Trading up with a newborn

[Fabs90]

Personal details

Age: 36
Spouse's age: 36

Number and age of children: 1 - newborn

Income and expenditure
Annual gross income from employment or profession: 130K (+40 to 50K in stocks per year for next 3y)
Annual gross income of spouse/partner: 77K

Monthly take-home pay: 7800 after pension contribution + 1300 to 2000 from stocks

Type of employment - Employee
Employer type: Both Private Company.

In general are you:
Saving. Last year we saved 3500 per month. We traveled less than usual but at the same time we bought a car (15.5K) + Hospital/Medical expenses for Baby private care and childcare deposits (4K). From the 3500, I have invested 1000 per month In ETF. So the savings in the end are 2500 per month but that is something not mandatory.

Summary of Assets and Liabilities
Family home value: Apartment - EA valued it 350K but I would say 300/320K to be on the cautious side.
Mortgage on family home: Outstanding 99K Balance

Cash: 212K in Account or Instant Access deposit savings.

Defined Contribution pension fund:
Self: 6% Employer - 20% from me.
Spouse: 20% into PRSA.

Total net assets: 212K Cash + 200 to 210K left From apartment when sold.

Family home mortgage information
Lender: Avant
Interest rate: 1.9%
Type of interest rate: fixed
If fixed, what is the term remaining of the fixed rate? 6 years
Remaining term: (Original term is not relevant): 8 years
Monthly repayment: 1150


Other borrowings – car loans/personal loans etc

None

Pension information

Pension: 146K Self.
40K Spouse.

Other information which might be relevant
Other savings and investments:
20K ETF (increasing 1K per month).

Life insurance:

• Self: 4X basic salary in case of death from employer
• Irish Life Protection on our own: Decreasing Life Cover and specified illness cover for the next 15y. I should review this when I eventually buy something.

What specific question do you have or what issues are of concern to you?

We are currently searching for a new home as our 2bed apartment is now a bit small. Given the stressful situation with our newborn, we are fortunate to be in a position allowing to buy first and sell later, avoiding the stress of aligning the two transactions. This approach means we won't immediately know the sale price of our current property, but it allows us to benefit from being chain-free.

The bank has approved our mortgage/AIP for 650K (for a 750K purchase over a 32-year term), assuming we will rent out our current place. However, we are 99% sure we will sell it after moving to our new home. We can pay 20% of the deposit anyway, which should secure a better mortgage rate. Our broker is recommending PTSB at 3.6% for a B3+ house, with double cashback over 3 years.

Questions:​

1. What is the maximum mortgage amount advisable in our circumstances?
   I feel our salaries won't significantly increase without taking on more responsibilities (I am not sure if my next role salary would be similar, i.e. it might not have same amount of stocks). I am concerned about the added expenses of childcare, education, and the higher costs associated with moving from an apartment to a 4-bedroom house. I am comfortable with a 650K purchase, but current market conditions suggest a need for 730K to 750K (at the very least) for my wife's ideal forever home. I would never consider using the full approved amount without the certainty of selling the apartment shortly after moving. Even considering that in (see below), would that still be too risky?
2. How should we account for the lump sum from selling the apartment in our current affordability modeling?
   Selling the apartment after purchasing the new home means we will have the ability to pay off a lump sum estimated between 185K (300K sale) and 230K (350K sale) but after the start of our fixed rate period. This amount would significantly impact our repayments, but won't be factored transparently into our 3-year fixed rate. There will be penalty fees for early repayment. Our broker advises using PTSB's flexible option, but that means higher mortgage payments for 3 years, which could be psychologically challenging.

Additional Information:​

• Gross income to loan ratio before selling our current apartment: around 3X
• Gross income to loan ratio after selling our current apartment and applying the proceeds to the new home mortgage: around 2X

(considering no stocks in my salary but 100% bonus - this should represent a quite conservative avg salary for my role)

Thank you!

 

[Brendan Burgess]

My first observation would be why are you not taking out a new mortgage with Avant?

They are likely to be the cheapest in the long-term. ptsb has a long history of exploiting its borrowers.

It's only a small consideration, but I think you can move your existing mortgage to the new property. (But probably only if you sell your current property first.)

Brendan

 

[Brendan Burgess]

I am comfortable with a 650K purchase, but current market conditions suggest a need for 730K to 750K (at the very least) for my wife's ideal forever home.

You can well afford to spend €750k and you should do so. Trading up is stressful and expensive. So buy the biggest house you can afford to avoid trading up in a few years.

Have I the figures correct?



The mortgage before the sale will be €520k
You can afford to buy a bigger house than €750k if you wish to.

I am not saying you should, but if you see the ideal home for €850k, you can afford it.

 

[Brendan Burgess]

Annual gross income from employment or profession: 130K (+40 to 50K in stocks per year for next 3y)

Do you have stocks in your employer already?
Are they vested?

