Buying in London- Raise deposit on Irish rental property?

Hi,
I've been living and renting in London for 3 years and have been looking for a pad to buy. I have found a place this week. Problem - I need 15% deposit to get a mortgage of 2.9%. I only have 5% currently. I also need it within a few weeks.
At home I have several rental properties. One is mortgage free (value 230000). One is in negative equity (mortgage 300k - Value 160000)- the others are LTV <75%.
I'm assuming that as I have 1 property in -ve equity And living and working in the UK I'll find it hard to rasise 75000 on the mortgage free property especially as I'm using the money to buy more property? Any comments?
Cheers guy
nbc

Hi nbc

You already have a very exposure to property and borrowing. Increasing this by €750,000 is probably not a good idea.

I don't know if you will be able to raise €75k on a mortgage-free Irish property.

Alternatively, could you get a personal loan of the €75k with a view to repaying it out of the proceeds of sale of the mortgage-free property.

If you can't, then you could do the following instead:

Take out a mortgage now in the UK to buy your pad. Take a flexible mortgage without early repayment penalties.
Sell the mortgage-free property in Ireland.
Then, switch your UK mortgage to a lower LTV mortgage with part of the proceeds of the Irish mortgage.

One downside of selling the mortgage-free property is that you will probably have a CGT exposure. If any of the others are on SVRs, then you might consider selling them first.

.

Thanks Brendan as ever.
I hope to have 200k after cgt etc. I propose to use half to clear the mortgage on another investment property and the other half to fund UK pad- which is costing £475000.
My total irish mortgage debt after this would be 500k with conservative values of 800k
In the UK I would have an 85% LTV - 475000.
I earn £100k.
Do you think I should be more cautious buying Brendan with these figures? A cheap mortgage- 2.8% is available to me.

Nbc

nbc said:

Thanks Brendan as ever.
I hope to have 200k after cgt etc. I propose to use half to clear the mortgage on another investment property and the other half to fund UK pad- which is costing £475000.
My total irish mortgage debt after this would be 500k with conservative values of 800k
In the UK I would have an 85% LTV - 475000.
I earn £100k.
Do you think I should be more cautious buying Brendan with these figures? A cheap mortgage- 2.8% is available to me.

Nbc

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What rates are your Irish mortgages on?

If we assume they're on AIB's 5.47% BTL rate, paying half of the €200,000 off the investment mortgage will save you €3,282 per year. This is because the Irish income would be subject to a standard 20% of rental profits for a non-resident and the bulk of your income tax would be due in the UK. On this, you'd be taxed 40% - but you can write the entire interest portion off against rental profits in the UK (not just 75% of it).

In the UK, a £475,000 property with an 85% LTV mortgage implies a mortgage of £403,750. Assuming an interest only mortgage for simplicity in the calculations, this would cost you £11,305 in interest per year at your 2.8% rate.

If you aimed for a 70% LTV mortgage, which you could do by diverting the €100,000 to your UK property as opposed to the investment mortgage, you'd be able to go for HSBC's 1.99% lifetime tracker product.

So let's say that, instead of taking a £403,750 mortgage, you take a £320,750 mortgage (£403,750 less the €100,000 you were going to pay off your investment property). The annual interest on this would be £6,383 - a saving of £4,922 over the UK mortgage on the original terms.

In other words, you'd pay an extra €5,470 on your Irish mortgage in interest but you'd save €2,188 on your UK tax bill and £4,922 on your UK mortgage - the equivelant of €8,106. You'd also have an easier time getting a 70% LTV mortgage in the UK as it represents less risk to the bank and a lower multiple of your salary.

.

