What interest rate are you paying on your current homeloan mortgage? It doesn't seem to be anything very special (tracker), but it's something to consider. If this rate is lower than current market rates, a move would be a negative. However, if it is higher, then it would be a positive to move to a new bank, whether by switching lenders, or buying a new home.
A quick calculation using lender calculators shows that you should have no problem getting approved for a mortgage of €280k (80% of the €350k upper end that you mentioned), even with your wife's reduced pay while job sharing, and factoring in having a third child. No expenses are taken into account as income in the assessment, as they are not taxable earnings. The calculation stresses both the current and proposed mortgage, and discounts the rental income.
So it really comes down to your priorities, and your attitude to risk. If interest rates go up, then both of your mortgages will go up. Also, rents could come down (although, are you currently getting market rent for your investment property?).
You said "Generally we spend less than we earn.", but are you saving every month? A mortgage of €280k would cost around €1,250 to €1,300 per month at current rates, over a 30 year term. That is more than your current mortgage repayment (and over a longer term, of course), so you would need to be very comfortable with taking on that extra commitment, especially factoring in the likelihood of increased household expenditure and child care costs (in the medium term), and a reduced household income. Is there a possibility that one of you gives up work for a period, rather than taking reduced hours? That would have a very big impact on affordability, of course.
With your savings, plus the proceeds of the sale of your current PPR, you wouldn't need to borrow €280k, and that also assumes buying at the top of the scale you mentioned. You could comfortably complete the purchase with €250k, which would cost around €1,115 to €1,165 per month over 30 years. Again, this is a longer term than your current mortgage, but it doesn't bring you past normal retirement age.
Best Regards,
Dave Curry, Irish Mortgage Corporation