Building house for life & unsure what to do with tracker mortgage on 3 bed semi bought at the height of the boom? Should we keep or sell first house?

[Annemarie123]

Any advice is great appreciated.

Age
36
Spouse 37

Annual gross income
Approx 57, 000 .......i will be jobsharing in a few months so this will be halved to 28,500
Spouse: approx 60,000
Spouses employer pays health insurance
3 childrens allowance

Monthly take-home pay
2900......when i start jobsharing i will end up with about 65% of my current wages . 1885
Spouse 2900

Monthly costs of note
Currently paying 1600 a month childcare. hoping that this will reduce to 400ish when jobsharing in a few month if the hours work out.
1,000 per month rent where we live now in Cork. Not living in the 3 bed semi we own in Limerick.

Type of employment
Public servant - permanent
Spouse: Private sector

Savings
We are saving 1,000 a month
and saving childrens allowance x 3 which we hope to ringfence for education and hope not to spend on the house build

Rough estimate of value of home that we will be building
€550k
Mortgage needed for house build
€300k
Mortgage provider:
we don't know yet. It depends on if well our first home
Type of mortgage: Tracker, interest only, fixed rate
we don't know yet
Interest rate
we dont't know the best rates ......seems to be a lot of possibilities and factors

we can get BOI tracker mover + 1% on 160k and if we go with BOI to keep the tracker the best for the remaining 140k looks to be the 2 year fixed 2.9% (2.7% for A rated) and 2 % cashback on the full amount with an extra 1% cashback if we stay with BOI for 5 years.



site cost 190,000 which we bought with our savings
the house will be 2,950 square foot and we think it will cost approx 442,000 to build (scary) taking a build cost of 150e per sq meter
I think it will be a LTV of 50% if we get a 300,000 mortgage as we hope. Also hoping to have access to green mortgage rate if house is A rated or a high B rated

Other borrowings
mortgage on first home - 3 bed semi in Limerick
no car or personal loans

Do you pay off your full credit card balance each month?
Yes

Savings and investments:
3 bed semi in Limerick city suburb
Rough estimate of value of home
€220k (pre-covid though.....so what happens to that value, i don't know) we bought it in 2007 for 270k.
Mortgage outstanding
€160k remaining - 20 years
Mortgage provider:
Bank if Ireland
Type of mortgage: Tracker, interest only, fixed rate
Tracker
Interest rate
ECB + 1.1% repayments of 675 but will we have to move to a buy to let when we have our house built? I saw on another post here that some boomtime (webought in 2007) mortgage contracts allowed move from PPR to rental while keeping the original tracker. We either lost our mortgage contract or never got one (young and clueless). Does anyone know can i request the original contract from the bank?
Income from property
rented out to friends for 750 a month but has possible rental value of 1200/1300. because of the cheap rent they do all the maintenance

Savings
savings available for build: 71,300
rainy day funds 10,000 each. so 20,000 in total......in case of worst case scenarios (hoping to avoid using this for house build as we have always been savers and like to have a safety net fund
childrens allowance saved since they were born : 25,000 (hope to ringfence this for their education and avoid using it to fund the housebuild

if we sold the 3 bed semi we might (if we were lucky) end up with 50k (after fees) towards the housebuild.


Shares:
Spouse has access to 13,000 in shares within the next 2 years

Pension scheme
Teacher with 15 years service, started in 2005 with AVC's. I might stop the AVC's when I am jobsharing because the tax benefit will be lost but I am not sure as figuring out AVC's complicated.
Spouse Fund: defined contribution 360,000 (inlcudes lump transfer from employer defined benefit fund buyout)
employer contributes 15% of pensionable salary. spouse contribute 5% of pensionable salary. AVC's of 2% matched by employer at 2% also.


Children
3 children
6, 4 and 2

Life insurance:
Just minimum cover on mortgage

Additional Context

• The cost of the new build will be somewhere 430,000 ish
• From initial investigations we could get a second mortgage of 300,000 even with me jobsharing

What specific question do you have or what issues are of concern to you?

