Advice re. Saving for Second Mortgage

C

Ciaran

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142
Age: 31
Spouse’s/Partner's age: 33

Annual gross income from employment or profession: 59k
Annual gross income of spouse: 30k

Type of employment: e.g. Civil Servant, self-employed: I am a permanent teacher, secondary school - employed at senior management level. He is a data analyst, and has recently been made permanent.

In general are you:
(a) spending more than you earn, or
(b) saving?
In general, managing ok. I have 9k of savings. He has no savings but we are not carrying any credit card debt.

Rough estimate of value of home Probably in and around the €290k mark
Amount outstanding on your mortgage: In 2003, we drew down €266,800. The amount outstanding is €213,507

What interest rate are you paying? Tracker variable - 2.3% with Bank of Ireland. We're paying €1216.26 each month.

Other borrowings – car loans/personal loans etc
I have a joint loan with my brother. He owns the house with me. This is €9000. We have it with the Credit Union and we're paying off €600 between us each month.

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? My partner does not owe anything on his. I owe €600, but I'll shift this at the end of the month. I don't pay interest.

Savings and investments: €9000 in Credit Union.

Do you have a pension scheme? Yes, we both have. I also have an AVC.

Do you own any investment or other property? No

Ages of children: No

Life insurance: Yes, we both have.


What specific question do you have or what issues are of concern to you?
The house that my partner and I now live in, is one that I bought with my brother 7 years ago. My brother is a pharmacist, employed by the HSE and has a permanent, pensionable job with a salary of €60k, no debt (bar joint mortgage and joint home improvement loan, and no dependents). Neither my brother nor I wish to remain in the house for the rest of our lives, but it suits for the time being. We borrowed €16000 this time last year to make redo the house - plastering, rewiring etc. so it is in very good condition for renting out in the future. The house is a 10 minute bus journey from town, in a settled area, so it should hopefully be an ok prospect for renting. There's €9000 outstanding on this loan.

My partner and I would like to begin saving for our own house. Realistically, I suppose we would need to save about €40000 over the next 3 years. I don't know is this madness, or whether a bank would even consider us, given his relatively low salary, and my existing mortgage.

We have absolutely no desire to become overexposed to property. Our plan is to try and save enough money for the deposit on a second house - stay in our existing house for the next 3-4 years and try to sell up before buying a new property. My brother is quite happy with this time frame - he is unable to spend much time in Dublin due to work commitments but would like to have a base here for the foreseeable future.

As my post probably indicates, I'm not much good at this kind of thing. My question is really do people think this is a realistic plan for the future - to try and save €40,000, buy a slightly bigger - e.g. 4 bedroomed home in a slightly better area?
 
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You will need to let us know how much is outstanding in current mortgage (roughly) as this will have a large effect on whether you will be able to get another mortgage or not.

You might be better off selling your existing house (if brother agrees). You will then be in a clear position to buy with your partner and not have a huge mortgage hanging over you.
 
Hi goingforgold. Thanks for that. I'm going to update the existing information now.
 
Ring up your bank and they'll tell you how much is outstanding as of today Ciaran
 
Just checked that now Paddy, thanks. The balance outstanding as of today is €213507.41
 
I think your plan is a good one. Your brother is willing to sell current property before you and your partner buy a new one. This way you have a place to live, can save away, reduce mortgage on current property and all going well will have a very substantial deposit in a few years time (with you and your partners savings and the equity you receive from the house sale). You are in a decent position. You have c. 70K equity in your current house between you and your brother (taking improvement loan into account also) and can build up savings over the coming years while reducing mortgage. Best of luck!
 
Bear in mind that you are no longer a first time buyer and hence may have stamp duty liability, depending on what you buy.
 
Thanks goingforgold and Mpsox for the advice. Goingforgold, good to know that it's not a completely off the wall scheme. Mpsox, I had guessed that - I wasn't a first time buyer when I bought my current property. I had bought with a friend in 1999 and she bought me out so I paid stamp duty when I moved in here. Realistically, how much do you think we would need to aim to save? We're guessing about €40k but don't know if that's too little to cover legal fees, etc. Hopefully, we may be able to claw a little equity out of my current property when we sell it although with the way things are looking, we're not relying on that. We've recently become engaged which is another expense to factor in - although we've both decided that we want to prioritise saving for a house, so we're quite content just to do the family and reg. office - keep costs to a minimum.
 
The amount you need to save depends on how much the house you purchase will be. You will need c.10% of a deposit plus extra costs like legal fees etc. I would say save as much as possible and buy within your means after that.
 
If you bought a house for €300k, then with an 8% deposit, stamp duty, assuming 1% for legal/engineer and any other fees, + estage agent and legal fees for selling, then you'd probably need nearer €45k-€50k.

However you also need to bear in mind moving costs, decorating costs and if a 2nd hand house, whatever you'll find wrong with it or want to change after you've moved in. I would have thought €60k is more realistic
 
Thanks very much for all the excellent advice. €60k seems very daunting when we've only got €9k. However, I've had a look through all the posts here and we're going to really start tightening the belt and keeping a spending diary. I try to save €1000 a month, although, as you can imagine, this is excessive and what happens is although I can manage on a day to day basis, I have absolutely no money left over for any unexpected expenditure, meaning that I end up tapping into savings. I was horrified to realise how much money I had to withdraw this summer - a couple of weddings in a row, a few unavoidable trips to the UK and the purchase of a new desktop - which again, was necessary for work/study purposes. Although we don't exactly live the high life, don't drink, rarely have take-aways or nights out, there probably is scope to rein it in slightly.
 
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