2nd Property - New PPR

S

Sean Two

Guest
Hi there,

Hope there might be some advice out there for the following situation:

My sister changed jobs a year ago involving a move from Dublin to Galway. She has retained her PPR in Dublin worth approx 550k with an outstanding mortgage of 50k. She has been renting since she moved to Galway and now wishes to purchase an apartment there for around 275k as she will be there for around 2 further years.

Is her best course of action to remortgage her Dublin home for around 350k (interest only for first 3 years) to clear her existing mortgage and leave her with sufficient funds for the purchase in Galway, and to rent her Dublin home out for the next 2 years. She would plan to sell the apartment in Galway when she finishes working there and clear down her mortgage hopefully to around (or less) than its existing level of 50k when she resumes residence in her Dublin home.

I can't really see another approach to this. One point that concerns me is what appears to be an inescapable high tax liability on the rental income from her Dublin home given that the current mortgage is relatively low at the moment.

Any guidance would be appreciated.

Thanks

Sean
 
I'm guessing she's lived in her Dublin home for long enough to escape any stamp duty claw back, or she paid full SD rate so clawback doesn't apply.

Still if she's only planning on living two years in Galway, she may be better to keep on renting.

If she borrows 250k over 30 years at 5% (interest rates appear to be rising still), to fund an appartment in Galway, then she will be paying over €1000 per month in interest alone, and about €300 in capital repayments. And probably another €100 to 150 per month in property management fees. So total cost of €1400 per month.

A quick search on daft shows two beds renting at about €900 per month. So over two years a saving of €12,000

After two years she's only cleared €7,200 from the mortgage. Most people agree that there won't be large rises in property prices over the next two years. Best case seems to be the "soft landing". When you take fees involved in purchasing and selling, not to mention a stamp duty of €17,500 (5% of €275k) is it really worth purchasing at all for a two year time span?

And I wouldn't really see the point in keeping the property to rent out after she leaves Galway. Rent doesn't seem to even cover the interest component of the mortgage.

Regarding tax on the rental income from her Dublin home, which is in fact most likely no longer her PPR, I don't think borrowing extra against the Dublin home will reduce her tax liability, as it's not being used to purchase the property which she will rent out. Though I'm no expert on this. I'm sure someone else on the forum can provide more accurate advice on this part.
 
Persius, your forgetting that she will be receiving rental income from the house in Dublin which should cover a majority of the mortgage payment!
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I think the rental income in Dublin is irrelevant. It will cover the majority (or all) of her rent in Galway (should she stay renting) in exactly the same way it would cover the majority of her mortgage (should she decide to buy).
 
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