If I switch from BoI to AIB, AIB will realise that a separate property is no longer my family home

[Alan12]

Unsure whether to switch and would appreciate any advice.
Property 1: Purchased 2003, 30 year AIB tracker mortgage at ECB plus 0.6% (happy days!), current value €250,000, mortgage balance €120,000, 17 years remaining, current monthly repayment c. €600.
Property 2: purchased 2008, BOI variable rate currently 3.95%, current value €270,000, mortgage balance €260,000. c. 24 years remaining, currently monthly repayment €1,400.
This was originally a 25 mortgage, but repayments rose to over €1,800pm with falling income during recession and had to renegotiate longer term with lower repayments to maintain affordability.
Both properties and both mortgages are in my sole name. Subsequently married. After I purchased Property 2, I have rented Property 1.
Clearly AIB mortgage for Property 1 is a dream at current rates and I want to cling to this for dear life. The recent rate reductions by AIB mean that a change to AIB also for Property 2 would produce a significant saving in repayments or a good reduction in mortgage term. I am concerned, however, that AIB would then regard property 1 as a buy-to-let and withdraw my tracker rate with dramatic consequences. If anyone had any insight or advice on this issue I would really appreciate it.

 

[Brendan Burgess]

What does your AIB mortgage say? Ask you solicitor if it allows them to switch you to the buy the let rate. In practice, the lenders, other than Danske, are not enforcing such clauses, but this could change, so maybe it's not worth it.

This was originally a 25 mortgage, but repayments rose to over €1,800pm with falling income during recession and had to renegotiate longer term with lower repayments to maintain affordability.

Are you sure that you will be able to switch? It might not be easy to switch a loan where you have restructured it.

Property 2: purchased 2008, BOI variable rate currently 3.95%, current value €270,000, mortgage balance €260,000. c. 24 years remaining, currently monthly repayment €1,400.

You could consider switching to KBC although it's risky as they do not pass on rate cuts to new customers.

 

[Monbretia]

Is switching going to be an option at all with that loan to value?

 

[Brendan Burgess]

But a bigger question for you is whether or not it is right to keep your investment property. In general, as the value of the property increases and as the outstanding balance on the tracker decreases, the case for holding onto the investment property becomes weaker. It becomes weaker still if you have an expensive mortgage on your home. It becomes weaker again if you have any problems with cash-flow.

Here is your current position:

Now look what happens if you sell the investment property and use the net proceeds to pay down the mortgage on your family home:

The interest rate on your home could well fall below 3.1% if a new lender enters the market.

Life would be a lot simpler as you would not have the hassle of tenants.
Your cash flow would be better because you are not paying down such high loans.
Your risk of bad tenants would be gone.
You would be less exposed to property price falls
You would be less exposed to interest rate rises.
You might end up with a CGT liability as it's no longer your PPR - against that you might end up with a useful CGT loss which you could use against capital gains elsewhere.

Reasons why you might hold onto the investment
You expect property prices to rise - but you already have exposure to the market in your family home.
You might be trading up in the short-term. If so, then AIB would probably allow you to move your tracker to the new property with a margin of 1.6%

Even if you decide to hold onto your investment property for now, you should review the decision every year or so

As most of your repayments are capital, the balance on the tracker becomes less and less and the case for keeping it becomes weaker.

If you have a good tenant, you might be tempted to keep it. But if the tenant leaves, then it would probably be time to sell it.

Brendan

 

[Alan12]

Brendan,
Thank you for the excellent analysis, which i am going to consider carefully.
First step is to try and get hold of the original AIB loan offer document and see what that says. Yes, it appears that i will be able to switch notwithstanding loan restructure as no missed payments, no arrears, income is back up to sufficiently high levels etc. I could manage to get the LTV on Property 2 down to 90% as the €270k valuation i gave is very conservative and i also have the capacity to pay say €10k lump sum off the current BOI mortgage (someone will ask why i haven't done that already but i've been keeping it aside as a reserve for a rainy day).
The rented Property 1 is actually currently yielding €15,600 gross, is in a city location where the rental demand is always extremely strong and i can therefore be extremely choosy about tenants. CGT liability will not arise in the short term as purchase price was €315k. I don't have any particular cash flow problems, just that the high level of interest on the BOI loan on property 2 is a drain.
I will post again once i have investigated the AIB situation further. I will also take a look at the figures with KBC.
Many thanks. Really appreciate it.
Alan.

 

[Seagull]

If you have both mortgages with AIB, you'll have to have one of them as an investment mortgage. They don't automatically know which is your PPR and which is the investment property.