If you have any stocks which you can sell now, then you should do so for two reasons.

1) You are very dependent on the continued good fortunes of your employer so you should reduce the risk by selling off any shares.
2) It reduces your mortgage even further.

 

[Brendan Burgess]

Given the stressful situation with our newborn, we are fortunate to be in a position allowing to buy first and sell later, avoiding the stress of aligning the two transactions. This approach means we won't immediately know the sale price of our current property, but it allows us to benefit from being chain-free.

It is very handy to be able to do the following:
1) Buy a new house
2) Get it ready for occupation
3) Move into it
4) Sell your apartment

But there are other options.
As it's an apartment, I wonder would it be of interest to investors?
Could you offer it for sale now on the following conditions?
1) Closing date of sale: 1 October
2) Sellers to rent it for up to one year at €2k a month with 3 months' notice

It would just mean that you have the full proceeds in your bank account before you buy your new house. I know people who have done that and it suited everyone.

It does not have to be an investor. It could be someone who is buying their first home but is not in a hurry to move into it.

This would allow you to begin the sales process immediately.

It would exclude some buyers which might reduce the price you get but it would make everything very smooth.

If you don't find a buyer willing to accept this, then proceed with the purchase as is.

Brendan

 

[Brendan Burgess]

However, we are 99% sure we will sell it after moving to our new home.

Make that 100%. You are going to be busy. You do not want the hassle of property investment and you do not need the potential profits.

If you do not sell it before you buy your home make sure to take out a very short-term fixed rate so that when you pay the proceeds off your mortgage, you are not hit with a big early repayment penalty.

If you do borrow from ptsb, you can pay the money off your mortgage without penalty, by treating it as an advance payment, but I don't think you would get the lower LTV rate then. An early repayment penalty would reduce or eliminate the cash-back.

 

[Fabs90]

Hey, thanks so much for the swift reply!!

My first observation would be why are you not taking out a new mortgage with Avant?

They are likely to be the cheapest in the long-term. ptsb has a long history of exploiting its borrowers.

It's only a small consideration, but I think you can move your existing mortgage to the new property. (But probably only if you sell your current property first.)

Good point, I am quite sure I might find something better with Avant when I am out of my fixed rate.
Main advantages of PTSB:
- Better interest rate (0.1% - not much)
- Short-term convenience with Double cashback (especially if we buy for more than 700 and we still aim to get 20% deposit).
- Better handling of the lumpsum we will get when we will sell our apt. That's the main one.

If we decide to buy and sell at the same time, I think I would go with Avant. If not I think the advantages of PTSB are pretty sound (initial cashback and early repayment options).

Have I the figures correct?

I guess we will not get all the 230K of cash into mortgage. I think we will keep 60 to 80k as emergency funds.
So even if we might end up buying and then selling ( getting the proceed of the sales after), I see you would consider those 200k in without much hassle of modelling any possible breaking fee or temporary hold. Is that correct?

Do you have stocks in your employer already?
Are they vested?

If you have any stocks which you can sell now, then you should do so for two reasons.

1) You are very dependent on the continued good fortunes of your employer so you should reduce the risk by selling off any shares.
2) It reduces your mortgage even further.

I usually sell everything when they vest and invest in a more diversified way, got the advice from here years ago

But there are other options.
As it's an apartment, I wonder would it be of interest to investors?
Could you offer it for sale now on the following conditions?
1) Closing date of sale: 1 October
2) Sellers to rent it for up to one year at €2k a month with 3 months' notice

Is there any other thread I could have a look at for more details?
What if we don't go sale agreed before October?

If you do not sell it before you buy your home make sure to take out a very short-term fixed rate so that when you pay the proceeds off your mortgage, you are not hit with a big early repayment penalty.

Shorter than 3year right? Even if that would mean a higher interest rate?
i.e. would the advantage of lower repayment penalty would be better than a (short-term) higher interest rate? Even if going with PTSB with a kind of convenient early repayment option?

Another thing I was thinking about: I can imagine my apartment being quite quick to sell in that price range. Being breaking fees calculated on difference in interest rate, do you think there might be a big breaking fee at a short-distance from the closing (we said 200K lumpsum after 6 months from start, 2.5 left on fixed rate). Hope this makes sense.

If you do borrow from ptsb, you can pay the money off your mortgage without penalty, by treating it as an advance payment, but I don't think you would get the lower LTV rate then. An early repayment penalty would reduce or eliminate the cash-back.

This is quite important, please let me know if I haven't correctly understood.
- I would not get a better LTV taking into account the advance payment: Fair, I am ok to be able to reach the <= 80% LTV initially. I guess by then I will try to estimate the pros of coming out of fixed rate vs the pros. of lowering the interest rate even more.
- An early repayment penalty would reduce or eliminate the cash-back: it would reduce the monthly one I guess right? but (1) I guess if I use the advance payment by PTSB that would stay right? (2) I would have the early repayment issue even with Avant (if > 10% per year).

thanks so much!

