Trading up and keeping 1st home

Hi,

My partner and I bought our first home last Sept (currently valued at €220k, mortgage €175k over 35 years). In the last 6 months, we have both been promoted and our combined income is now significantly higher than last year. Combined earnings are now €90k plus €25k in bonuses. Only loan commitment is €400 pm to credit union. We would like to trade up and purchase house circa €450k. However, we have savings of less than €10k and would like to hold onto 1st home and rent out as we feel it is a good investment for the future. Current repayments on this property are €600 pm and rental income would be approx €750 pm.

What is the best way to approach this? Should we build up savings over the coming year or are we in a position to make this move in the near future?

Thanks

Have a read of this key post before you finalise your decision. Don't making the decision solely on the cash-flow (i.e. rental income exceeds mortgage) issue. You'll need to take the CGT impacts into account and the income tax impacts, the costs involved in managing the property, the amount of time which the apartment is likely to be empty etc.

After reading the information RainyDay has linked to, there's another issue - I don't think you'll get the mortgage you would need.

Cost of €450,000 house including Stamp Duty is €483,750. So you'd need to borrow €483,750 + €175,000 existing loan = €658,750.

Total value of property = €220,000 + €450,000 = €670,000.

Total lending would exceed 98% of property value. (I've ignored your savings as a chunk of that would go towards your legal costs and in any event it's always advisable to have a war chest to tide you over eventualities such as repairs to the property, months with no tenant etc.) Until you get this percentage down to <90% you'll be hard-pressed to find a lender willing to play ball.

Keep saving!

Liam D Ferguson
www.ferga.com

I appreciate your advice, I thought myself that we would not qualify at this stage as you have pointed out Liam. My partner is anxious to move closer to his job but I would rather wait until we are in a stronger position. By early next year, we should have €50k+ in savings after bonuses etc are received.

On another note, can you advise what we should expect to pay for independent financial advice? And is there such a thing?

Why would you want to pay for independent financial advice when you can get it for free on Askaboutmoney? (In case any professional financial advisors get offended by this remark, it's a joke!)

Seriously, a lot depends on what your requirements are. If you want a broad financial "health check" encompassing all aspects of your finances without an underlying attempt to sell you a product, you need a fee-based Authorised Advisor. There used to be a list of these on the old version of Askaboutmoney, but I can't seem to find it now.

Try to get a recommendation of an advisor before going to one. An Authorised Advisor can give you far wider advice than a Tied Agent (who can only advise you on the products of the company they're tied to.) However, you need to find a good Authorised Advisor.