Buying second home sell or rent current home

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FANTANA

Registered User
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110
Personal details

Age: 32
Spouse’s/Partner's age: 32
Number and age of children: 6 and 2

Income and expenditure
Annual gross income from employment or profession: €100k plus bonus 30k
Annual gross income of spouse: €0

Monthly take-home pay: €5,800
Type of employment: private-sector
Spouse: Stay at home mam (no childcare costs)

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving 1300 per month

Summary of Assets and Liabilities
Family home worth €300k with a €170k mortgage
Cash of €17k
Private Pension fund: €50k employer 5% and I match 5%

Family home mortgage information
Lender: AIB
Interest rate: 2.15%
Fixed until 2027

Other borrowings – car loans/personal loans etc
No other borrowings.
Rarely use credit card and always pay off in full

Other savings and investments:
No other investments.

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

We want to move home, easiest thing to do is probably sell our current home and buy the new one.

We are wondering could we rent it out instead and still move to the new home.

New house would be around 500k so we would need a mortgage of 450k

If our current home became a buy to let
Rental income per year: Expect ~€20,400
Would estimate interest to be approx 6%
Rough annual expenses other than mortgage interest : Expect €1000

Since my wife doesn't work understand we can put the income in her name and believe interest relief is now 100%.

We would continue saving until we have enough deposit to move without needing to sell so approx 50k

Do you think we can afford to do this?
 
FANTANA said:
If our current home became a buy to let
Rental income per year: Expect ~€20,400
Would estimate interest to be approx 6%
Click to expand...

Are you sure that you would be paying 6% interest?

In practice, none of the banks change the interest rate when a family home becomes a buy to let.
FANTANA said:
Interest rate: 2.15%
Fixed until 2027
Click to expand...

So I think that the interest rate will be fixed until 2027.

In 2027, when the fixed rate ends, they may well charge you buy to let rates.

Brendan
 
So this will be the situation

1680421752093.png
You will have borrowings of over 6 times your income

If you sell your home first, the situation will be

1680421835290.png
That is still three times your income. That is well within the Central Bank guidelines but it's still a fairly high level of borrowing with interest rates rising.

It seems absolutely clear to me that you should sell your home and buy a new one.

If your tenant stops paying the rent, then you will be in deep trouble and your credit record will be damaged. I see no point in taking on these risks.

You have a high income for your age, so you probably have aspirations to move again in a few years. It might be worth considering buying a house for more than €500k now. It's risky borrowing more, but I think that the risk is well worth taking to avoid the costs and risks of trading up again in 5 years.

Even if you don't buy for more than €500k now, I think you should still sell your home. Having borrowings on a buy to let will impede your chances of trading up in a few years.

In case these points seem to contradict each other. I think it's worth taking risks to buy a bigger home. I don't think it's worth taking risks to invest in property.

Brendan
 
Thank you the quick reply, I guess what I’m struggling with is the fact my wife does not work currently so we could have an extra 20k at the lower tax rate which we currently aren’t availing of. With the 20k rental income would our income to debt ratio not be lower or are you considering worst case scenario we have a non paying tenant. Also with such a good rate fixed for 5 years feels such a shame to leave that go now that I know banks don’t usually amend it until the fixed rate is over. Would it also be an advantage that my wife could make prsi contributions for the state pension?
 
Last edited:
FANTANA said:
Would it also be an advantage that my wife could make prsi contributions for the state pension?
Click to expand...
I don't think it's an issue because as long as the kids are under 12 she'll qualify for the homemakers scheme so there is no penalty for state pension eligibility.

Otherwise I concur with @Brendan Burgess is that your plan is over-engineered and presents a lot or risk given the return involved.

You are young and in good financial shape. You can do no worse than keep spending within your means, pay down mortgage, and max pension contributions. Maybe in 10 or 20 years it will make sense to become a landlord but I don't think that time is now.
 
Thanks for the feedback, have discussed it with my wife and we plan to sell and increase our budget for our next house to avoid moving again too soon.
 
Hi Fantana

Well done.

Thanks for getting back to us. Often we don't hear of the outcome after spending time answering questions.

As interest rates have risen since you first asked your question, I think that the decision to sell is even sounder now.

Brendan
 
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