sell an buy or keep and buy?

Age: 32
Annual gross income from employment: 80k
In general I save each month €1500
Rough estimate of value of home 220K
Amount outstanding on mortgage:300K
Interest rate: half tracker 1.5%, half variable about 5%
Savings and investments: 140k savings


Hi I would be most grateful for a little direction if possible?

The house I am in at the moment is not the house I want to live in very long term. For the medium term (next 5 years) it would be quite OK. I would like to buy another house somewhere else long term.


The mortgage payments which are €1200 per month are similar to the cost renting a house at the moment.

My questions are should I

1/keep saving to buy a house I would like to live in long term and keep the current house.

2/Use my saving to pay off the variable part of mortgage and start saving for the next house.

3/Sell now cut losses and start saving for the next house

any help would be appreciated

Its a personal choice really. I am in a very similar situation although I don't have as much negative equity and I am going to just keep saving and stay where I am.

As I believe property prices have only one way to go (down) then I think in 2-3 years time there might be a good buying opportunity.

If you stay and save for the next 3 years you will have over 200k in the bank. Perhaps you could take a bit of your remaining mortgage then and rent it out.

If you cut your losses now you will still need to live somewhere so lets assume you save 2000 a month from then on (your rent will be less than 1200 I assume). It will take you over 3 years to resave than 80k (assuming you do actually get 220k for the house). You also have to consider that you will be renting somewhere smaller or sharing with others in order to rent something for less than what you pay on your mortgage.

It will take a good few months to sell the house as well.

I'm rambling a bit, basically I would stay where you are, save, build up a good cash savings, rent your house out in the future and see it as a pension, and look to buy your longterm house in 2-3 years time. Its my own plan anways.

In the meantime do all that you can do increase your already very good earnings.

You could consider renting out a room in your house for extra cash.

thanks aristotle

I am concerned that I would not get a mortgage for the second house carrying so much NE, even with the savings I would have accrued.

Yeah that could be an issue alright. I am not sure how banks view applicants with an investment property.

Maybe you should look at option 3 in that case. Lets say you only get 200k for the house. You start afresh with 40k in the bank, save about 50k over 3 years and you will be an good position again then.

Its just personally I would find it hard to drop 100k of hard earned savings. I would try to rent out the house as an investment property. But I don't know the banks general attitude to lending to people with that kind of situation. I guess it is fair to ask should anyone want to have that level of exposure to property. Existing 300k loan plus a new potential mortgag of 200k(?) means you have a lot borrowed.

In the future you also might end up getting married etc so there might two of you looking to buy the new property.

Let me give you a very different perspective on this: Your over all financial health depends on how well you manage financial risk, since no matter what you do you will always have some exposure. Best practice suggests that the way to reduce financial risk is through diversification, meaning spread your investments over several asset classes.

Your current situation is that you have everything sitting in two asset class - cash & property. Which has already taken a big hit and now rather than learning from this, your proposing to go ahead sink what you have left into property! Thus increasing your exposure even more and to an asset class that is very iffy at best!

To my mind Ireland has a long way to go before it returns to the normal world of the Euro zone. That means things like the introduction of wealth taxes/property tax, little or no free banking, low credit card limits and private loans. In Europe the amount that banks are willing to lend out on housing loans runs at about 2 to 3 times the salary of the salary of the main income earner in a family, subject to the family putting 20% to 30% of the price in hard cash. My expectation is that Irish banks will have to come into line with banks in the rest of the Euro zone sooner rather than later. So no cheap credit coming any time soon... and at 300K you are all ready well over what might be considered a prudent level in European terms.

My advice, start thinking in terms of your total financial situation and don't let home ownership cloud your judgement, because if you do it could well be your financial undoing!

Jim.

Jim

I wholly agree with you and if I had kept that in mind I would not be in this mess now. I might buy a house in the future though and I am just wondering what's the best way to get myself to that situation.

Are you saying better sell up and get rid of the 300k Debt.

optiplex said:

Are you saying better sell up and get rid of the 300k Debt.

Click to expand...

No, what I'm saying is don't pump any more into property!

In times past, a couple in their late 20s or early 30s bought a house with a 20 year mortgage and by the time they hit their late 40s were debt free, but that is no longer the case, people are now committed to paying off debt up to and even into retirement, so there really is not such a big difference in owning and renting. In fact renting would be more flexible - you rent a property that suits your situation in life - a large property in the middle years when you have kids at home and a smaller property requiring less effort later in live.

Of course this also means that you avoid the financial risk of having over say 50% of your assets sunk in a single property. Diversification usually results in less risk and a better return over the long period.

That tends to be the way people in Middle Europe do it. I'm not at all convinced that this preoccupation with home ownership if financially healthy, especially when people start talking about 30 year mortgages, interest only mortgages and taking on debt that is more the 2 or 3 times their annual income.

Jim.

looking for advice

I hope this is the right thread.

Me and missus bought her sibling out of his half of the house. We now have a mortgage of 120,000 in a house thats worth around 400,000. Its a 3 bed house, we have 2 kids and a third on the way. We pay the bank 530 per month on a fixed rate mortgage that will be ran out in 20 months.

The missus has been cut down work wise from 5 days per week to 2 days so even though mortgage small, money is still tight

Now, I have been given the opportunity to move to Waterford/Wexford and I am in a very secure job but salary only 28K.
Also, my career opportunities would be much improved from movin down there

I know we could move down there and heavily reduce the mortgage (by about 100,000), buy a bigger house, have more money in pocket etc

Does anyone think we would be mad doing this?? If we bought wisely in Waterford? Should we pay the bank off?? Any thoughts would be much appreciated