Thanks Ronaldo for your interesting response. It's something I hadn't considered. I'm paying the EBS standard variable which I think is close to 5%. I don't check it as it's depressing. Fortunately the vast majority of the rest of my mortgage debt is tracker 1% above ECB.
The 20% I would pay in tax in Ireland will be credited to me in the UK. That's what my accountant here Has been doing anyway. Does that affect your figures much? Yes you're correct about 100% mortgage interest allowable.
I haven't quite figured out CGT- I think its 33% at home but 28% in UK. I know the inflation index was abolished at home in 2004- unsure if UK allows it.
I will consider what you have advised seriously. I wasn't sure whether the mortgage company would allow me to borrow on my RIP to fund property purchase in the UK but neither you nor Brendan commented on it so I assume yes?
NBC

nbc said:

The 20% I would pay in tax in Ireland will be credited to me in the UK. That's what my accountant here Has been doing anyway. Does that affect your figures much?

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It doesn't affect them in the slightest. The 20% is credited against UK tax owed but you will still need to pay the balance in the UK to bring it up to your marginal rate of 40%. This is assumming that you're Irish rental properties are turning a profit of course.

nbc said:

I will consider what you have advised seriously. I wasn't sure whether the mortgage company would allow me to borrow on my RIP to fund property purchase in the UK but neither you nor Brendan commented on it so I assume yes?
NBC

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My response assumed you'd be selling the Irish property and achieving a profit after CGT of €200,000. Securing additional borrowing from Irish banks is going to be extremely difficult. If PTSB's marketing is anything to go by, it may be possible for up to 60% LTV on your earnings as a non-resident. This is likely to be 60% LTV in your overall portfolio as opposed to 60% LTV on the single property.

One key aspect you are missing is whether the Irish properties are each profitable - especially when borrowing at close to 5%. You are overexposed to Irish property but some people are willing to accept the risk inherent in such an investment strategy. This is especially true if each individual property is currently profitable (I'm on the lookout for profitable investments in Irish property as a UK resident and cannot find anything that meets my criteria. Therefore, it's likely that the figures don't stack up for at least one of your properties - probably the ones not on tracker rates).

Also, if you borrow against the mortgage free rental property, there are a lot of tax considerations. In Ireland, I don’t believe you can write any of the interest off against rental profits as the funds weren’t used to purchase the rental property. In the UK, I believe you are allowed to write off the interest on the borrowings up to a total of the market value of the property at the date it was first rented. On reflection, this may actually be of no concern – the fact that you aren’t allowed to write off the interest in Ireland will increase your Irish tax due but you’ll get a credit for the increased tax in the UK.

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Sorry- I'm confusing myself now. I had considered the possibility of borrowing 100K to pay for Uk deposit but overall I think selling 1 Irish property and Buying a London based one in a reasonable area- Greenwich- makes sense to my simple way of looking at things. ignore my previous silly question. My friend tells me UK property in good locations have doubled in value every 7 years since world war 2 and that you would want to be an idiot to lose on it. I'm not quite so sure about that but his point is that despite the odd property collapse the overlal trend in London is always upwards. Russians, Chinese, Arabs etc all treat London property as a safety deposit box it appears.
nbc

nbc said:

My friend tells me UK property in good locations have doubled in value every 7 years since world war 2 and that you would want to be an idiot to lose on it. I'm not quite so sure about that but his point is that despite the odd property collapse the overlal trend in London is always upwards. Russians, Chinese, Arabs etc all treat London property as a safety deposit box it appears.
nbc

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Ah, brings back memories of many friends saying similar things about Irish property in 2006 and 2007

I'm not up to date with the London market - rental or sales - so am not inclined to comment.

I'm considered UK resident for tax purposes because I purchased a property in Northern Ireland a little over a year ago. In saying that, my property was purchased at less than half it's peak value and is costing much less to own that it would to rent. Obviously, London is a totally different market so you'd best do your own research.

Have a look at the inflation-adjusted prices of UK property in the graph below. It shows that a property bought in the middle of 1989, just before the crash of the early nineties, would have taken to 2002 to recover its price on an inflation adjusted basis. We can't discuss future prices in this forum but that's just a brief look at historical prices to show what CAN happen.

http://www.housepricecrash.co.uk/indices-nationwide-national-inflation.php