Getting a second mortgage / buy to let question

J

jmurphy

Registered User
Messages
23
Age: 30
Spouse’s/Partner's age: 30

Number and age of children: 0


Income and expenditure
Annual gross income from employment or profession: €160k
Annual gross income of spouse: 0

Monthly take-home pay: about €6,200

Type of employment: e.g. Civil Servant, self-employed:

Self-employed

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

Saving, at least 40% of my monthly income


Summary of Assets and Liabilities
Family home worth €400k with a €200k mortgage
Cash of €100k
Defined Contribution pension fund: 0
Company shares : €150k


Family home mortgage information
Lender: AIB
Interest rate: 2.9%
If fixed, what is the term remaining of the fixed rate? 4 years

Other borrowings – car loans/personal loans etc

No other loans, credit cards, etc.

Other savings and investments:

Do you have a pension scheme? No

Do you own any investment or other property? No

Other information which might be relevant

Life insurance: Yes, 4x my base salary


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

I currently own a new 2-bed apartment in Dublin that we live in. It was built 2 years ago (bought 400k). We have been thinking about getting a second mortgage, buy a house (around 600k) and rent the apartment but I'm not sure how risky it could be considering the current housing market, inflation, etc.

Would you suggest getting a second mortgage or does it make more sense to pay off the first mortgage before getting a second loan?
 
You're effectively borrowing €100k at 2.9% to put it on deposit at 0% (or worse) with inflation eating away at it. That doesn't make sense.
 
One thing jumps out: you don't have any pension provision. At your income level you are being hammered with income tax and all the trimmings. You can contribute up to 20% of your income into a pension fund and get full tax relief on it. Frankly, you'd be mad not to!

If it were me, I'd keep the apartment as an investment property. Do NOT use the 100k savings to pay down that mortgage as your interest will be tax/PRSI and USC deductible should you rent it out. Second thing is your spouse has zero income. That means her/his tax credits and bands are unused and wasted. The rent from the apartment can go in her name making it an almost tax free income AND giving her PRSI contributions that will count towards the contributory OAP.

Now, yes there are some nightmare tenants out there. But pick your tenants wisely, get references from employers and previous landlords or letting agencies and you should be ok. Being a landlord is nowhere near the doom and gloom picture painted by some.

Finally, as you're highly dependent on a single income, it might be a good idea to look at critical illness or income continuance cover.
 
If you buy for 600k and use your 100k cash towards it you have new mortgage of 500k

You slowly pay down the apartment because of tax interest relief.

And accelerate the repayments on the pdh.

You're only 30 so I would say go for it.

The pension is your next priority.
 
I was in an almost identical position a few years ago and went with renting out the apartment. The apartment was modern and I'm into DIY, so maintenance was not an issue, and we had great tenants. But we sold it recently and I am delighted to be done with it.

We had a new baby (guess that could be on the horizon for you too) so getting a call at 8pm (early for most people, not if you've got a new born and are up all night!) that a pipe has started to leak, or tenants moving so you need to go vet new ones, attending AGMs and maybe being dragged onto the Board to do a stint, maybe discovering the building was not properly fire stopped and needs to be vacated or you need to pony up, messing around with another mortgage that you need to move/fix every now and then, collecting expenses and spending a couple of hours a year figuring them out with your accountant, considering the possible changes coming politically, damage, fire, theft, hold over tenants or bribing tenants to leave is all a lot of hassle for what, maybe (big maybe!) a percentage point or two over what you could earn just sticking it in the stock market completely passively?

I would not get back into it unless I was managing 10+ apartments so you could get some efficiencies and make a cushy job out of it. I think doing it otherwise is not a good choice, the risk:reward compared to other investments is just not worth it.

Get a bigger nicer PPR with the money and start paying down the mortgage aggressively and filling your pension.
 
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Not sure if it would apply in this scenario, but in my situation the lender adjusted what I could borrow to take my outstanding mortgage debt into account. I.e Amount I could borrow= 3.5x income - existing mortgage debt
 
Thanks everyone for your comments. you are right that the lender deducts the existing mortgage @MMon13

@Baby boomer yeah, my partner doesn't work right now and doesn't have any income. You suggestion to use his tax credit makes sense.

I don't honestly want to deal with the tenants as well, but I had a chat with an agent, looks like they will manage A-Z and deal with tenants. Not sure how useful they are though.
 
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