Investment Mortgage

M

Morunner

Guest
My brother and I bought a property at the peak and although we have a hefty mortgage (almost €900k) we are comfortably servicing it and have never missed a payment and my "credit history is immaculate" to quote my bank manager. The mortgage is on my own home (my brother lives and works overseas).
I have some cash set aside (€130k) with shares vesting to me early next year which will mean that I will have in total approximately €200k to invest. My annual basic salary is c€130k p.a. and my monthly mortgage payments are €1,000. with no other debts. I was intending to buy a commercial property (with a tenant already in place) and was hoping to borrow 70% LTV. So borrowing around €500k (which I intend to pay down to less than €350k within the next 2 years).
The mortgage on my home is with Permanent TSB and as they are not lending in this area I haven't approached them. I therefore approached AIB who dealt with me exclusively over the phone. After chasing them for a response they finally came back today with a negative answer.
They said that they stress tested my existing mortgage on the basis of what would happen if interest rates went to 6%, and then on top of this stress tested again for the scenario where my brother (who is in a high earning job in London city) was not able to pay his half of the mortgage on my home. They also calculated on the basis that the investment property (which is being sold with a tenant in place!) was vacant and not yielding any rent whatsoever.
The fact is that the investment property (tenant in place) is bringing in almost €6k in rent per month, I will be putting in €200k of my own funds and the mortgage repayments will be less than €3k per month. The bank appears to have factored in so many negative elements into their stress test that I wouldn't qualify for any mortgage whatsoever even though in reality I feel I am in a financially sound position.
Can I expect the same response from all lenders? Is their any benefit in going through a broker? I'm quite shocked by the response I got today. I'd welcome any suggestions?
 
Morunner. I can empathise with your frustration in relation to your refusal of a Buy to Let mortgage by AIB. I done a post under the heading "AIB not interested in Lending for Buy to Let" on askaboutmoney. I was a sole investor but not on the salary that you are on but I was putting up 75% and borrowing 25%. They did not put up that I would fail a stress test as I would have passed a 20% test. I have other properties an I a customer of AIB for over 30 years with the so called perfect record. This perfect record was not much help to me. The property that I was purchasing was tenanted and producing multiples of what my repayments would have been. I did not have the time to to get another application to another institution as the property was sold within a week of I being refused. The application was with them for almost 3 weeks. The only reason I could get from them was "That AIB was over exposed to Buy to Let Property". I think the rest of them are not much better. Maybe there is a broker out there who knows where to get funds. I share your frustration.
 
Hi Mo

Are you in heavy negative equity on your home? If so, your priority should be to reduce your exposure and not to increase it.

Even if that is not your priority, it will be the bank's priority, and rightly so.

Around 20% of buy to lets are in arrears.
There is a significant problem of people who have purchased jointly, who have fallen out and the bank is under pressure to resolve the problem.

Businesses are going bust all the time. You have a good tenant now, but if they go bust, you will probably not be able to get a tenant for some time. Your prirority will be to pay your home mortgage.

If you don't have a tracker, pay down your home loan.

If you have a tracker, keep your cash as you may get a deal for paying a lump of capital off it.
 
Hi Brendan,

We do have a very good tracker on the home mortgage. It’s ECB +0.90 and therefore, yes, it wouldn’t be sensible to reduce that mortgage at this point. When there are proper incentives in place to pay off tracker mortgages early I’ll be ready.

Over the weekend my brother offered to contribute €250k cash to buy the property. This would mean that I’d now only need to borrow €250K as I would provide €450K cash. So I’m looking to borrow just 36% LTV. Given the income coming from the property it would be my intention to pay off this mortgage loan in just 2 to 3 years. My inclination is not to go back to AIB as in reality they seem to be avoiding such mortgages. Do you know which bank(s) would be most inclined to look favourably on this proposal?

Dermot, thank you for your response and sharing your experience.
 
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