2 mortgages possible for a few months between buying and selling?

[Gekkoo]

Is it possible to have 2 mortgages simultaneously for a few months if you can show capacity to do so? We are going to start the process of searching for our second/forever home later this year but want to start understanding our options before talkng to the professionals. My ideal scenario when buying our next home would be that we get mortgage approval and take our time waiting for the right houses to come up and have a few months after buying that home to move in, small renovations and sell our first home. The thoughts of buying/selling simultaneously and being part of a chain with lots of potenial delays/issues makes me dread the process. We have kids and want to the process to be as smooth a possible and not have to find rental accommodation between selling and moving which is impossible in our area. Our first home is in a very popular location, in excellent modern condition 5 years old and A2 BER rating so I expect it wouldn't be difficult to sell quickly when required. We recently got it valued also. Is this realistic or are the only options to sell first or sell/buy with contracts transfers all on same day? Can we get 2 mortgages for a period of time if we can prove we can repay? We are pretty frugal and just want to upgrade from our 3 bed terrace to a 4 bed with a little more space in kitchen and add a utility room. Here is a breakdown of our situation:

Current Home Worth approx: €300000

Mortgage remaining: €133000

Positive Equity approx:€167000

Monthly repayments: €680 with the changing variable rate next month

Mortgage Term remaining: 29.5 yrs

Our current extra savings for house: €115000

Savings + Positive Equity: €282000

Combined gross income: €112000

Employment: 1 public sector, 1 private sector

No loans, childcare €7500 per year

We are age 33 so could get another 35 yr motgage (we would repay earlier)

We don't know yet how much of a mortgage we will need it would depend if its a newer build or a fixer upper we find. A quick AIB mortgage calculator says that we could borrow €392000. For some reason the same figure comes up whether we put in our current montly mortgage as an outgoing or not. If we take it that we have to subtract what's left on our current mortgage €392000-133000= €259000 mortgage then available for second house. So that plus our deposit savings is €259000 + €115000= €374000 available to purchase second house (based on having 2 simultaneous mortgages). Would we have to find a house forunder that for the 2 mortgages option? I don't know if we would get the house we wanted for that given today's prices. If we take selling before or simultaneously and just having one mortgage we could get a house worth €392000+€282000= €674000. We dont want to buy for that much realistically max €500000. If we were able to show that we had enough capacity and savings to pay for 2 mortgages on the condition we sell our first house in let's say within 6/8 months to do they allow that? Or am I being completely naive? I suppose the bank would say how can we prove you can sell in a particular time frame and based on only a valuation?
If this is possible could that mean we could bid for houses with mortgage approval and not have offer subject to our house selling? I know this can be off putting to sellers. We have no intention of keeping our first house. We just want to have a few months to transition if needed.
Also some new builds say they won't taking a booking deposit subject to a house sale. We have loved our A2 warm house so would love a new or newish house again or have time to retrofit an older house before selling our current house.
I know we need to sit down with a mortgage advisor, we are not going to start the process until July for a few reasons.
I am trying to research online but it might be more helpful if anyone has any insight or personal experience.
Thanking you in advance for any helpful responses.

 

[Zenith63]

There are some other threads on this actually.

One option is to tell the new lender that you plan to keep and rent your existing home, but just sell it whenever you’ve got the new home purchased. The problem you face then is that some lenders will not consider rental income in your ability to pay calculations, so they’ll subtract the monthly mortgage payment but not add back the potential rental income to compensate. Bank of Ireland will include the rental income, or at least did a few years ago when I looked at doing this.

 

[Brendan Burgess]

Savings + Positive Equity: €282000

Combined gross income: €112000

A quick AIB mortgage calculator says that we could borrow €392000.

€374000 available to purchase second house (based on having 2 simultaneous mortgages). Would we have to find a house forunder that for the 2 mortgages option?

One of the biggest destructors of wealth during the last house price collapse was when people did exactly as you propose to do. They bought their new house first and then spent some time getting it ready to move into. By which time, house prices had collapsed and, indeed, some houses were unsellable. The net effect was two big mortgages and big negative equity.

You must sell your own house first. That does not mean that you can't look at other houses. You can, but you won't be able to put in bids until your own house has contracts exchanged.

