Hoping to move - Options? take 2

G

Gaaman

Registered User
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Hi,

Inspired by Laura28's thread below.
We are expecting a third child and are wondering what options we have with regards to trading up/moving to a slightly bigger house/building a new home.
Unfortunately, we have no real savings, as any savings are just by coincidence rather than planned, I transfer too much to one account so it builds up there.


Financial Details

Mortgage -

Mortgage Interest Rate – Tracker =.65% with AIB

Current Monthly Amount - €740

Outstanding - €88,000

Remaining term - 10 years (15 years paid out of 25 so far)

Current Value – Approx. €250,000 - €260,000 (similar house nearby sold recently for 260,000)


Incomings & Outgoings

Salary 1 - €65k

Salary 2 - €14k

Children – 2, no child care costs, number 3 on the way.

Savings – €10k

Loans\CC - None

What are our options?

1.

  • Keep our apartment and rent out. Rents stable in the area and would secure approx. €1150 per month (house next door is rented for this amount)

  • Hoping to buy/build a new family home. What would we have to do to secure a mortgage? Build up a better savings history and by default get a decent deposit together?
2.

  • Sell current home. Buy/build a new family home. using proceeds for deposit and try to get a mortgage with a low ltv rate?
What would you do? We haven't really paid any heed to property, just bought this one, in 2000, and lived in it., missed the whole boom/bust as it was of no consequence to us.
 
As non-first time buyers, you are going to need a 20% deposit for a new property. In order to raise that amount, you will need to either sell your current property, or save up the rest of the deposit. Selling your property and taking a tracker transfer would make a lot of sense, as that would give you the lowest possible overall interest rate on your new mortgage. However, I think you may face a big challenge to get approved for a higher amount straight away because your lack of savings most likely means that your repayment capacity figure is low, unless the build-up is reasonably substantial on average, or you have some other form of recent financial commitments that you can show to the bank to prove your ability to repay the new proposed mortgage (at stressed rates), e.g. a loan that is finishing.

The easiest thing to do is to talk to AIB about your options for getting a new mortgage, while taking a tracker transfer. If you would prefer to hold on to your current property, then it's all about raising the 20% deposit. I would ask the mortgage advisor to tell you what level of repayment capacity you will need to be showing for your required mortgage amount. If it's quite a bit off, then you'll know it's not the right time to make a formal application (if you get a good mortgage advisor, they should know this, and recommend holding off on submitting the application until the time is right).

For either scenario, my recommendation is to immediately start preparing for your application - and for life with a bigger mortgage - by starting to save the same amount every month, by standing order, to an account where you allow the funds to build up without any withdrawals (or as few as possible).

Best Regards,
Dave Curry, Irish Mortgage Corporation
https://ie.linkedin.com/in/davecurryirl
 
I don't see any compelling reason to keep your current house as a rental.

The projected rental yield isn't particularly attractive and you really need a decent cash reserve to go into the property rental business.

If you want to trade up to a bigger property then it looks to me like you would be a good candidate for a tracker mover product.

With three kids you're going to be busy - it might be sensible to keep your finances as simple as possible for the time being.
 
Thanks for the replies, We have no real interest in keeping our current house and renting it, but didn't know if we were being foolish or not.
1 more question if anyone knows the answer.
If the house is sold for €250,000, and we pay off the mortgage of €88,000, would we then have €150,000 available for a deposit?
i.e. what costs are involved in selling a house? (and then buying a new one I suppose)
 
You have legal fees and estate agent fees (1.5%).

Gaaman, your biggest issue is the ability to repay. You have to be able to show the bank that you have the ability to repay your mortgage if interest rates go up by 2%. The proof can be from:

  1. Current mortgage which you will stop paying
  2. Discontinued loads
  3. Regular savings
Say you wanted a €200,000 mortgage over 30 years and interest is at 4%, which is increased to 6% under the stress tested scenario. You have to show the bank that between your mortgage and regular savings, you have €1,200 a month. From what you have told us, you can only show the bank €740.