 

[Brendan Burgess]

Double cashback

What is double cashback?

They give you 2% on drawdown.

There is another nonsense where they give you 2% of your repayments but that is worth very little.

• 2% of the monthly mortgage repayments back in cash every month until the end of 2030 (provided you open an Explore account, which has a €6 monthly fee) This is worth about 1/10th of 1% or €120 a year on a mortgage of €100,000.

Or if you make a €200k capital repayment, do they give you 2% of that as well?

No, they don't.

15. What payments don’t qualify for the 2% cashback monthly offer?​

• Missed payments
• Lump sum payments

Brendan

 

[Brendan Burgess]

- Better handling of the lumpsum we will get when we will sell our apt. That's the main one.

Just to be clear.
You won't have early repayment penalties on this.
It will go into a credit account which is very useful.
It will not lower your LTV

That is an advantage. However, is it worth exposing yourself to ptsb's long history of exploiting existing customers?

I would go for Avant or AIB and settle for long-term good value.

But with your high income and bonuses, I can see the attraction of ptsb.

 

[Brendan Burgess]

I think we will keep 60 to 80k as emergency funds.

Two very good well paying jobs.
A huge credit balance on your mortgage account.

That would be some emergency.

You do not need a fund of this size. €10k is plenty. On your salaries, you will get access to a loan or high credit card limit in the event of an emergency.

 

[Brendan Burgess]

I usually sell everything when they vest and invest in a more diversified way, got the advice from here years ago

Where is that invested now? Is that included in the cash and ETFs noted in your first post?

 

[Brendan Burgess]

Is there any other thread I could have a look at for more details?
What if we don't go sale agreed before October?

I haven't seen it discussed here.

You don't need to go sale agreed before October.

1) Put your own apartment quietly on the market telling the landlord that if he can find an investor/buyer who will rent it back to you, then you will sell it.
2) Buy your new house and close the purchase after you close the sale.

 

[Brendan Burgess]

Shorter than 3year right? Even if that would mean a higher interest rate?
i.e. would the advantage of lower repayment penalty would be better than a (short-term) higher interest rate? Even if going with PTSB with a kind of convenient early repayment option?

With ptsb, this is less of a concern.
A variable rate for part of your mortgage would be the simplest with another lender.

 

[Brendan Burgess]

Another thing I was thinking about: I can imagine my apartment being quite quick to sell in that price range. Being breaking fees calculated on difference in interest rate, do you think there might be a big breaking fee at a short-distance from the closing (we said 200K lumpsum after 6 months from start, 2.5 left on fixed rate). Hope this makes sense.

Avant allows 10% (?) a year, without penalty. It might be worth doing that anyway this year if you have not sold it by then.
The maximum on the balance is 2%.

I would not worry about it in the overall scheme of things.

 

[Brendan Burgess]

- I would not get a better LTV taking into account the advance payment: Fair, I am ok to be able to reach the <= 80% LTV initially. I guess by then I will try to estimate the pros of coming out of fixed rate vs the pros. of lowering the interest rate even more.
- An early repayment penalty would reduce or eliminate the cash-back: it would reduce the monthly one I guess right? but (1) I guess if I use the advance payment by PTSB that would stay right? (2) I would have the early repayment issue even with Avant (if > 10% per year).

You will need to check with ptsb.

But if you have a house worth €700k with a €500k mortgage, the LTV is 71%
If you reduce the mortgage to €300k and pay it off the capital, the LTV would be reduced to 43% and you would get a lower rate.
However, if you leave the €200k as a credit, I assume your LTV is still 71% but I have not come across this before.

 

[Brendan Burgess]

The monthly repayment cash-back is not material and should not be a factor in your considerations.

If you take a mortgage out with ptsb these are the rates.


I think you should put €200k on variable if they allow that and the balance on whatever rate you choose.

 

[Fabs90]

Thanks so much! This was really helpful!

You do not need a fund of this size. €10k is plenty. On your salaries, you will get access to a loan or high credit card limit in the event of an emergency.

Even with a baby? A bit afraid of layoff nowadays

Where is that invested now? Is that included in the cash and ETFs noted in your first post?

Yes, been trying to save for a deposit so we did not go all-in with Investment. But we have our pension contribution maximized.

I think you should put €200k on variable if they allow that and the balance on whatever rate you choose.

I think this is probably the simplest solution! I will check with them!

 

[Brendan Burgess]

Even with a baby? A bit afraid of layoff nowadays

If you are afraid of layoffs, then stick with ptsb and avail of the credit if you need it.

If you are made redundant, you will get a big payoff presumably and will find another job.

So you still do not need to have €80k on deposit while paying 3.5% to ptsb.

Brendan