I want to upgrade to a house in 3 years, and general future planning

[Brendan Burgess]

My idea was to keep it until the mortgage is paid off (13-15 years), and then sell up to fund any school / university fees.

No, no, no.

The best way to fund university fees is to pay down your mortgage and get a guaranteed , tax-free return of 2.6%.

Brendan

 

[Cameo]

Having an extra. 50k mortgage on your main residence is costing you 1300 per annum. You should allow for that when assessing how well the rental property is doing

I mean that you could reduce your mortgage by 50k by selling the Northern Ireland property..

Your basically gearing which means your amplifying how well or badly the investment does.

I agree having extra cash would put you in a better position if you are buying something that needs work.
In theory a house needing work should be better value but in my experience whether this is true varies over the housing market cycle. Probably not as r4levant as in the past but sometimes prices are bid up if builders and people in the trade are more active in the market or people with money to lose (from a tax perspective) are.

I’d still be thinking of diverting some cash to a pension as well to start building a more substantial pension pot too as you should be able to afford it and you benefit from tax relief, every €100 contribution is costing €67.5 if I’ve picked the right number

 

[Brendan Burgess]

I’d still be thinking of diverting some cash to a pension as well to start building a more substantial pension pot too

Hi Cameo

They are 32 , so they have plenty of time for pensions.

They already have reasonable pension pots and their employers are contributing anyway.

The priority now is to be in a position to buy a house and, if necessary, refurbish it. The pension can wait.

Brendan

 

[JSnowWinterfell]

Thanks for all the input.

1. I'm going to pursue a house that just needs cosmetic work but has potential for extension. On that basis I'll work out the best strategy to save 170k (20% deposit). I'll do this via a mix of overpaying mortgage and some cash savings.
2. At the moment I'm not going to sell the UK house. It offers a return that can't be matched. A gross 6.7%. Rents are stable, property is valued greater than purchase price. I'd prefer to keep it for now and let the tenant pay down the mortgage. Note selling it would likely net me only 20-5k after tax.
3. I'll look into AVCs at least a small portion of monthly salary.

 

[Brendan Burgess]

On reflection, this thread raises an interesting difficulty which suggests that you probably should hold onto cash rather than pay down your mortgage.

Manage Cash flow - selling and buying

We are selling our family home in order to purchase a larger home. We are sale agreed on our current home and hoping to have an offer accepted on our new home (2nd hand). We have about 15k in cash but I am trying to work out now how we manage payment of deposits etc for the purchase when most...

askaboutmoney.com

He has€15k cash and plenty of equity in his current home.
He is selling his current home.
He has put in an offer on a new home of €900k
He will need to pay a deposit of €90k when exchanging contracts on the new home.
But he won't have the €90k until his own home is sold.

So Mr Winterfell needs €85k but most of this comes from the equity in his home.
Assuming he does not sell the UK property, then he has only €50k in savings.
So he needs to save €35k cash to give him the flexibility.


Of course, he could sell his own home well in advance and he would then have plenty of cash for the contract closing. But this might not work out and so I do think he should try to have €85k to €100k in cash available.

Brendan

 

[Blackrock1]

Unless I am missing something most people won’t get a mortgage on a new house until the house they are trading up from is sold. That being the case it’s a moot point surely as to whether you have the cash or equity in the property to be sold .

 

[Brendan Burgess]

Hi Blackrock

If the person sells their own home well in advance of looking for a new home, then the issue does not arise. They sell their old home and get the net cash after paying off their mortgage.

But many people try to synchronise both so that they can move out of their old home one day and move into their new home the same day or a few days later.

I think that a typical timeline is as follows:

Get mortgage approval in principle to buy a new home with a mortgage of 80% of the purchase price

Day 1 - Go sale agreed on existing home
Day 10 Go purchase agreed on new home and pay €5,000 holding deposit
Day 50 Exchange contracts for sale of existing home
Day 60 Exchange contracts on purchase of new home - 10% deposit required - say €90k
Day 80 Close sale of existing home and receive funds after the mortgage is discharged.
Day 90 Close purchase of new home

So the problem is that on Day 60, the buyer needs to come up with the 10% deposit to exchange the purchase.



Brendan

 

[Blackrock1]

thanks brendan, can / should you close contracts on a new home before closing contracts on your existing? doesnt seem like a prudent course of action as you may lose that deposit if your own sales falls through.

 

[Andrew365]

Hi Blackrock

If the person sells their own home well in advance of looking for a new home, then the issue does not arise. They sell their old home and get the net cash after paying off their mortgage.

