House in Spain - can we afford it?

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Finances2020

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15
Personal details

Age: 49
Spouse's age: 51
Number and age of children: 2 (11 and 14)


Income and expenditure
Annual gross income from employment or profession: 67,000
Annual gross income of spouse/partner: 75 000

Monthly take-home pay: 7736 (Inc. Children's allowance 280)

Type of employment - Employee
Employer type: public servants

In general are you:
(a) spending more than you earn, or
(b) saving?
Spending most of what we earn


Summary of Assets and Liabilities
Family home value: 400,000
Mortgage on family home: 160,000
Net equity: 240,000


Family home mortgage information
Lender - Avant
Interest rate - 2.25% fixed for next 5.5 years

Remaining term: 13.5 years
Monthly repayment: 1310

Other borrowings – car loans/personal - none

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

Pension information - public servants

Other savings and investments:
Cash - 70k


Other information which might be relevant

Life insurance: yes, both covered


What specific question do you have or what issues are of concern to you?
We want to buy a house in Spain - approx 75k plus another 12/13k or so in taxes, fees, solicitors etc.
If we buy then we have no savings left plus a loan - 20k roughly. Plus we'd have to furnish the house.

We can't decide if this is madness- leaving ourselves too financially vulnerable or if its a good idea - house is cheap now, we'd use it for holidays but ultimately its for retirement where we would live for part of the year. If we wait until retirement house prices may have jumped substantially.
We accept that this is not a good financial investment, we wont ever rent it out or make money from it but it is an investment in our future - my husband speaks excellent Spanish and it has always been a dream to have a house in Spain.
We argue both sides constantly but cant seem to have clarity on whether this is an acceptable financial risk or too big of a risk.
 We'd love some thoughts from those with no emotional investment in this!
Thanks in advance
 
I wouldn't have said madness. you both have public sector pensions, your mortgage is more than manageable., if it gives you access to cheaper and longer holidays it probably would pay for itself over time vs annual package hols

I am unclear how you have €70k and yet you spend everything you earn - that's quite some lifestyle spend there €6400 spent per month after mortgage is paid!

I suggest a closer look at your outgoings. What could you cut back on to service the loan/build up new savings

50+o
 
Thanks all. I've read all of Lepers posts, I've been googling anything to do with holiday homes for a long time!
Re spending/saving - we probably save at least 1000 per month, not as much as we should though we recently paid an extra 10k off the mortgage. We also have a bit of a holiday problem/addiction and definitely spend too much on them every year.
I do feel like we have the capacity to save more with more attention paid to spending- we are not being frugal now as we don't particularly need to but we could definitely cut back and save more.
 
So you are two public servants so I assume you have very good pensions. So saving for your retirement is not a consideration for you. You will be very well off in retirement. That is sorted.

Your mortgage of €160k fixed at a low rate for the next 5.5 years is not a concern either. In 13 years, it will be fully paid off.

So the main issue is how you will pay for your children's third level education.

If that had been your question, I would have suggested paying the €70k off your mortgage, leaving you with a balance of €90k. Leave your repayments as they are and your mortgage will be well cleared by the time your eldest is thinking of college.

To be well paid and mortgage-free is a great place to be when you have two kids of college-going age.

So that is what you have to think about - would you like to be mortgage-free and probably have some cash in the bank when your kids hit college age or would you like to own a holiday home in Spain and maybe struggle a bit financially?

And really that is a matter of personal taste.

It is certainly not madness to choose either option.

And, in a sense, it is about timing. You could defer the purchase of your holiday home until you have cleared the mortgage and have built up a fund to pay for the education. Sure prices could rise in the meantime. €70k does seem very cheap. If it's going to be a long-term place to spend a good part of your year, would you not wait, and spend a fair bit more on getting a better place?

But it's a close decision. You can afford to buy a €70k place is you wish, but it might be just a bit tight.

Brendan
 
Brendan Burgess said:
So you are two public servants so I assume you have very good pensions. So saving for your retirement is not a consideration for you. You will be very well off in retirement. That is sorted.
Click to expand...
Is it sorted though? Depends on when they joined and scheme specifics. I'd want to be retiring by 60, with kids through college and slightly accelerated mortgage paid off. I wouldn't let foreign property notions derail that. Horses for courses though.
 
A few other things to consider:

A non-financial issue to consider is the ages of the children and the possibility that they won't want to go to the same place each year during their teenage years. They may also have sporting or other commitments that limit the time spent abroad?

Making a Capital investment also brings maintenance and running costs that should also be considered.

Locking into one location in Spain limits your ability to holiday in multiple locations in Spain and other destinations.
 