There is no point in trading up from a €300k house to a €374k house.
You have the capacity to buy a house for €674k ( €282k + €392k ) if I understand your figures correctly.

You don't have to use the full €674k but as it's your forever home and you are aged 33, I think you should go big.

The thoughts of buying/selling simultaneously and being part of a chain with lots of potenial delays/issues makes me dread the process. We have kids and want to the process to be as smooth a possible and not have to find rental accommodation between selling and moving which is impossible in our area.

There is no hassle-free solution.
You can avoid a chain by selling first.
If you have €674k of firepower you should be able to find a house fairly easily after selling your own.

Yes, renting is a pain and expensive, but it is unlikely that you can avoid it.

But you never know. When you sell your own home, the buyers might not want to move in immediately and may well rent it back to you.
Is it possible that an investor might buy your home? Do you know any property investors who might be interested in it?

You could avoid all the hassle of renting a new home by renting your existing home.

Brendan

 

[azerty]

I don't understand the logic of going big if they think that their forever home is at a more reasonable price level. Even at 33, it leaves them with a 392k mortgage for the next 35 years.
This will limit their disposable income to actually live their life.
I am not saying that they should limit themselves to their current budget but I would not necessarily encourage to go big.
My life would certainly have been different if at 33, I decided to take on a 392k mortgage.
I know it's an asset. But if it is their forever home, they are unlikely to want to sell it. Of course you can downsize later on in life but plenty of people don't want to after having lived for years somewhere. To me a house needs to be an accomodation that serves your needs before being an investment.
My apologies, just saw that the maximum budget planned was 500k, with then a fairly reasonable mortgage.

 

[Brendan Burgess]

You don't have to use the full €674k but as it's your forever home and you are aged 33, I think you should go big.

Hi azerty

I agree with you. One should not buy more house than you will ever need - especially if maxing the mortgage to do so.

However, as they are experiencing now, trading up is risky, expensive and a lot of hassle.

It's quite possible that someone's "forever" home at 33 will actually only be for the next 10 years when they realise that they are in a position to buy an even better "forever" home. So they should buy that now if they well afford it.

Brendan

 

[azerty]

Hi Brendan,
As I mentioned at the end, 500 seems to me a fair budget.
I however think that Irish people put too much emphasis on the forever home. Very few things in life are forever.
I was the 33 years old with the same kind of budget. And we moved 16 years ago to the same kind of "forever" property (standard 4 bed detached in co Dublin).
Could I have looked at better forever house since then? Yes I could have. Should I have? Perhaps. At the same time, the fact that we had a reasonable mortgage made it possible to take life style choice that we would never have been able to take with double the mortgage.

 

[ClubMan]

I don't understand the logic of going big if they think that their forever home is at a more reasonable price level.

We had a teacher in secondary school who used to always say this too. Even at 16 years old it never made sense to me. Is it an Irish property acquisitiveness/covetousness thing maybe?

 

[skrooge]

Transaction costs are high for property so I can appreciate the idea of people wanting to minimise the number of times they buy and sell.

However, the place I want to live and the space I need when I'm young and single is likely very different than when I'm older with a (young) family. Likewise when I retire, the the kids have moved out and I don't enjoy the stairs the previous 2 places might not be ideal.

 

[azerty]

Four years ago, I did actually consider moving. However at the time, the costs of taking a new mortgage was a consideration as I was on a tracker.
Since then, COVID happened, I have been unemployed twice, tracker mortgages are no longer what they were (I have actually paid off most of my mortgage now) and property prices have rocketed. My kids are a bit older and we think about them becoming adults... Nothing is forever. Why should a house be? Nobody would buy home they can offer when they start if they looked for the forever house.
Perhaps I am a very bad planner but I keep on coming across the unexpected...

 

[skrooge]

On the question of can you do it the answer is yes. On the question of should you do it the answer is less clear. As outlined above is a trade off between the stress of trying to coordinate selling and buying at the same time versus the risk of being stuck with the original mortgage and and a house you don't need or really want.

I'd look at the worst case scenario and decide from there. If you had to service both debt indefinitely how would this impact your life? While they may be affordable now rates are rising so you'll eventually be exposed to higher rates? How does the thought of being a landlord with a tenant who won't pay and won't leave? Etc.

