How much in savings needed before buying

We are currently looking at our savings as we intend to apply for a mortgage in the coming months. Our plan is to hold on to our exsisting property take some equity out towards the SD and deposit. We should have enough if we can manage to get a 90-92% loan. Looking at the various posts providers are refusing mortgages based on insufficient savings... We would be looking at about a €400K mortgage with combined earnings of €110K. So my question is how much is enough to save in peoples experiance? We are thinking of applying to the EBS (existing) and AIB. Just want to make sure we can tick all the boxes as best we can.

Re: How much in savings

Ash21 said:

We are currently looking at our savings as we intend to apply for a mortgage in the coming months. Our plan is to hold on to our exsisting property take some equity out towards the SD and deposit. We should have enough if we can manage to get a 90-92% loan. Looking at the various posts providers are refusing mortgages based on insufficient savings... We would be looking at about a €400K mortgage with combined earnings of €110K. So my question is how much is enough to save in peoples experiance? We are thinking of applying to the EBS (existing) and AIB. Just want to make sure we can tick all the boxes as best we can.

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You need to save 50-60k at least I would say. I really don't think your plans will go down very well with any bank at the moment.

By taking out equity on yr current home are you not actually borrowing to pay your stamp and deposit? That can't be a good idea and I believe this doesn't happen anymore. The banks have got real.

Yr plans seem to leave you very exposed. For example;
Why do you want to keep the exsisting property? Why keep hold of a deprecaiting asset (it would be an asset not a home)?

How are you going to pay the mortgage on yr investment? Rental market is VERY competitive at the moment can you acheive rent to coverge mortgage and make a return greater than you would get if you put cash in the bank?

You would need to switch to an investment mortgage wouldn't you and would require at least a 85% LTV.

Re: How much in savings

Yes 80-85%, the property is an apt purchased several years so there is plenty of equity still in it, had EA's round to value it and there is enough to pull out 50-60K but would tend to think the banks would like to see savings also. So wondering how much they would look for in savings on top of this?

We need a bigger home due to a growing family.

Re: How much in savings

Ash21 said:

Yes 80-85%, the property is an apt purchased several years so there is plenty of equity still in it, had EA's round to value it and there is enough to pull out 50-60K but would tend to think the banks would like to see savings also. So wondering how much they would look for in savings on top of this?

We need a bigger home due to a growing family.

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I peronally wouldn't advise borrowing to pay for a deposits and stamp on a yr new home. Why not just save the 50-60k, not get further in to debt?

I don't think banks are taking too kindly to equity release for such purpose but there will be people on here from the industry who could advise on the current situation.

Remember estate agent value may be diffrent to the banks value.

I do wish you all the best with yr plan and hope it works out. I would be intestered to know how you get on with the bank.

Thanks DT. I am hoping someone could advise.

We do intend to put savings towards the new purchase and not just equity. Just don't know what the banks regard as good savings 10k, 20k, 50k? Who knows!

Ash21 said:

Thanks DT. I am hoping someone could advise.

We do intend to put savings towards the new purchase and not just equity. Just don't know what the banks regard as good savings 10k, 20k, 50k? Who knows!

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It's not that straightforward really (in your case)

If you can't lift equity out of your current home, you'd need a deposit of 32k (assuming you get a 92% mortgage) for a 400k mortgage PLUS stamp duty.

The answer to how much you need to save will only become clear when you find out whether you can use equity to fund the deposit and/or stamp duty.

Also be warned that the bank may decide that you are over-extending yourselves with 2 mortgages to pay on combined earnings of €110k.

Ash21 said:

Thanks DT. I am hoping someone could advise.

We do intend to put savings towards the new purchase and not just equity. Just don't know what the banks regard as good savings 10k, 20k, 50k? Who knows!

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But you are releasing equity in the form of debt........you

Ash21 said:

Thanks DT. I am hoping someone could advise.

We do intend to put savings towards the new purchase and not just equity. Just don't know what the banks regard as good savings 10k, 20k, 50k? Who knows!

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But you are releasing equity in the form of debt........you are still putting yrself in to more debt.
I think you have a miss understand of the way banks are thinking now. I actually believe some banks are refusing to allow equity release on apartments.

Say you get a 400k mortgage and have a 200k mortgage on the "investment" property. Thats 600k at risk on a joint salary of 110k. To a bank today I would say yr ability to repay seems risky and they will not want to play ball.

At what level of savings they would start to concide yr plan i don't know but i would think it would be high.

