Affordability

[David Silva]

Age:
35
Spouse age:
35

Annual gross income from employment or profession:
E73680 Also receive 3000 expences
Annual gross income spouse:
E55,000

Type of employment:
Public semi state
Civil servant (Spouse)

Expenditure pattern:
Generally we spend less than we earn.

Rough estimate of value of home:
210,000

Mortgage details:
173,000 outstanding 25 years left of 35 year mortgage INBS/IBRC now Mars Capital
Monthly payments 750 a month with TRS

Other borrowings – car loans/personal loans etc
None

Do you pay off your full credit card balance each month?
Yes

Savings and investments:
E90,000 savings

Do you have a pension scheme?
Yes defined benefit pay 4872 per anum
Spouse: Yes civil servant

Do you own any investment or other property?
Yes, 2 Bed Ground floor apartment 28 years left of 35 year mortgage.
Rental income: 8400
Mortgage payments: 1100
Property value: 115,000
Loan balance: 225,000
Equity: - 110,000

Ages of children:
1 & 2.5
Childcare 900 per month

Life insurance:
Yes.

What specific question do you have or what issues are of concern to you?
1. House purchase

Currently seeking to sell PPR 3 bed semi for bigger family home. Price range we are looking at is 300K-350K. We currently feel no advantage crystallising the loss on the 2nd property, this was bought before we met not as investment. My wife is currently using leave to have a 3 day week. On our current income I would be comfortable with a mortgage of that level but my wife will look to job share and go on 3 day week full time thus reducing income to approx. 33k per anum. We are also planning to have another child next year. My question is are we foolish to be giving up such a comfortable position to upgrade our home or is there other options out their that we are overlooking. Do you think a professional would help advise or is it our own propensity to risk? Thoughts views appreciated.

 

[Dave_Curry_IMC]

What interest rate are you paying on your current homeloan mortgage? It doesn't seem to be anything very special (tracker), but it's something to consider. If this rate is lower than current market rates, a move would be a negative. However, if it is higher, then it would be a positive to move to a new bank, whether by switching lenders, or buying a new home.

A quick calculation using lender calculators shows that you should have no problem getting approved for a mortgage of €280k (80% of the €350k upper end that you mentioned), even with your wife's reduced pay while job sharing, and factoring in having a third child. No expenses are taken into account as income in the assessment, as they are not taxable earnings. The calculation stresses both the current and proposed mortgage, and discounts the rental income.

So it really comes down to your priorities, and your attitude to risk. If interest rates go up, then both of your mortgages will go up. Also, rents could come down (although, are you currently getting market rent for your investment property?).

You said "Generally we spend less than we earn.", but are you saving every month? A mortgage of €280k would cost around €1,250 to €1,300 per month at current rates, over a 30 year term. That is more than your current mortgage repayment (and over a longer term, of course), so you would need to be very comfortable with taking on that extra commitment, especially factoring in the likelihood of increased household expenditure and child care costs (in the medium term), and a reduced household income. Is there a possibility that one of you gives up work for a period, rather than taking reduced hours? That would have a very big impact on affordability, of course.

With your savings, plus the proceeds of the sale of your current PPR, you wouldn't need to borrow €280k, and that also assumes buying at the top of the scale you mentioned. You could comfortably complete the purchase with €250k, which would cost around €1,115 to €1,165 per month over 30 years. Again, this is a longer term than your current mortgage, but it doesn't bring you past normal retirement age.

Best Regards,
Dave Curry, Irish Mortgage Corporation

 

[David Silva]

Hi Dave,

Thanks for your reply, I guess you've stated what we already know and it comes down to us. I guess we are nervous considering my wife's last foray into the property market and given the responsibilities to ensure a good lifestyle for our kids. In relation to your question the rate is approx 3.6% on ppr. the rental property is under market rent as they have been there a number of years and have been good tenants. Market rent at present is probably in the region of 800. We generally save the rent plus 500 - 1000 each month.