On practical level if you went ahead with this plan you're probably better off going with a different lender to avoid having your existing mortgage reclassified at a BTL (and a higher rate). The other thing that jumped out at me if you mentioned your existing repayments are going up. Who is your mortgage currently with and is it a variable rate?

 

[NoRegretsCoyote]

Transaction costs are high for property so I can appreciate the idea of people wanting to minimise the number of times they buy and sell.

In Ireland?! Between stamp duty, legal and estate agent fees there's maybe a 4% wedge between what you pay and vendor receives. Try find a jurisdiction where it's lower. You'll struggle.

Given the advantages of owner-occupancy over renting transaction costs are more than worth it to trade up and down as your means and needs change.

 

[Brendan Burgess]

Hi Coyote
But there are other costs of trading up. You rarely trade up into a house which needs no work.

And you face big risks of price moves during the switch process.
And all the hassle of switching - renting during the interim period.

So trading up a few steps on the ladder every few years is not a good idea.

But it's a question of balance.

Brendan

 

[skrooge]

In Ireland?! Between stamp duty, legal and estate agent fees there's maybe a 4% wedge between what you pay and vendor receives. Try find a jurisdiction where it's lower. You'll struggle.

Given the advantages of owner-occupancy over renting transaction costs are more than worth it to trade up and down as your means and needs change.

It's true it might be more expensive internationally but that's not how people look at it. People look at the one off transaction costs of housing relative to day to day expenses.

However, people don't look at the hidden costs associated with being in the wrong home at the wrong time. Consider the extra/unnecessary cost of heating a 3 bed house when you're young and single and old and an empty nester. Or the cost of all those taxis home on a Friday night when you could have walked to an apartment in town. They all add up.

 

[Gekkoo]

One option is to tell the new lender that you plan to keep and rent your existing home, but just sell it whenever you’ve got the new home purchased.

Thanks for your reply. I can see this might be an option for some people. I just wouldn't be able to sign my name to something especially for a mortgage that is misleading the banks on my intention. Even if there would be no consequences or if they wouldn't check, I would find that more stressful than being part of a chain. Thank you though!

 

[Gekkoo]

You must sell your own house first. That does not mean that you can't look at other houses. You can, but you won't be able to put in bids until your own house has contracts exchanged.

Hi Brendan, thank you so much for your thoughtful reply to my query. Im online for the first time today so just reading through all the comments. We are quite a risk adverse couple who always live well below your means so that does make sense that having 2 mortgages is high risk. Even if our intention is for a few months we can't predict what could happen in that time if all does not go to plan. The rental market in our area for a house like ours is nearly 3 times our mortgage. I really would not like to become a landlord if all went wrong with the market between the hassle and also I don't think my conscience would be able to charge tenants the going market rent. So yes if the lenders say that this option of a few months wiggle room is a no go then selling first or simultaneously probably is what we would have to do.
You are right it is going to be a hassle and a stress whichever way we go about it! The first time buying process seemed much simpler!

I probable should have phrased the 'forever home' part differently. We would like this to be the home that will suit us for a long time but we do understand circumstances change, especially around retirement age and when kids move out. Yes upgrading from a €300000 to €374000 probably wouldn't get us the house of our dreams we would need a bit more so selling first is probably the best option. We are not looking for anything big or extravagant and want to keep mortgage repayments very manageable.

Maybe us renting our own house from the new buyers for a short time could work. I suppose we wouldn't know if that is an option until the time. I don't know any property investors, I wouldn't even know where to find them

I don't understand the logic of going big if they think that their forever home is at a more reasonable price level.

Yes we definitely won't be going BIG or maximize our mortgage in the long run. We will try to find a home that suits our needs and hopefully that is for a long time, I understand it may not be a forever home, things can always change!

 

[Gekkoo]

On the question of can you do it the answer is yes. On the question of should you do it the answer is less clear. As outlined above is a trade off between the stress of trying to coordinate selling and buying at the same time versus the risk of being stuck with the original mortgage and and a house you don't need or really want.
Who is your mortgage currently with and is it a variable rate?

