Can we afford a second mortgage

Hi all,

Looking to buy a new home and am a bit concerned about affordability. We have seen a house we really like and have a meeting with the MA to discuss next week for AIP.
Purchase Price of new house €240k-€250k.

Net Monthly Income: €3,000 Permanent (€70,000pa) Age 35
Net Monthly Income: €2,600 Permanent (€45,000pa) Age 34
Child benefit: €130(we have a 5 month old so childcare costs from September)
Mortgage: UB
Amount outstanding: €275,000
Market Value: €240,000
Negative Equity: €35,000
Interest Rate:Tracker ECB + 1.15%
Monthly Repayment: €800
Amount in arrears:Nil
Term remaining: 33 years
Rental market: Rural Location (€750) says the EA
Other Loans: Nil
Credit Cards: Nil
Savings: €30,000
Saving: €1,500 P/M
Childcare:€800 starting Sept.

Can we afford this second mortgage or is it too much exposure?

Thanks for any advice.

Whatever about affordability, retaining your current property as a rental would not make any sense to me. At €750 pm rent, you are looking at a gross yield of only 3.75% on a property with a FMV of €240k - that's really a very poor yield.

I would have thought that you would be far better off porting your tracker to the new house.

Hi Sarenco,

Thanks for responding. I was thinking by keeping it and renting it with a cheap tracker we are slowly paying down the NE so that ultimately we could sell without owing anything in a few years.

The issue with porting the tracker is that buying and selling will have to be completed with in a 6 month timescale according to the MA.

Hi Liam

I actually know somebody that ported a UB mortgage recently to a new property and UB were actually reasonably flexible with their 6 month requirement. I wouldn't let that dictate your decision.

If you proceed with your current plan, you will have two properties with a combined FMV of around €500k and two mortgages with around €500k outstanding. What happens if we fall back into a deep recession and your tenant loses their job and stops paying their rent and one (or both) of you lose your own job or has to stop working for some other reason? In those circumstances you would imagine that property prices would start to fall again so you would be stuck.

In my opinion, the anticipated return on the rental doesn't come close to rewarding you for these risks.

Thanks Sarenco,
That makes good sense alright. I may question the MA further on them over product. He wasn't really pushing it much on our initial meeting.
I take it we would have to sell our house first and then we could go looking. If we can't find a suitable house after selling our property within 6 months, the question is how likely this period will be extended for and if not,does residual debt become a personal loan. Something I have to confirm.
It's just I don't want to have sold our house and buy another house we are not 100% on( made that mistake already)in order to meet the timescale and likewise not meet the 6 month obligation having sold our house,thus taking us out of the property market albeit in NE. Does this make sense.
From what I see there is a serious shortage of houses and it might take awhile to get the 1 we want which will take time.

1) Get approval in principle from UB to port your mortgage and buy the new house
2) Start looking for houses to buy
3) Put your own home on the market
4) You won't be able to make firm offers on any house until you have exchanged contracts on your own, but you should be able to do it within 6 months or so.

The rural location may make it difficult, but it's well worth porting.

Brendan

Brendan/Sarenco,

I really appreciate the advice and value both your opinions. It's a no brainer so to sell and port based on both your valid points. Will talk to the MA about it and see will they accommodate.

Thanking you both.

Not true what brendan said that "You won't be able to make firm offers on any house until you have exchanged contracts on your own" we did and lots of people do. it depends on the buyers and their situation and how many people are interested in the house and all of their situations.

We ported a tracker, not with UB, but our bank wanted to do it on the same day (as they wanted to secure the negative equity straight away) which turned out impossible but we worked out a compromise and bought 3 weeks after we sold.