Home Renovation - Advice Needed on Financing Options

D

Donnie

Registered User
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Hi all,

Firstly here is some background info on our situation.
  1. Married with 2 kids (aged 4 and 2)​
  2. Mortgage on our semi detached home has €350k left to pay off and have 25 years left on mortgage. Purchased home in 2011 and did some small internal renovations (approx €45k) House is in a nice area in south Co. Dublin and current property value is approx €700k. Our mortgage is with Ulster Bank, our fixed rate is 2.6% and the fixed rate ends in April 2022.​
  3. I work in a permanent job in financial services private sector. My base annual salary is €86k with an annual pre-tax bonus of 12%-18% of annual salary.​
  4. I have a pension which is currently valued at €122k. I pay 5% of my monthly salary into it and company pays 10%.​
  5. My wife stopped working once our fist child was born and is currently a stay at home mother. However she may return to a part time role once both children are in primary school.​
  6. No other regular income streams other than €280 per month for 2 child benefits.​
  7. Total savings between credit union account, bank deposit savings account, bank investment fund product and personal Degiro stock portfolio is €31k and currently putting aside at least€1k per month to savings and investments.​
  8. No other loans other than mortgage so no other outgoings each month other than bills, annual car tax, annual property tax, home insurance, car insurance, groceries, kids, leisure etc​
House was built in 1950s and although we put in some small renovations when we first moved in, we are now looking to do a grand renovation plan to gain more space and extend to the side and rear which would require planning permission. After discussing with various architects, the total cost would includes architect fees, builder and all other costs and fixtures and furnishings would come to approx €200k. We would be prepared to put all of our savings into it and keep perhaps €10k aside for us as emergency fund if needed for anything.

The problem is that we cannot get access to sufficient funds in order to finance this project and our savings as I said at present are only €31k. I called our mortgage provider late last year and they said we may qualify as an exception for a top up mortgage but they didn't look into it any further then as we were only considering it then. However we now want to push ahead and if planning permission is obtained would like to start the build on this project in 2021/2022 if possible. I called our mortgage provider recently as well as a few other lenders about a loan/top up mortgage and they advised due to COVID-19 they are all strictly followed the CBI lending rules, no exceptions can now be applied and they all can only lend at 3.5 times a couples annual base salary regardless of any other factors such as LTV on a property.

Does anyone have any suggestions or guidance on how we could get access to the finance we need for our project considering we would be able to cover the extra re-payments and considering the LTV of the property.

Would appreciate any guidance.

Thanks
 
It seems crazy to be only putting 5% into pension whilst saving €1,000 a month and investing personal cash via DeGiro.
 
Gordon Gekko said:
It seems crazy to be only putting 5% into pension whilst saving €1,000 a month and investing personal cash via DeGiro.
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agreed but the thought process around this is because I knew I would need ready access to the funds as we were always going to try to complete this extension work. Once we complete this, I will look to increase my AVCs
 
I'm going to be a bit harsh here. We've a single income household, and I was on roughly the same income as you a few years ago, so I know the realities of how this feels.

You're looking to increase your mortgage to c.530k (you'll probably have no savings left as the costs will probably overrun).

On a single income of 86k, plus variable bonus, and a family of 4.

Even factoring in bonus, you're committing 50% of your take home pay to mortgage payments. Why would you do that to yourselves? You've no safety buffer if something unexpected comes up. Do you expect a bonus this year? And next? Pay rises? And you're comfortable that taking unpaid leave to spend time with your children is out of question for you?

You're putting yourself under enormous pressure that isn't necessary. Do you really need a 200k extension? Now?

I think the 3.5 LTI is for your own good in this case.
 
You should also consider if you are overcapitalising your home. Generally speaking you don't expect to recoup money spent on extensions.
 
I’m sorry to be blunt, but you can’t afford the extension. The Central Bank rules are actually protecting you in this instance. You’re already at 3.5 times, and that’s taking your bonus into account. Your pension pot also seems underfunded.
 
Gordon Gekko said:
I’m sorry to be blunt, but you can’t afford the extension. The Central Bank rules are actually protecting you in this instance. You’re already at 3.5 times, and that’s taking your bonus into account. Your pension pot also seems underfunded.
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What pension figure would he need to have to be adequately funded?

I agree that it does t sound like you can afford this. You are able to be a one income family in south Dublin because you were lucky enough to have the opportunity to buy in a recession - do you really want to give up that enviable situation to pimp your house? Why don't you wait until your wife is back at work ( if that's what you as a couple is right for the family) and then reassess your ability to take on more debt.
 
You are saving 1k p.m. the extra 200k mortgage will eat most of that. Sounds like you would be living on knife edge from cashflow point of view.

You'd be better of if you have more income and/or smaller renovation
Rent a room?
Job move?
Partner work?
 
SPC100 said:
You are saving 1k p.m. the extra 200k mortgage will eat most of that. Sounds like you would be living on knife edge from cashflow point of view.

You'd be better of if you have more income and/or smaller renovation
Rent a room?
Job move?
Partner work?
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i forgot to mention that we are both 37 just in case that makes any difference.

My wife plans to return to part time work in 2/3 years once kids reach school going age. We hope to save anothe €20k-€30k by the time we look to start the project so am hoping we may only need to borrow between €140k - €160k by that time and can put some savings towards the rest. Also hoping building costs will lower by then but who knows.
 
Donnie said:
i forgot to mention that we are both 37 just in case that makes any difference.

My wife plans to return to part time work in 2/3 years once kids reach school going age. We hope to save anothe €20k-€30k by the time we look to start the project so am hoping we may only need to borrow between €140k - €160k by that time and can put some savings towards the rest. Also hoping building costs will lower by then but who knows.
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Then it may be doable. You’ll have paid down some principal and your wife’s income will add a disproportionate amount into the mix because of the 20% rate band.
 
Thanks to everyone for their advice so far.

One thing I have picked up from the comments, if we are able to use some savings to pay off a small portion the outstanding mortgage (say €10k-€15k) should we do so in order for the outstanding balance to be as close as possible to 3.5 times my current salary today or would we be better keep that portion of savings for the home renovation.

I know in the long term the obvious answer is to pay off the mortgage as quick as possible if one can afford to, however in the interest of getting a mortgage top up loan for our project, would it be better for us to try and bring down the outstanding loan as much as possible, before we look for a mortgage top up for the project?
 
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