Planning to buy second home

Hello,

Just wondering if anyone has any tips for us.

My boyfriend and I bought an apartment in Dublin City Centre two years ago, and would like to buy a house over the next 2 years, while retaining the apartment as well. We bought a parking space separately and are also paying off the loan for this.

We don't have much in the way of savings, and have a combined salary of just over 80,000 euro.

We want to begin saving in earnest for a deposit for our next property, and were wondering if anyone has any tips on how to go about this, specific savings types we should look at, or other ways of raising a deposit? I have heard that saving with a credit union can help you get a loan with them at a later date?

Thanks.

If you planned on releasing equity on your apartment & using current bank to obtain next mortgage you could divert a large proportion of monthly savings towards reducing your current mortgage, so when you do seek to buy you will have more equity built up & a good track record of being able to pay off a larger mortgage plus you save yourselves a fair bit in interest in the longer term!
Also as your loan to Value reduces you may be in a position to negotiate a better interest rate on your mortgage.

Thanks for your answer Bamboozle - could you expand on this a bit? The mortgage is fixed until next March, but then what you are suggesting is to pay a larger amount every month, and when the time comes to buy the next place, release equity from the apartment to cover the deposit, is that right?

There are some good regular saver offers around at the moment. FA are offering over 7% for up to €1,000 per month. If you want to save more you can go to other lenders, or open separate individual accounts. Rates like this would be superior to the return on overpaying most mortgages and if you are fixed, you won't have this option anyway.

Note that lending criteria are tighening considerably and I think it best to expect this to continue for a number of years. That means you will need to save, indications are that increasingly lenders will be looking for 10-15% of the purchase price up front from you, and then you have to factor in stamp duty at another coup;e of percent plus transactions costs. Target to save 20% of the likely price of your next purchase.

Also, think carefully about whether you want to become a house collector. Despite the common myth, there is no inherint financial advantage in collecting properties as you move on comapred with selling and buying. It may or may not be right for you (for the large majority it is not right).

Camry said:

Also, think carefully about whether you want to become a house collector. Despite the common myth, there is no inherint financial advantage in collecting properties as you move on comapred with selling and buying. It may or may not be right for you (for the large majority it is not right).

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could you expand on this camry?

There isn't the potential financial return (something that is playing out right now).

If rental market is only, say, 15% of all dwellings as it is in Ireland, if the majority of people start collecting houses, you will find that there will be a glut of properties up for rent in the end (possibly follwing a bit of a supply squeeze and price bubble) which will lead to some pretty poor returns for all participants. Pretty much what is coming to pass right now.

Add to that the fact that part time property investers, like part time equity investors, are invariably the ones that provide the fodder on which professional investors can turn a decent profit. You just need to look around this site to see how amateur "investors" make financial justification for sinking capital into property as an "investment". More often than not they go no further than "if the rent covers the mortgage I am going to make money". Naive in the extreme.

I disagree with bamboozle. Why build up equity only to try release it again? The way lending criteria and house prices are going you'd be lucky to get back the savings you diverted into the mortgage.
A more important point is that when the apartment is rented out BabyJane will be liable for income tax on rent collected in excess of mortgage payments (with some allowance for expenses). Paying off chunks of the current mortgage will actually be a disadvantage when converting to an investment property as they increase future tax liability.
Aside from all this, do you really want this level of exposure to a single risky asset. Despite what anyone tells you it is the same as investing your salary over the next 20 years into shares in a bank

So what would your recommendation be, DerKaiser - sell up and move on rather than trying to hold on to the first property?

Camry said:

There are some good regular saver offers around at the moment. FA are offering over 7% for up to €1,000 per month.

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Sorry, but who are FA?

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Depends on your outlook, do you really want two mortgages? I'd be a little lazy and prefer to just own the house I live in and work hard at the job I chose (not obvious from the fact I'm on this website!).
Owning an investment property involves risks and hassle but potentially a return. If property is your area of expertise then it makes sense, otherwise you're just taking a punt.
Property is simply an asset class like stocks and shares, cash or fixed interest bonds. There is nothing special about it in terms of investment, you pay money up front and its return is rent. Over short periods market values will be based on supply and demand but in the long term it always comes back to how much rent you expect to receive long term on the property.
You'd be surprised the things that can affect property values. If there was the view that future rents would increase as 3% p.a. rather than 4% p.a. this could knock 20% off property values. If the government changed taxation so that the entire rent on an investment property was subject to tax, rather than the amount after mortgage interest payments, properties would be worth 41% less to people liable for 41% tax.
These are just some basic facts to be understood. Trouble is the majority of investors are happy to stake a bet of 5 times their gross annual wage without understanding what their getting into.