Hoping to get opinions on

• Overall financial health
• Should we sell the 3 bed semi house in Limerick.? We will be living in Cork.
• If we do sell the house in Limerick should be hang on to the BOI tracker mover ar 1.1 over the ECB + 1% on the 160,000 and take BOI's best option of 2.9 on the other 140,000 of the toral 300,000 mortgage for the new build
• is taking on a mortgage of 300,000 in these times for our forever home a bit OTT for a not so youngish working family with 3 smallies?

 

[_OkGo_]

Hi Annemarie123,

Wow, that's a lot of info and you really seem to be on top of your finances and clearly excited for your new build

Short/Medium Term: Correct me if I am wrong but in the past 10-15 years, you have cleared 120K from first mortgage, saved 190K to buy the site and still have (71+10+10+25) 116K in savings. Total of 426K all while having 3 kids. If this is true, then you are clearly a super saver and should be handing out the advice here!! If a chunk of that figure was an inheritance/gift/free family site, maybe adjust to see exactly what you have saved and this should help you plan the next 10 years

Long term: Your pensions look very healthy. Your spouse has a big pot already built up and has a fantastic employer contribution. The pot should be very healthy at 60 even with a conservative growth estimate. Use a compound interest calculator to play around with this. And your own pension should be good as well as a public sector employee. Remember also that there should be substantial tax free lump sums to draw down to clear any residual debt

Children allowance: You are right not to use it to increase the spend on your house, this would be a waste. But you should consider using it to reduce the loan amount and future interest. It is a psychological thing to 'ring-fence' the money for education but you have about 12 years before your eldest will be heading to 3rd level. You will see lots of threads on here discussing this topic but if it was me, I would use it now to overpay your mortgage and then 3/4/5 years before they go to Uni, you can stop the over payment to increase your cashflow so that you have some readily available funds.

Limerick property: Despite the drop in value, it still looks like it is a reasonable investment if you increase the rent. Friends or not, are they really doing €450/550 per month of upkeep on your property. I understand that it is hassle free because you are friends but I think a 10% discount on market rents is still a great deal for them so that should be your first step. Ultimately though, I think it will come down to how much hassle you want and whether you need that cash now for your new build. As long as your friends are there, it is easy to manage so it probably makes sense to hold on to it as long as they remain but after that, it is a trade off between managing new tenants and the gains from the rent.
If you choose to sell now and accept the capital loss, I would use the money to reduce the mortgage on new build and not as extra budget to spend. Alternatively, keeping it for the next 7/8 years and then selling could be an option for boosting the education fund

Mortgage Rates:
If you keep the 2nd property, I would consider the UB 5 year fixed (high value mortgage) at 2.2%. This also gives you the option to overpay by 10% of the principle each year
If you decide to sell 2nd property...maybe another user can advise here on how these split mortgages work. Can the 2.9% portion be paid off first?? I don't know this. You could talk to BOI about this.

A few questions to consider:
If selling, would your friends purchase? Quick easy sale and a fair price considering the cheap rent in the past. Maybe the loss on 270K purchase might not be so bad??
How long do you plan to job share? Consider impact on pension if you enjoy the extra time and decide to do it for the long term
Have you budgeted for the cost of finish/fit-out/furnishing/landscaping for your new home? If this is not included in your estimate of €150/sqft then maybe think about how much extra this will cost. There can be lots of hidden/forgotten costs that eat into finances after the build is complete, e.g garages, tarmac driveways, boundary walls.
Are you 100% set on the 2950sqft? Two reasons:

• Every sqft counts, I've seen lots of homes of this size with huge areas of wasted space. Really push your architect to optimize the layout and consider if you could live without the extra ensuite/bedroom. You may be able to have everything you really want at 2500-2600sqft saving substantially on build cost
• Remember if this is your forever home, the kids will be gone in the next 15-20 years so it is an enormous space for only 2 people and lots of maintenance/cleaning/upkeep. And keep in mind that your needs may change as you get older so always worth having the option of converting a bedroom on ground floor if not already included. This home should be just as practical for you in 20/30 years as it will be when you move in