Will the banks lend to us....

Hi there,

We are currently living in a boom time apartment and hoping to buy a house this year.

Our situation is as follows:

Net basic income after tax: 5,800

Two children under 5. Creche fees 1,740

Mortgage on apartment that we are living in 1,200 per month. Current mortgage outstanding 290k. New apartments selling in complex for 135k. Rental income on similar apartments 1k per month. City centre location so good rental prospects.

My previous apartment has a mortgage of 104k. Similar apartments now selling for 80k-90k. Rented out consistently. Current rental income 700 per month, although I have left it low since I have a long term reliable tenant. Other apartments renting at circa 850/900 pm. Mortgage per month 814.

Guaranteed bonus of 2k (after tax) per annum. Additional non guaranteed bonus has been circa 10k (after tax) for the last 5 out of the last 7 years or so. Slightly less for two years where the economic system was at its worst but still about 6k (after tax).

We have a deposit of 160k, which comes from a house sale of an inherited house. We haven't been great savers to date but planning on saving 1,100 per month by direct debit.

Will the banks take the rental income and non guaranteed (but consistently received) bonus into account or will they just take our basic after tax salaries and deduct creche fees and full mortgages off this, ignoring rental income?

Thanks,

E

Even if they would lend to you, and I'm not saying they would, do you really think it'd be a good idea?

Assuming you have no investments other than property (I get that impression from the post), you'd end up being very over-exposed to property. Interest rates are rising at the moment and you could end up in a very messy predicament in a year or two.

Your 1,100 savings per month, is unlikely to cover the mortgage and expenses of even one of your rental properties if it happened to go empty for a period of time.

Taking the above into consideration, if you were to secure a mortgage and buy a third property, you'd be struggling if one of two rentals went empty for a few months - as well as the obvious struggle if job loss were to occur or some other life event - such as another child.

Add to this the fact that any rises the government introduce with regards to property tax will hit you three-fold and the fact that all it takes to cause widespread drops in rents is for the government to reduce benefits to the extent that immigrants are likely to leave Ireland and return home.

There are far too many variables that could leave you in a very tough position with your plan of a third property. Now, I'm single, which means that I don't have children to worry about - but three properties would be above even my level of risk tolerance (I'd consider a second property if my total equity across both exceeded 25%).

With this in mind, what would I do if I were you? I'd pay all but three months worth of living expenses from the 160k towards the mortgage in your own apartment, bringing it out of negative equity and reducing your payments significantly.

I'd then keep the three months living expenses in an instant-access deposit account and use the savings in monthly repayments (that come from your reduced mortgage) and the current 1,100 monthly savings to rapidy overpay the mortgage.

I'd put your current place on the market and start looking at your second-stepper properties now. By the time you find an ideal property, your mortgage should be at a level that, on selling your current place, you would have enough left over for a 10% deposit on the new place.

I'm not sure of your reasoning behind wanting to keep your current place - perhaps it's the significant falls in prices over the past few years. If that's the reason, just remember that the place you're moving to is likely to have fallen the same amount, if not more.

Hi Ronaldo,

For some reason the reply I sent hasn't appeared - computer gremlins at my end.

Thanks for your reply - it's provided additional food for thought. We are planning to buy since apartment living with the two kids isn't ideal. However, given that apartments rent out very quickly here (and we will be sharing any shortfall with my hubbie's brother who co-owns the apartment), buying with a small mortgage looks like the best option. We are both in very stable employment, neither of us ever having been unemployed and both with pretty in demand qualifications and experience. Also, while no other investments (bar some small amounts of shares) we also have no other debts and very good credit records.

I think that we might be as well talking to a financial adviser and weighing up all of our options - including getting rid of one of the apartments.

Again, thanks for the reply.

E

Step 1: Sell your old apartment. The hit of 25k to your savings won't put too much of a dent in the savings but yet it greatly simplifies your situation (and reduces the risk of voids etc).
Step 2: See if husband's brother would be interested in selling the other apartment. Considering it's shared they are in 80k negative equity each - not too bad.
Step 3: You're now a secure working couple with 60k savings and 5800 a month coming in, with no property exposure. Ideal for getting a mortgage in a place you genuinely want to live.

Can the brother afford to pay his share of the NE if you sell?

How much does rented apartment 1 cost you? Tax and other costs.

How much would apartment 2, the one you live in cost you if you rented it out. Would the brother be happy with this idea?

What is the price of the new property you are looking at.

Irish creche fees still shock me. But I assume this will reduce when they start school and so your income will rise.

Why do you want to keep the two apartments as rentals. What is your long term goal on this?

Not good that there are no savings. If you're not good at this you should make a dd from you current account the day the salary goes in to a savings account.

Hi folks,

Thanks for the replies.

He wouldn't be able to take the hit on the negative equity if we sold. He's happy with the apartment being rented out and taking his share of the hit on the shortfall. I estimate that it will cost us circa 5k per annum between tax and property charges in the short term. What will happen further in the future is anyone's guess.

My own apartment which is rented out costs me about 4.5k per annum in tax, mgt fee, nppr and new property tax. I spoke to an estate agent. Strong demand for these properties at the moment at the 90k mark (up from a previous quote of 80k last year), so with the mortgage and legal fees etc I would be looking at a 20k hit. There are 15 years left on the mortgage so if the current situation stayed the same (which it won't obviously because as my interest costs will go down, the amount that can be written of against the rental income will also go down) it would cost me about 68k. Going to discuss this further with a financial adviser.

My elder boy starts school next September so creche fees will reduce - although we'll have after school care costs.

Direct debit set up re savings.

Again, thanks for the replies. No fast decisions going to be made...

E

Would the brother be able to sevice a full mortgage on the apartment and would a bank allow this transer to happen. It's something you should think about. You could pay him your NE portion, then a bank might play ball.

I don't think realisticlly with your NE of about 180K, even with cash of 160K that a bank will lend you any more money.

Your best option is to meet with a bank and understand their current thinking and lending policy. I've been told recently you can have max 80% of borrowings over all properties. For a PPR maybe they will view it differently and brokers on here might know of banks that are easier to borrow from for your situation. Actually a broker might be a good idea as your first port of call.

Please come back and tell us what advice you're giving as it's important to know what is current lending criteria.

Hi Bronte,

I'm kind of in a similar situation to Emur.

I have two properties, both on good tracker rates.
- Property 1 (our PPR) is still in positive equity by about 40k. Mortgage rate is ECB + 0.6%
- Property 2 however (2 bed duplex in good rental area) is negative equity by about 80k. Mortgage rate is ECB + 1.35%. Rent covers mortgage so could be worse.

We are looking to trade up in the next year or two as the family gets bigger (baby number 2 due soon). What makes it more complicated is that there is a family member involved in Property 2 (50% investor, however not on mortgage deeds) so will probbaly have to keep Property 2 as a long term investment as the other family member cannot afford to sell it now and realise his share of the loss.

Our loose plan is to sell Property 1 (keeping Property 2 as an investment) and approach the bank for a new mortgage.

However, as mentioned in your post above, is it possible to transfer a mortgage from one person to another and keep same terms etc? I'm confident the family member would have the financial capacity to support the mortgage on Property 2 in full.