We bought our first holiday apartment in Spain (Torrevieja) over 20 years ago and out of fear of our near neighbours (tatooed, drunkards, drug abusers, criminals, pond-life and a few other things) we sold six months later at a loss and bought in Costa Almeria where we paid much more money and along came the financial crash which whipped €70K value immediately off our 2nd holiday home apartment. The price of property in Spain is recovering but at glacial pace. If we sold today we'd probably get a grand or two above what we paid for it. But, we're not selling.

1. Your intended purchase looks extremely cheap (to me) and I'd question the resale value.
2. You are liable for local taxes i.e if you rent out the place the local council will want at least 21% of the letting income. They may or may not allow some refund on electricity, water, refuse costs, but I'd budget that they'll allow you nothing.
3. With utilities, television, internet, local taxes allow about €2500.00 costs per annum.
4. If you want somebody to keep an eye on the place this will cost too - but usually worth the cost (you heard this first from me).
5. You might wish to rent out the place to cover expenses; this costs too with estate agents taking about another 20% administration charge. They might have other charges up their sleeves too.
6. Cleaning the place might be an issue.

Note:- If you are rolling in money go ahead and there isn't much thought to that.

But in retirement at current charges you can rent a well located apartment including all utilities, internet, television, all mod cons for around €850 per month in the off seasons. Why extend yourself by buying?

Have a look at my many posts on this forum regarding purchasing holiday homes abroad.
 
Re third level for kids. Unless you’ve rent to cover in Dublin or other large city it’s not expensive so really you don’t need to worry about that too much. A part time job sling coffees will keep them in pocket money.
 
Yes, I'm not too worried about third level, we live in a University city so with any luck they'll be living at home while attending
 
Redzer said:
A few other things to consider:

A non-financial issue to consider is the ages of the children and the possibility that they won't want to go to the same place each year during their teenage years. They may also have sporting or other commitments that limit the time spent abroad?

Making a Capital investment also brings maintenance and running costs that should also be considered.

Locking into one location in Spain limits your ability to holiday in multiple locations in Spain and other destinations.
Click to expand...
Yes these are all things we've considered- we covered these exact points last night! Teenagers will probably be an issue but those years will be finite hopefully(!). The last 2 points are something we are carefully considering
 
Finances2020 said:
Thanks all. I've read all of Lepers posts, I've been googling anything to do with holiday homes for a long time!
Re spending/saving - we probably save at least 1000 per month, not as much as we should though we recently paid an extra 10k off the mortgage. We also have a bit of a holiday problem/addiction and definitely spend too much on them every year.
I do feel like we have the capacity to save more with more attention paid to spending- we are not being frugal now as we don't particularly need to but we could definitely cut back and save more.
Click to expand...
In the same boat - sitting on the fence for a while. Have you explored Portugal as an option.
 
Hi bish - no it's Spain or nothing really - husband is a total Spanophile (is that a word?!!). We are looking at villages and towns that are non touristy and not near the coast hence the cheap prices.
 
You have two well paid jobs and you can afford to send time in Spain now and in the future which is great .

with two jobs and two kids , I assume that you won’t get too much use out of the apartment for the next few years so renting would be much much cheaper than the annual cost of owning and the cost of buying. The cost of buying is a significant opportunity cost as you’ll have a loan, you can’t use your savings to pay off your current mortgage and you won’t have savings if you need to replace your car.

Your reason for buying now is a fear that prices will go up and you won’t be able to afford it when you retire . You need to think aboout this. If you don’t buy now, you can still rent in a small town in Spain any time you want to visit, you can continue to save the money you will have to spend on owning the place, pay off your mortgage and by the time you are closer to retirement , you would be in a better position to buy
 
I have no mortgage, savings and an investment property in Ireland. With family link to another European country, I still struggle to think that buying abroad makes sense. I spend substantial amount abroad each year. It's costly but if I don't choose August, I can make it for less money than the basic bills and taxes would cost us on a house/apartment. I can choose the place, the comfort and the facilities (ex pool). Until now my teenagers have no problem with that and are looking forward to this summer. I know that during retirement, I will want to spend more time there and I might inherit or buy but it's certainly not something I would consider as a good investment.
 
I do not think it is a good idea to sink money into a property that will be a cost and not produce any income while you still have a mortgage and children's education. Prioritise that first.

You are worried about increasing prices? Your pensions increase in value too. You are both public servants, so you get increments each year and your pension is index linked in retirement.

I would also try out staying in non touristy areas a bit before committing to buy. While there are lovely towns and villages in Spain, there may not be much to do. And while your husband may have no problem with communication, you may struggle.

If you feel something is a bit tight for you to be able to do it, it is too tight, especially with another 10-15 years of expenses on top of the purchase price before you actually get to live in it for months on end, which is your intention. That's too far away. Think back to when you had no kids and what your plans were then. That is the same timeframe we are talking about.
 
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