But many people try to synchronise both so that they can move out of their old home one day and move into their new home the same day or a few days later.

I think that a typical timeline is as follows:

Get mortgage approval in principle to buy a new home with a mortgage of 80% of the purchase price

Day 1 - Go sale agreed on existing home
Day 10 Go purchase agreed on new home and pay €5,000 holding deposit
Day 50 Exchange contracts for sale of existing home
Day 60 Exchange contracts on purchase of new home - 10% deposit required - say €90k
Day 80 Close sale of existing home and receive funds after the mortgage is discharged.
Day 90 Close purchase of new home

So the problem is that on Day 60, the buyer needs to come up with the 10% deposit to exchange the purchase.



Brendan

I have been wondering about this. I assumed it is just part of the process and why cash or first time buyers can have an advantage over a person in chain.

I assume day 60 would not happen. The seller gets the 100% of funds on completion. I assume that you just have to show mortgage approval and show deposit will come from the sale of existing house.

 

[Brendan Burgess]

should you close contracts on a new home before closing contracts on your existing? doesnt seem like a prudent course of action as you may lose that deposit if your own sales falls through.

There are two stages
Exchange of contracts at which stage both parties are committed.
Closing of the sale -the buyer pays for the house and gets the keys.

It would be risky exchanging contracts to buy a house without having exchanged contracts to sell your house as your buyer might pull out.

While a lot of sales fall through between the offer and the exchange of contracts, it is very rare for a buyer to pull out after the exchange of contracts. The seller can keep the deposit and sue for completion.

Brendan

 

[Blackrock1]

sorry i misread your timeline,

practically speaking then, given that you have exchanged contracts on a sale, will there really be a requirement to lodge a 10% deposit at contract stage on the house you are buying?

 

[Brendan Burgess]

will there really be a requirement to lodge a 10% deposit at contract stage on the house you are buying?

I understand that this is standard. The seller wants a 10% deposit so that if you pull out, they can keep the deposit. But I presume you could negotiate with the seller and ask them to reduce the deposit.

All in all, I have changed my mind on this. If you are trading up in the near future, you should make sure that you have at least 10% of the cost of the new house in cash. You might not need it. But if you do, you will be glad you kept it.

Brendan

 

[Bronte]

If I were the OP there is not way I'd in hell I'd ever tell the bank about the property outside the country. He's also hedging his bets on currency by being in two currency zones.

 

[Sarenco]

A gross 6.7%

That gross 6.7% gross yield probably shrinks to less than 3% when you take out costs and taxes.

That's a pretty slim return for a lot of risk and hassle when you could cash out the equity and get a guaranteed, tax-free return equivalent to the rate on your PPR Mortgage.

 

[JSnowWinterfell]

If I were the OP there is not way I'd in hell I'd ever tell the bank about the property outside the country. He's also hedging his bets on currency by being in two currency zones.

That would be deemed fraud. If you have ever held a mortgage, you are not classified as a first-time buyer. In addition, you'd have to not disclose bank accounts, the bank would see mortgage and rental payments as part of the due diligence process. Currency hedging is not a factor here, my main currency is EUR, any benefit from GBP strengthening against EUR is nullified by paying 40% tax on any profit from the UK house I bring into Ireland.

That gross 6.7% gross yield probably shrinks to less than 3% when you take out costs and taxes.

That's a pretty slim return for a lot of risk and hassle when you could cash out the equity and get a guaranteed, tax-free return equivalent to the rate on your PPR Mortgage.

Where could I get a guaranteed, tax-free return of 3%? You should look at taxes for a UK non resident landlord, can you share your maths?

 

[Brendan Burgess]

Where could I get a guaranteed, tax-free return of 3%?

That is the mortgage rate on your home in Ireland.

By paying down the mortgage, you are effectively getting this return, risk-free and tax-free.

Brendan

 

[Sarenco]

You should look at taxes for a UK non resident landlord, can you share your maths?

If you are domiciled and resident in Ireland you are chargeable to tax in Ireland on your worldwide income. So, the taxman will want roughly half of your net rental profits, even though you are taking all the risk of tenant default, etc.

I take the view that our tax code is so punitive that it rarely makes sense to invest outside a pension vehicle while carrying a mortgage.

 

[Itchy]

So Mr Winterfell needs €85k but most of this comes from the equity in his home.

Would it be an option for the mortgage bank to extend your mortgage in advance of a purchase for the purposes of providing a deposit to purchase a new property, all things being equal?