Renting out current property and buying a bigger second property - advice needed

A

Al1

Guest
Hi all,

I'll summarise my situation first:
I currently have a two bed duplex that is in negative equity. paid 290K for it and it is now worth about 150K so can't sell.
My wife and I want to move to a bigger house as we have a 16 month old child who the duplex is just too small for and getting worse as he gets older (no gradens being a particular issue)

We have a chance to buy a 3 bedroom house that ticks all the boxes for us. We have had an offer of 205,000 accepted so with a 20% deposit we would be taking on another mortgage for 188,600.

To cover the mortgage on the Duplex we would rent it out and put whatever the shortfall to it that is needed. (I have considered tax, PRTB, NPPR etc)

We are on 90k gross between us.
My wage of 60K can cover both mortgages, utility bills, insurance, car loan and we would be left with 550 per month to build up in an account as a safety net in case the rented property was vacant for a period, maintenance etc.
My wifes wage of 30,000 is then left to live off

My wife wants to 100% go ahead with it but I'm more sceptical particularly after reading an article today indicating house prices may drop again.

If anyone had any thoughts on this, positives/ negatives, are we crazy I would appreciate it very much.
 
First issue is to establish your chances of getting mortgage approval. Missing from your post is the amount, rate and remaining term on your existing mortgage. If you want to provide that info I can briefly run it through a bank repayment template and give you feedback.
 
Why don't you rent out your property like you are thinking of and just rent somewhere else bigger?

This will give you the flexibility to move without commiting to another big mortgage? Its a certainty that property prices will continue to drop so you can hold off for a while and rent.
 
44brendan
We currently owe 268,000, 30 years left at 2.8%. The mortgage on the new property will be 3% as my wife is bank staff. I'm not sure what rate we will jump to when we change the duplex to buy to let. Thanks

aristorle
thanks, we had considered this but it would cost the same so were of the opinion we would be better off buying?
 
OK rough response based on your figures is as follows:
Joint net disposable income of 66.4K pa.
Existing loan repayments 13.2K pa at current rates
New loan repayments 9.6K pa at current rates
Living expenses as per template 24K pa - 2 adults , no children 1 car.
Net amount available to meet loan repayments 42.4K pa. Amount required 22.8K.
Also bear in mind the following: Staff laon at 3% will attract a BIK tax (not allowed for in above figures). No rental income included in the above figures.
Essentially based on these figures you would probably obtain approval for the requested loan. Bear in mind that this is just a rough indication based on the info you gave me.
 
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when the bank is calculating your affordability, they will
not take into account rental income income
use a stressed rate as required by the regulator and not the actual rate on the mortgage, this will be c. 6%
income other than your basic salary will probably not be included
you'll need to have been in permanent employment with the same employer for at least 12 months
 
Mpsox said:
Bear in mind that since it is a discounted staff loan that you and your wife are getting, there may be BIK (Benefit in Kind )implications that you need to factor into your sums
http://www.revenue.ie/en/tax/it/leaflets/benefit-in-kind/loans.html
Click to expand...

Good point
AFAIK the advent of the tracker allows non BIK borrowing at less than the specified rate
From the link
It does not however include such a loan where the rate of interest is not less than the rate of interest at which the employer in the course of the employer’s trade makes equivalent loans for similar purposes at arm’s length to persons other than employees or their spouses.
Click to expand...
 
aristotle said:
Why don't you rent out your property like you are thinking of and just rent somewhere else bigger?

This will give you the flexibility to move without commiting to another big mortgage? Its a certainty that property prices will continue to drop so you can hold off for a while and rent.
Click to expand...

This makes perfect sense
- you're not committing to anything long term
- you may decide in a couple of years the three bed is too small
- you will probably be able to rent a better house than you could buy
- house prices are a crystal ball at the minute - you may buy now and find yourself with another depreciating asset
- what would happen to your affordability calculator if there is another child (childcare etc), interest rate hike, one of you made redundant ...
 
kildon said:
when the bank is calculating your affordability, they will
not take into account rental income income
use a stressed rate as required by the regulator and not the actual rate on the mortgage, this will be c. 6%
income other than your basic salary will probably not be included
you'll need to have been in permanent employment with the same employer for at least 12 months
Click to expand...


Hi, I'm in a similar position to the original poster Al1 but I am single and already have a house (3 beds semiD) that's currently rented. It's hard to know what the house is worth but it's safe to say it's in neg equity to the tune of 100K. I owe 330K on it. I have a tracker currently at 2.75% and 30 years remaining. I have a decent job and have an income of circa 60K and rental income of 13K pa. The funny thing is as a single guy on one wage I can't really afford to move into my own house. Easier to rent it out and try and buy something more modest. To buy something with the deposit I have is cheaper than renting too. So it makes sense for me.

I am looking to buy an apartment to live in as I have saved enough for decent deposit as I got redundancy last year. I am looking to borrow about 100K. I can't for the life of me get anyone to lend me a penny! I've tried all lenders that deal with brokers, BOI and Ulster bank direct. They all come back to me failing on the same criteria as outlined by Kildon. They stress my debt at 6.5% even though I'm on a tracker.

Does anyone know how or where I would get a mortgage?
 
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