advisor, but I would assume that any balance would simply be used towards the lifetime parent-child threshold (currently €280k). Assuming this balance would not put you over that threshold, there would be no tax bill, which makes it tax-efficient.