Open a mortgage savings account and put money into it on monthly basis and do not take any out (if you do, it shows the bank you are not living within your means). As well as showing the bank you are good at saving, it is a good test for the two of you to see what it is like to have a bigger mortgage...except you aren't tied to it for 30 years yet!


Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
SBarrett said:
Say you wanted a €200,000 mortgage over 30 years and interest is at 4%, which is increased to 6% under the stress tested scenario. You have to show the bank that between your mortgage and regular savings, you have €1,200 a month. From what you have told us, you can only show the bank €740.
Click to expand...

She hasn't told us if there will be childcare costs.

Gaaman what ages are you. Is the apartment in Dublin, or a city, (based on rent I'm assuming it it) is that near work. Is the house you are planning to build nearby, if not and it's in the country side is that really a good idea?

And yes knock of 10k for selling costs. Around 4 for the auctioneer and max 2 for a solicitor, possible less if you use the same one you bought with. And 2 for solicitor for purchasing. (can't remember if there is stamp duty on house purchase)

Where would you live while you build?
 
Hi Bronte, it's mentioned above that there are no childcare costs, in the opening post

'Children – 2, no child care costs, number 3 on the way.'
 
Bronte said:
She hasn't told us if there will be childcare costs.

Gaaman what ages are you. Is the apartment in Dublin, or a city, (based on rent I'm assuming it it) is that near work. Is the house you are planning to build nearby, if not and it's in the country side is that really a good idea?

And yes knock of 10k for selling costs. Around 4 for the auctioneer and max 2 for a solicitor, possible less if you use the same one you bought with. And 2 for solicitor for purchasing. (can't remember if there is stamp duty on house purchase)

Where would you live while you build?
Click to expand...

Hi Bronte

They still have to show an ability to repay a stress tested amount.

Future childcare costs will come into play for their net disposable income. They will need the guts of €3,000 a month after mortgage and childcare. Based on those income, they have about €4,800 a month in income, so they have €1,800 for mortgage and childcare costs.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
PaddyW said:
Hi Bronte, it's mentioned above that there are no childcare costs, in the opening post

'Children – 2, no child care costs, number 3 on the way.'
Click to expand...

Paddy the clue is in number 3 on the way, you can't work and have a baby ! I know I sometimes miss things but not this time !
 
Thanks again for all the replies.
The house (3-bed semi detached) we currently have is in a town in North Kildare. I copied and pasted an earlier thread where it was an apartment so sorry for any confusion.
I am from the countryside not too far away, so we're lucky enough that our childminders are my parents.
This may have to change with the new baby, my wife will have maternity leave, but minding 2 kids is a lot to ask of a grandparent, 3 is too much, so we may have to discount that 14k salary altogether.

I was thinking about building, as I can get a site, not for free, but cheap, my father is a builder, my brother an architect, so may be able to build cheaper than buy.

So just to get an idea of figures, all hypothetical of course but just to see what would be required.

Sell current house for €250,000
Current mortgage : 88,000 ( on AIB tracker ECB + 0.6, I think as it is 0.65 at the moment)

Buy new house for €300,000

Pay €150,000 deposit on a house.
Get mortgage of $150,000
€88,000 would be at tracker move rate of ECB + 1.6
€62,000 would be at normal rate of 4%

How would this be stress tested? What would be the repayments?

I can see we really need to think about this for a while yet. I feel I should know more about this stuff.
We are going to begin saving anyway, aim for €500 a month and see how it goes.
 
Thanks
Current mortgage has 10 years remaining.
I presume a new mortgage would be for 25 years.
 
€88,000 at ECB (0.3%) + 1.6% plus 2% stress over 25 years = €460
€62,000 at 4% plus 2% stress over 25 years = €400
Total = €860 pm

So you're not far off with your current repayments. But banks love savers, it makes it easy for them to make a decision if they can see money going into a savings account like clockwork each month and nothing being taken out of it.

Best of luck with it, it's not easy getting a mortgage these days.

Steven
http://www.bluewaterfp.ie (www.bluewaterfp.ie)
 
For simplicity and not to diminish the chances of loan approval I wouldn't volunteer info re pregnancy and I would avoid any face-to-face meeting if obviously pregnant.
 
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