Tracker mortgage on former home in Dublin, want to buy in Cork

[legoman]

Have house in Dublin bought in 2002 worth approx 240k (slightly more than we paid) with 110k outstanding on tracker. It was our family home and it is rented out for last couple of years whilst we moved to Cork and are renting here. Long term we see it as possibly paying for kids education/pension or as a place I could stay in during the week if forced back to work in Dublin.

Got kids (7yrs and under) in schools and settled therefore I want to buy. We have savings to affect of 200k and would like to keep some portion for rainy day but we will need a mortgage to buy. Wondering whether this would be the best use of funds? (as my job although permanent would be prone to intermittent redundancies). I earn around 75k and wife is unwaged.

On the bank side I never formally rang AIB to say we had moved. I changed to LL insurance etc when renting and checked my mortgage contract and there was no stipulation about family home etc. I could approach KBC or some other institution for approval. Not sure how to approach this.?

Houses we are looking at are in the range. 300-350k. What I have been reading online (here and some newspapers etc) is that cash buyer are in decline and personally alot of people I know who wanted to buy have now done so. With the changes in central bank rules for people trading up not sure how things will look in relation to demand and if people think large semi-d or detached houses will reduce in price at least in the short term (say next 3-6 month).?

A good few people may have been down this road and would appreciate the factors to consider etc or any opinions.

 

[trasneoir]

With the changes in central bank rules for people trading up not sure how things will look in relation to demand and if people think large semi-d or detached houses will reduce in price at least in the short term (say next 3-6 month).?

Speculating about the future of property prices is verboten here. Everybody's got to leave their crystal balls at home, and talk about situations as they stand today.

Imagine you walked into a financial adviser tomorrow, and he told you he was going to invest 95% of your money in Irish Residential Property and 5% in cash. Is there a word that means the opposite of diversified? If I were in your shoes, I'd consider selling in Dublin and buying the Cork house with cash. With no debt in your life, you've got plenty of time to invest diversely for college and retirement. You're in a good situation. Holding onto the Dublin house is probably more mathematically efficient, but you can afford to play this one safe.

 

[legoman]

Imagine you walked into a financial adviser tomorrow, and he told you he was going to invest 95% of your money in Irish Residential Property and 5% in cash. Is there a word that means the opposite of diversified? If I were in your shoes, I'd consider selling in Dublin and buying the Cork house with cash. With no debt in your life, you've got plenty of time to invest diversely for college and retirement. You're in a good situation. Holding onto the Dublin house is probably more mathematically efficient, but you can afford to play this one safe.

You are probably right we never really looked at it like this (the playing it safe angle). There seems to be a high inclination on the site to hold onto a property if you have a good tracker which is why I thought it might be best to keep the house in Dublin. Also with the majority of work in Dublin I thought I may even need the place at some point.

Also not sure whether its better to approach my own bank first or go to someone else if going the route of not being a cash buyer and looking for a mortgage. I suppose I have become a bit wary of banks in general even though I have not had almost any contact with them on the Dublin property or its status in years.
On the price side of things (from you reply) I can understand why speculation on prices is probably best left at the gate.

 

[legoman]

Just update here. We are more disposed to holding on to the Dublin property long term. However I am wondering if I approach the bank I am currently with, will they try to change the mortgage rate we have on the original property (i.e. loose the tracker on this) as we look for a second mortgage for the new property which (the latter) will become the PPR. Last time I checked I didnt see anything in the mortgage contract on this but it is a 'home' loan. I suppose I am looking for advice from people who have traded up and kept the original property also. I do note the the AIB movable tracker product involves selling the first property so its not an option.

If I approach a new bank my arrangement with the first bank will remain the same. In other words I will continue on the tracker with AIB and have a seperate mortgage with a new institution. Sure others out there have been in same boat when trading up.

 

[Sarenco]

There seems to be a high inclination on the site to hold onto a property if you have a good tracker which is why I thought it might be best to keep the house in Dublin. .

That may be the consensus view on here but it is certainly not the universal view.

Leverage, however cheap, massively increases the risk of any investment. Yes, it juices capital gains but it also exaggerates capital losses. You have to look at be fundamentals of any rental property as an investment.

What would the property rent for expressed as a percentage of what it would sell for (any less than 6% and you should sell IMO)? What would that figure look like after you deduct anticipated expenses (actual and imputed)? I would recommend that you deduct a minimum of 25% from the gross yield to arrive at your net yield figure (33% deduction to be conservative).

What interest rate are you paying on your mortgage? Personally, I would want to see a spread of at least 3.5% between my net yield and my cost of funds (i.e. your mortgage interest rate), otherwise I would be confident that I could do better elsewhere with considerably less risk.

Have you run a tax calculation, bearing in mind that leveraged property is horribly inefficient as an investment?

Would your mortgage on your new Cork property be significantly lower if you were to port your mortgage from the Dublin property? You would presumably be able to avail of a low LTV mortgage on the basis of your savings in any event if you retained your Dublin property but what would the difference look like?

What other assets do you have in terms of your retirement savings? Are you comfortable that you are sufficiently diversified across markets and assets classes?

You are obviously in very strong position in terms of your high level of savings. My advice is not to take on unnecessary risk without fully understanding what you are doing.

Run the figures and then make your decision.

 

[Brendan Burgess]

Hi Legoman

This is really clear:
You have a tracker mortgage of €110k on a property worth €240k.
You have cash of €200k.
You have an income of €75k, but it's volatile.
You sell your home in Dublin and you move the tracker to a property in Cork.

You do this asap before you lose your job or before AIB changes the terms of the tracker mover product.

Let's say, for simplicity, that you keep your €200k cash and you borrow €150k.

Your position will be:

Home value: €350k
Mortgage : €220k ( €110k@2% and €110k@4%)
Cash:€200k

Your home is worth 5 times your income. It represents 100% of your assets. You do not need further exposure to property.

So you should pay off the expensive part of the mortgage.

This leaves you with the following:
Home value: €350k
Mortgage €110k @2%
Cash: €90k

This is a very comfortable position to be in. You will not be able to get a 2% net return on a risk-free account, so you should probably pay off the tracker mortgage as well.

You will be living virtually mortgage free in a property close to where you work.
You can put your mortgage payments into a savings account or pension to pay for your kids' education.
You will not have to worry about house prices or bad tenants or prtb or changes in tax rules.
You won't even have to worry too much about temporary redundancy.

The alternative is the risk of a few bad things happening together, and bad things do tend to happen together

• You lose your job
  
• House prices fall
  
• Interest rates rise
  
• Your tenant stops paying

The potential return is simply not worth the risk.

 

[legoman]

Thanks for the replies.

My wife wants to hang on to the property and whilst I don't really want to be a LL, so this has caused a few heated conversations. We have tenants who look to want to stay for the next few years so her argument is to hold onto it.

So if that is the case I will need to either approach the bank I am with or go to KBC etc to not disturb the arrangement I have with AIB

I don't think I am a million miles away from the post/s by redback, in that I want to protect the tracker.
Telling the bank our apt is rented
Redback, Apr 8, 2015

The banks seem to be so 'case by case' I don't want to be the 'own goal' case. I do know of other cases where people held onto their tracker and bought a new home and the tracker was left as was on the original home with a new variable to work off for the new house, so this may be the way it would work also for me - not sure.