Just bought new home and need new financial goals

[smndly]

Age: 31
Spouse’s/Partner's age: 31

Annual gross income from employment or profession: 95,000 (approx dependent on overtime)
Annual gross income of spouse: 50,000

Monthly take-home pay: 5000 me + 3000 (partner) = 8000

Type of employment: e.g. Public sector

In general are you:
Saving

Rough estimate of value of home about 400,000 euros
Amount outstanding on your mortgage: 265,500euro
What interest rate are you paying? 2.2% Ulster Bank 5 year fixed.

Other borrowings – car loans/personal loans etc none

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card?

Savings and investments:
Stocks: 4000
Crypto: 25000


Do you have a pension scheme?
Yes, with civil service, i joined in 2014. However I lived abroad for 2 years since then and also spent one year in full time education since then.
Partner joined public sector job this year so has only just started to contribute

No children

Life insurance: Mortgage protection only.

No health insurance.

Specific Questions:

We have recently managed to purchase our first home. It is a home we would likely spend about 5 years in as it is not suitable to raise a family in but is perfect for our current needs. Now that we have achieved our goal of homeownership I'd like to see any opinions on where we should go from here.

First and foremost we are going to enjoy a bit more disposable income and live a little which was difficult with the high cost of rent and amount of money we were putting into savings. But I'd like an opinion on what else we should do with any excess income we have while we are child free over the next few years.

1. Pay down mortgage. We can overpay 10% of the value of the mortgage per annum. The monthly cost of this would be about 3000euro (including the repayments) which is less than what our previous outgoings (rent + savings) have been for the last few years. I feel like this is probably a priority given that the equity in our current home will be used to buy our second home in 5 years or so and is essentially akin to putting money into a savings account at 2.2% with no DIRT payable from what I can make out. Also I like the flexibility of this so if I need to buy a car, I can stop overpaying for a few months and save that money to make the purchase. The only problem I can see with this is that it will force us to sell our current home to have a 20% deposit for our next home ie it does not give us the flexibility of possibly keeping our house to rent in the future while buying a new home.

2. Pension. I have a post 2013 public sector pension. I am unsure how this pension works to be honest. I have read about buying back years but not sure if this is something I or my wife should look at. My salary will continue to increase in the future so buying back years later on would probably make more sense as my disposable income increases. I was considering starting a private pension such as AVC or PRSA but am not sure what would suit my current situation. I've read on here that cornmarket are good at providing advice on public servants and pensions so maybe I should approach them?

3. Income protection and health insurance. I'm not sure what peoples views are on this but am considering taking out income protection in the event i become unable to work. In addition, I might look at getting health insurance as we're approaching the age that loading begins.

4. Savings/Investments. I'd be keen on keeping about 7000-10000euro in a rainy day/emergency instant access savings account for holidays etc (currently using UB homesaver with 0.8% interest but this will likely disappear next year unfortunately). I'd then look at putting left over money into the stock market. Unfortunately ETFs are not tax efficient so would be forced to pick my own stocks but would focus on bluechip companies such as berkshire.

It would be great to get any opinions on the above and if there are any glaring omissions it would be useful to find them now before we commit to this plan! Thanks

 

[time to plan]

Enjoying ourselves before we had kids was the best investment we ever made, so definitely stick to that part of your plan.

I guess you’ve made your decision on crypto but wouldn’t be my choice.

I would definitely pay down mortgage unless you have a burning ambition to be a landlord.

 

[Brendan Burgess]

You are saving about €36k a year.
Let's say €200k over the next 5 years.
That would give you the 20% deposit on a house.
But with an income of €150k - 3.5 times it would be €525k
You already have a mortgage of say €225k, so you could borrow only €300k

So it's very unlikely that you would be in a position to keep your existing home when you trade up.

It is also very unlikely that you should keep your existing home when you trade up. You will have €200k of savings and €150k of equity, so you should probably sell your current home and trade up as far as possible, ideally to your forever home at that stage.

Obviously things could be different in 5 years. But my conclusion is that you should not be saving at 0% while paying 2.2% interest in case you want to keep your home.

Conclusion: Overpay your mortgage and build up your equity in your home.

 

[Brendan Burgess]

3. Income protection and health insurance. I'm not sure what peoples views are on this but am considering taking out income protection in the event i become unable to work. In addition, I might look at getting health insurance as we're approaching the age that loading begins.