TBH you need to talk it through we several banks first to get there opinion. I know there are a few mortgage brokers who post on here so may be they could provide details......

On the subject of "equity" - don't you only have equity on a property that has been paid off? For example, if I take out a €200,000 mortgage on an apartment tomorrow, I would presume that does not mean I now have €200K of equity to release. Can anyone enlighten me?

Equity is the difference between what you owe on your mortgage & the current value of the property. In the example you post, if the apartment was €250k to buy, you would have €50k in equity.

Yes I don't understand either how you can 'lift' equity out of a property. Do you remortgage it for a higher amount and then the Bank gives you a cheque for the remainder.
Say house is worth 400k, I owe 200k on it. So I remortgage for 300k and the bank gives me a cheque for 100k. Is that how it works?

sadie said:

Yes I don't understand either how you can 'lift' equity out of a property. Do you remortgage it for a higher amount and then the Bank gives you a cheque for the remainder.
Say house is worth 400k, I owe 200k on it. So I remortgage for 300k and the bank gives me a cheque for 100k. Is that how it works?

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Pretty much yes......you take out a new mortgage to clear the old one & gives you whatever is left over. As far as I know, most lenders will only allow you to re-mortgage up to 80% of value of property.

moneyhoney said:

Equity is the difference between what you owe on your mortgage & the current value of the property. In the example you post, if the apartment was €250k to buy, you would have €50k in equity.

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...presuming of course that it's worth the same as when I bought it?

Cheers.

canicemcavoy said:

...presuming of course that it's worth the same as when I bought it?

Cheers.

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Exactly. As I said, it's based on a current valuation. So, if the value has dropped since you bought it, you may have no or negative equity.

I spoke briefly to EBS about our intentions and they said there would be no problem releasing equity provided the LTV left was around 80% on the apt. We can do this. I understand that releasing equity is adding to our debt. If we can't hold on to it we will sell.

However it is clear to me from other posts what Banks/Building Societies say is one thing but when the underwriters look at it, it is clearly another. And the one area that seems to be raised a lot is savings. I'd love to find out from others how they got on with their recent mortgages applications in reality, particularly non-FTB's. And the criteria that enbaled them to secure a mortgage.

Ash21 said:

I spoke briefly to EBS about our intentions and they said there would be no problem releasing equity provided the LTV left was around 80% on the apt. We can do this. I understand that releasing equity is adding to our debt. If we can't hold on to it we will sell.

However it is clear to me from other posts what Banks/Building Societies say is one thing but when the underwriters look at it, it is clearly another. And the one area that seems to be raised a lot is savings. I'd love to find out from others how they got on with their recent mortgages applications in reality, particularly non-FTB's. And the criteria that enbaled them to secure a mortgage.

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There are lots of brokers on here - they could probably give you advice, you might need to post some more info.

e.g.
what will the repayments be on your current mortgage once you release equity (i.e. top up the mortgage)?
how much equity will you release?
how much do you need for stamp duty?
what's your combined take-home monthly pay?

These things are all very important. What banks like to see is evidence that you can save - not so much lump sums that have appeared from wherever - that's what I've heard anyway!

Ash21 said:

I'd love to find out from others how they got on with their recent mortgages applications in reality, particularly non-FTB's. And the criteria that enbaled them to secure a mortgage.

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Ash21, I wish there were criteria that I could list and if you could tick them all then you would be guaranteed mortgage approval for a trade up but it's not that simple these days.

The most important thing in your case will be your current property that is rented out. How much is outstanding on it, what is the rental income. If you stress test the mortgage repayments at 6.5% capital and interest does the rental income still cover the repayments?

Your salaries of 110k make a 400k mortgage look viable but if you owe 300k on the old property then you are looking total borrowings of €700k which would be stretching it unless you had significant rental income coming in. The rental property will also need to have a low loan to value and be in an area of high rental demand.

Once you pass these hurdles, the lenders will then look at your personal details.
Occupation - length of time with current employer - salary details - do you have any loans - do you have any children - how do you use your bank accounts - do you have a history of savings?

They then may allow you release equity to pay for the deposit (but they would prefer this came from savings) but allowing equity release to pay for stamp is a different story. If they have to repossess and sell they cannot recoup the stamp.

So in a nutshell it really is on a case by case basis.

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Thanks thats really good. Never thought of the Stamp Duty in that way. So I could only presume they would want that at least covered by savings.

The property is in a very good rental area in Sth Dublin that is the main reason why we are considering it and the current rents as they would cover the interest and some capital but we hoping to go interest only for a period.

We have a lot to think about.