Ya its something we really need to weigh up. I definitely don't want to end up a landlord accidently so the more risk free option of selling first or simultaneously better. The unknown of the timing of it all is playing on my mind. Maybe we just need to trust it will all work out or that we would need to stay with family or find short term accommodation for a few months. It just sounds like an uncomfortable few months for us and the kids. Rent in our area is impossible and nearly 3 times our mortgage! Hopefully things would work out quickly. I just fear if we sell first that nothing we like will come up for a long time. We are settled in our area with one child in primary school so the search net is quite narrow. We have gotten used to walking everywhere and couldn't imagine going back to living in the countryside where we both grew up. We are based in Munster. We are currently on a <50% LTV variable with AIB, we just got a letter this week that it is going up from 2.75 to 3.1% next month. We chose not to go fixed, we had been overpaying mortgage and also know we will be house hunting soon so wanted to avoid levy to break a fixed. Ya interest rate spikes are another reason to play it safe with selling first. It is an incentive to get a high BER house with a low LTV as this helps hugely with interest rates.

We had been thinking of getting a fixer upper but honestly now that seems like the worst option between building costs and having to find interim accomadation. Maybe the best solution is to keep an eye out for new homes coming up that are near completion and sell just before they launch or need a booking deposit.

 

[Brendan Burgess]

As you are risk averse, it is very important to understand that there is risk in whatever approach you take. You cannot avoid it.

1) There is risk in staying in that you will outgrow your house, if you have not already done so.
2) There is risk in buying first and then selling in that the market could collapse
3) There is risk in selling first and then buying in that nothing you like might come up

Why are you trading up? And more specifically, why now?

You have a good job and you are good savers. It might be a good idea to defer the trade up for a couple of years.

1. You will have paid down the mortgage quite a bit which could allow you to buy first and then sell. It will still be risky, but less risky than now.
2. The housing market might normalise - in that supply and demand come back a bit into balance. This allows less panicky trading up

Of course, house prices might rise, but your house will rise as well.

Brendan

 

[Gekkoo]

Why are you trading up? And more specifically, why now?

You have a good job and you are good savers. It might be a good idea to defer the trade up for a couple of years.

Ya these are the questions we are asking ourselves. When is the right time? We love our little house, and we are so glad we bought it when we did, it gave us a secure base and was the best choice of what we could afford when both our incomes were much lower. We have done well to save the last 5 years. I suppose we are just starting to get the itch to move when we look at our savings ready to go! We would like more space but are managing. We have pretty much lost a bedroom to my partner working from home a few days a week. We have the kids in the one bedroom and have noticed my eldest expressing interest in her own room soon. The no utility means constant laundry hanging in our small kitchen (not an issue in finer weather). We could manage for another year or two and save up even more. I find myself on daft.ie everyday so that might be a sign we are ready now! I am so thankful we are in a good position and have the these choices I know so many will never be able to get on the property ladder!

 

[NoRegretsCoyote]

However, people don't look at the hidden costs associated with being in the wrong home at the wrong time. Consider the extra/unnecessary cost of heating a 3 bed house when you're young and single and old and an empty nester. Or the cost of all those taxis home on a Friday night when you could have walked to an apartment in town. They all add up.

I fully agree

@Brendan Burgess - it's not uncommon to see money makeover threads where people have mortgages paid off, pensions maxed, and €200k in cash. For me it's more enjoyable to live in €200k of extra house than to watch it earn meagre interest. There are tax benefits too.


Someone buying and selling three times in an adult lifetime isn't taking excessive risk or wasting money on transactions costs in my view. Holding on to a previous property for the sake of it generally isn't wise of course.

 

[skrooge]

We are currently on a <50% LTV variable with AIB, we just got a letter this week that it is going up from 2.75 to 3.1% next month. We chose not to go fixed, we had been overpaying mortgage and also know we will be house hunting soon so wanted to avoid levy to break a fixed. Ya interest rate spikes are another reason to play it safe with selling first. It is an incentive to get a high BER house with a low LTV as this helps hugely with interest rates.

It might be worth exploring fixing regardless of what you do. AIBs approach to break fees for certain maturities mean you're very unlikely to be charged a break fee.

Overpayment / re-fix flexibility of AIB's green 5yr fixed rate (and some other rates)

Rang AIB and they said if I transfer additional money to mortgage account online I would lose my rate and have to re-fix at the new current Green Mortgage rate of 3.1% :( so looks like I can't overpay in any way without giving up my rate The AIB person is mistaken or misunderstood you. As the...

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