If you are both healthy and working in the public service, you don't really need income protection. You will be paying a premium well beyond the risk involved.

If you are both healthy, then no need for health insurance now. When you hit 34, you should probably take out the minimum policy to avoid the loading. But wait until you are 34 and see what the rules are then. Who knows, SláinteCare may be so wonderful that health insurance becomes redundant.

 

[Brendan Burgess]

With two public service salaries, you don't really need an emergency fund.

If you want to buy a car, you will usually have a bit of notice and can save up for it. If you hit a real emergency, you can borrow the money from a credit union or bank or even on your credit card and then pay it back quickly.

As you pointed out, by overpaying your mortgage, you get a risk-free, tax-free, hassle-free return of 2.2%. The potentially higher returns from stocks do not justify the risks and hassle involved in stocks.

Brendan

 

[NoRegretsCoyote]

I have a post 2013 public sector pension. I am unsure how this pension works to be honest. I have read about buying back years but not sure if this is something I or my wife should look at. My salary will continue to increase in the future so buying back years later on would probably make more sense as my disposable income increases.

You won't be able to to retire before 65 at which point you will have the maximum 40 years service so no years to "buy back".

I'm not sure what peoples views are on this but am considering taking out income protection in the event i become unable to work.

The bar to be unable to work in a sedentary civil service job will be very high!

he only problem I can see with this is that it will force us to sell our current home to have a 20% deposit for our next home ie it does not give us the flexibility of possibly keeping our house to rent in the future while buying a new home.

I doubt that keeping your current home will make much sense. You would have to transition to a BTL interest rate and all income would be taxed at your marginal rate.

No children

This is life advice and not financial advice. But if in a stable relationship and you want to have kids it makes sense to start now at 31. I know a lot of people who left it late and it gets a lot harder as you go through your thirties.

 

[DublinHead54]

But with an income of €150k - 3.5 times it would be €525k
You already have a mortgage of say €225k, so you could borrow only €300k

Brendan, not sure this is true although it should. I recently bought a new house whilst keeping my current ppr at the time. My borrowing ability was not assessed on (income *3.5) - existing mortgage = max borrowing. Instead the bank treated my existing mortgage as a monthly commitment and assessed my max borrowing on the ability to repay monthly commitments and in addition asked for rent to cover the mortgage + 20%. In my situation I ended up with total mortgages in excess of 3.5 income without any LTI exception.

In the ops situation whilst overpaying equates to a build up in Equity, that equity is only realized when you've sold the house and have the money in your account. You can't leverage it for a deposit on a new property whilst you are still in possession of the current property. Given you want to trade up in 5 years, you need to decide whether you want to remain in the current house whilst purchasing a new house or sell and then buy a new house.

If you decide on the former you need to then workout whether you are better off saving in cash for the deposit rather than overpaying the mortgage. The savings in interest of 2.2% vs 0% are probably marginal especially if you have to sell up and move into rented accommodation etc.

 

[skrooge]

I recently bought a new house whilst keeping my current ppr at the time. My borrowing ability was not assessed on (income *3.5) - existing mortgage = max borrowing. Instead the bank treated my existing mortgage as a monthly commitment and assessed my max borrowing on the ability to repay monthly commitments. In my situation I ended up with total mortgages in excess of 3.5 income without any LTI exception.

That's interesting. Was it a low LTV? Did they in effect treat your existing loan as a BTL - of your LTV was below 70% I could see the angle.

Are both loans with the same lender? Was the loan fixed?

While probably not in a situation to do likewise (yet) I'd be interested to know of any of the above helped. It might also be of interest for the OP

 

[DublinHead54]

That's interesting. Was it a low LTV? Did they in effect treat your existing loan as a BTL - of your LTV was below 70% I could see the angle.

Are both loans with the same lender? Was the loan fixed?

While probably not in a situation to do likewise (yet) I'd be interested to know of any of the above helped. It might also be of interest for the OP

I clarified my original comment, the lender asked that rental income covered the mortgage + 20% and that added additional weight to the application, and did limited borrowing by existing mortgage loans.

Loans were with a different lender, LTV on existing mortgage was ~85% and I got a deposit exemption and ~90% mortgage on the second property. I think our LTI (excluding rental income) ended up at around 4.8. This was by no means an easy process and took almost 6 months of back and forth and a few different lenders before I got a lender to approve. It is not as risky as it seems however, we decided not to become landlords and sold the property a few months after moving into our new place and I now sleep much easier at night!