Type of mortgage/equity release

S

SineDW

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Hi folks, unfortunately I have little to no knowledge on mortgages, types of mortgages etc. so story is my husband and I considering buying the house we are in (owned by sibling) using our savings for €200,000 and it is worth €320,000 based on houses in the same estate.
Meaning we’d have no mortgage and an asset of €320,000.
We’d then like to rent this out approx €1,600 a month for rent and build or buy our own.

Is that an equity release or what type of mortgage would that be using the cottage as collateral?

How much would you reckon we could borrow then to buy our own home. I’m on €56,000 a year and husband on €76,000. I’m 40 and he’s 47.
 
Why would you not just put the €200k to buy or build your own house? Do you own part of the current house you live in?
 
No we don’t own any of it. We’d like to keep this house and have it as a form of income with rent off it. Then build/buy our own house to live in. Trying to keep this as an investment. Hope to cash in a pension in a few years time to knock money off next mortgage.
 
Not sure your question is clear. Are you proposing to buy a €320K house for well below the market value at €200K ? If so this would mean your sibling is gifting you €120K which would have Capital Aquisition Tax implications. Why not just get a normal mortage (not equity release) for €120K and with your €200K savings buy the property from your sibling and then live in it ? If you are intending to buy this house to rent out, a buy to let interest only mortage would be advantageous as mortage interest can be set against the rental income for tax purposes. If you do buy the property as far as I am aware you cannot use it as collateral for a subsequent mortage on a second property.
 
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(1) If all your savings are used up buying the first house, will you have the 10% deposit for your PPR?

(2) you may face a CAT bill on the 120k gift from your sibling
 
Protocol said:
(1) If all your savings are used up buying the first house, will you have the 10% deposit for your PPR?

(2) you may face a CAT bill on the 120k gift from your sibling
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(1) - could be 20% deposit for the PPR as you will no longer be 1st time buyers.
 
SineDW said:
How much would you reckon we could borrow then to buy our own home. I’m on €56,000 a year and husband on €76,000. I’m 40 and he’s 47.
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Your whole plan is almost definitely a terrible idea especially when you don't know anything about mortgages. But leaving that aside for minute and dealing with your mortgage requirements.

In theory, you can borrow up to 4x your income. The term is limited by your partners age with most lenders having 65-67 as the age limit for a mortgage. Borrowing €528k over 18 years at 4% would mean a mortgage payment of €3.4k a month.

The bank will stress test the interest so at 6%, you are looking at €4k per month in mortgage payments. I don't think that is sustainable on your income so you would likely fail on affordability for the full amount.

If you have kids or any other dependants or financial commitments, your affordability will reduce even further.

Forget about buying your siblings property. Focus on the house you want to buy and what you can afford. Using your €200k savings and borrowing €300k is probably more reasonable.

As for building, unless you already have a site and planning, this could take a long time and be even more expensive than anything you could reasonably afford to buy. You need to be realistic about your options
 
SineDW said:
using our savings for €200,000 and it is worth €320,000
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First things first.

If you buy the house at a discount of €120k, you will be deemed to have received a gift of €60k each from your sister.

You will get the €3,000 small gift exemption and, assuming you have received no other gifts from your siblings*, you will have a further €32,500 exemption from CAT aka Gift Tax

So your CAT liability will be
Gift: €60k
Tax free: €35,500
Taxable gift: €24,500
CAT at 33% = €8,000

Your husband has a lifetime exemption from "strangers" of €16,250 + €3,000 = €19,250

So his CAT liability will be
Gift :€60k
Tax free: €19,250
Taxable gift: €40,750
CAT at 33% = €13,500

*If you have been living rent-free in the house, you will be deemed to have been getting a gift of the rent and this may use up your exemption.
 
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If your sister is disposing of a property worth €320k which cost her, say €120k, she will have a capital gain of €200k
The Capital Gains Tax for her will be €200k @33% = €66k

By selling it to you for €200k, she does not avoid CGT. The calculation will be done on the market value.

The good news is that as your CAT arises from the same transaction, then you will get a credit of the CGT she pays.

So using the above figures, neither you nor your husband would have a CAT liability.

I am not a tax expert - but check all this out before you do any transaction.
 
If you are living in the house now, why don't you continue to live in it for a few years at least?

Build up your savings again.
Sell the house.
Then buy the house of your dreams.

With €130k of joint income, you will probably be able to borrow around €300k or €400k now.
Add that to your €200k and you could buy a house for €500k to €600k.

It strikes me that this would be a lot better - to live in the house you want to live in now, rather than to get a gift and use it to eventually move into the home you want.

As your sister seems helpful to you, it would be great to have that house to live in while you build your home.

Brendan
 
Brendan Burgess said:
If you are living in the house now, why don't you continue to live in it for a few years at least?

Build up your savings again.
Sell the house.
Then buy the house of your dreams.

With €130k of joint income, you will probably be able to borrow around €300k or €400k now.
Add that to your €200k and you could buy a house for €500k to €600k.

It strikes me that this would be a lot better - to live in the house you want to live in now, rather than to get a gift and use it to eventually move into the home you want.

As your sister seems helpful to you, it would be great to have that house to live in while you build your home.

Brendan
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Brilliant advice Brendan, thank you!!!
 
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