Buying a second house - mortgage denied!

K

Kathlene

Guest
Hi - just hoping to hear something positive after getting a great big NO from our current mortgage provider! We were hoping to rent out house no. 1 which we bought 2 years ago new as first-time-buyers.
Outstanding Mortgage for 340k and the house has been valued excess 450k

Monthly repayments are e1,500pm. There is an option to switch to interest-only which would be e700pm

Our potential rental income on this house would be e1,100 - e1,200p.m.

We are debt-free aside from this mortgage. We both have SSIAs maturing to the guts of E40k combined which would easily cover the stamp duty.

We are both on 42% tax - combined base salary earnings of - 95k
(Mortgage provider wouldn't take into account an addional 10k bonus related e.t.c.)

We saw a house for e410k but our mortgage provider said they would only lend us an additional 170k ontop of our existing mortgage - This can't be right - can it?
 
It's their prerogative how much they are prepared to lend to you or anybody else. Have you shopped around with other lenders? Do your rental income projections take into account stuff like expenses, tax, vacancy periods etc.?
 
The lender will base the loan amount on two areas - loan to value and ability to repay .. They normally stress test the ability to repay at ( I think) an additional 2% and ( I think) the portion of income being spent on mortgage repayments should be no greater than approx 45%. One of the brokers that use this sight may have additional info as to the specifics of the figures.
 
Thanks for replying, no I haven't shopped around. Repayment wise we are under the 45% bracket and have a lump sum to use as well as the SSIAs but perhaps its our age? I don't know but I'll certainly shop around on Monday. Thanks again.
 
Its good to see that some banks are refusing 2nd mortgages.This btl / investment nonsense is distorting the whole market for young first time buyersand creating a huge bubble in property values.
 
Look at it from the banks point of view, you are looking for 750K of a loan at a time when interest rates are rising, your gross income of 95K while not bad is not spectacular either. Your combined net monthly income is probably around about 5500 per month, but repayments for both mortgages are in the region of 4000, less possible rental income (yield there is pretty poor too), that's well above the recommended 40% max of monthly net income, even allowing for the rental income (which they won't give you full credit for, due to its variability) it still makes 3000 repayments/5500 income - which is somewhere around 55%.
 
This is how I would calculate your case;

€340,000 x 25 years - €2196 (25 is the max term and the loan is calculated on annity, not interest only. Also stress tested at standard variable + 2%)

€410,000 x 35 years stressed at 2% over - €2346.

Total outgoings €4542.

Income - rent (-20% for vacant periods) €960

Net income (assuming €50,000 each and taking 50% of the bonus into account) - €6083. 45% of which is €2737.

Total allowable income €3697.

Hence a shortfall of €845 per month.

Sarah

www.rea.ie
 
We were hoping to rent out house no. 1 which we bought 2 years ago new as first-time-buyers.
Click to expand...

Not very positive i know but you are liable to clawback of Stamp Duty from the time the house is let so therefore must pay stamp duty at the investors rate

from revenue website
When does a clawback arise?
A clawback arises if rent is obtained from the letting of the house, other than under the rent-a-room scheme. The clawback amounts to the difference between the higher stamp duty rates and the duty paid and it becomes payable on the date that rent is first received from the property.


see also [broken link removed] tax treatment of rental income
 
I was in a similar situation as you but with a much lower ltv ratio (mortgage 300k, value 500k) on my ppr and was looking to buy an apartment with rental income ~1k but for lower initial cost (275k). Our combined salaries were 100k and we had a lump sum of 45k to invest (before ssia's).
Thanks to a good mortgage adviser and this site we decided not to proceed - our decision to invest in property was based mainly on a number of friends who are on the train and can't stop expounding the benefits but looking back after having gone through the whole financial rigmarole I think our decision was a much better (and safer one). I also think that most of our friends with property are living in a constant stress situation - between tax avoidance(which I don't agree with), changing tenants, debt in region of ~600k ....., whereas we are happy and coasting along without these heartaches. We decided that we could live without the heartache that I think the property market will become especially in the area of dwindling returns/rising rates over the next few years.

Also bear in mind we made this decision late last year when rates were -.5% of what they are now. We decided that we could live without the heartache that I think the property market will become especially in the area of dwindling returns/rising rates over the next few years.

We decided to invest our 45k in our lifestyle (almost finished an extension) house now worth 550k, put some cash aside for rainy day and we still have our ssia's to look forward to.

have another think about whether this is what you really want and is right for you - the banks and professional advisers on here don't think so - are you that much more financially savvy than them to proceed ?

just my 2 cents.
 
Kathlene,
Have you thought about diversifying a little into cash, bonds or equity? You already have a lot of exposure to property. Property is an illiquid asset and will become even more so if the market turns negative. Also the entry/exit costs to property are very high in this country.
Think hard before you jump on the property bandwagon. There are other places to park your money in out there.
 
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