Looking for advice re saving to trade up in 2years

D

deedee80

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Age: 36
Spouse’s/Partner's age: 37

Annual gross income from employment or profession: 116,250 plus annual bonus of roughly 15k
Annual gross income of spouse:25200 (works 3 days per week, full time salary is 42k)

Monthly take-home pay: Combined 7680

Type of employment: e.g. Civil Servant, self-employed: Private sector x 2

In general are you:
(a) spending more than you earn, or (b)
saving? Saving min 2k per month, some months a bit more

Estimate of value of home: 540k
Amount outstanding on your mortgage: 330k
What interest rate are you paying? Recently got 2.6% rate fixed for 4 years with Ulster Bank. Would hope to port this when we move. Mortgage costs 1400 per month on new rate.

Other borrowings – car loans/personal loans etc: Car loan 257 per month on pcp for 3 years, will then either get new car or pay 12k

Do you pay off your full credit card balance each month? Yes


Savings and investments: 15 k (saving since Jan) and saving min 2k per month (All previous savings went into upgrading the current 1970's house, 3 x maternity leaves, deposit for car etc)


Do you have a pension scheme? Husband yes, currently basic

Do you own any investment or other property? Have a rental property, mortgage outstanding is roughly 280k, worth about 315k on a low ecb tracker rate. Rent is way below market value and just covers mortgage, because of new rules we can only rise it by 4% per annum.

Ages of children: 7,4,3
Childcare costs us currently 750 per month. When the younger two start school (this year and next) it will be around 500 per month

We are looking to move in the next 2 years, to afford something bigger in our area it will cost roughly 700k so with the equity and savings looking to borrow max 500k. Should we clear the car loan when pcp is up - is this likely to go against us?

We are not really keen to keep the rental long term, I understand that it is a good investment with the low tracker. Between the tax bill and expenses it costs us roughly 2.5k per annum.

Looking for advice and any pointers on our current situation for the future.

Many thanks
 
You don't say if 3 day worker intends to return to work full time. Lets assume not, so total household income is 141k excluding bonus. You will be just outside CBI lending limits of 3.5 times income, unless bonus is guaranteed so you have a defined line of the maximum you can borrow (without applying for an exemption).

Borrowing 500k at say 3% will push your repayments up to 2,100 over 30 years. That looks fine with current income and savings.

However, banks will stress test your repayments by dding 2%, so again assume 5% brings you up to 2,685.

That's a big increase on your current mortgage. The critical thing is that you start putting away the difference now, each and every month, between your current mortgage and what it will potentially be, to prove you can afford it. It needs to be put out of reach, and not dipped into for things like a car deposit (I don't intend to be mean, but you asked similar questions 2 years ago, so I'm surprised you bought a new car). But, be realistic. Don't commit to putting away 2k every month and then realise you forgot some major expense.

Put aside extra money to pay off the PCP loan, and also as an emergency fund that you can dip into to even out cash flows over an extended term.

There are a few things that will count against you:
1. your age will limit the term of the mortgage. I used 30 years in example above, but you might be limited if you're in a job with a mandatory retirement age, or if you leave it much longer.
2. PCP, or any other loans. It's not the loan amount that makes the biggest difference, but the monthly commitment. It will count against your affordability, even if there is only a short term left on it.
3. Your cashflow negative investment property. Again this is a commitment that you have to meet every year, and is very exposed to interest rate increases (1% increase will require you to come up with another 2,800 cash each year).

Tell us more about the investment property:
Which lender is it with?
How much was it bought for? i.e. can value increase further without incurring capital gains tax?
Was it ever a private dwelling of either of you?

Edit: I didn't mean my post to sound negative! You've very good prospects of being able to do what you want, and you've a decent time horizon to plan it out properly.
 
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Thanks Redonion, I really appreciate your wise response.

I am unsure what you mean when you say we are outside cbi lending limits for 3.5? I thought we would qualify for that no problem...as in 3.5 times lending.

We took out the car loan as our last car cost us a small fortune with things going wrong (maybe 5k in 3 yrs) so we needed something reliable with a warranty as I was at my wits end.

The 3 day week is likely for the forseeable. Even to go to 4 days I have worked out the extra for childcare, tax, travel etc, quality of life...it is simply not worth it.

Rental property was bought for 381 in 2007. We lived there til 2013. Perm tsb ecb plus.8%. The value plummeted but is rising slowly. All above board being handled by an estate agent.

I have a budget done out and the 2k is put away and not touched or needed. Then at the end of the month there is a surplus usually put separate as a holiday fund.

Before the new rate this month our mortgage was 1600.

Obv 2600 is a very big mortgage Im not sure how comfortable I feel about that. Thats all a bit deflating I thought we were doing ok lol
 
You are doing good - I'm not going to sugar coat it for you though.

141k * 3.5 = 493.
It depends on the treatment of the bonus in calculating. CBI rules only include guaranteed bonus.

The reason I ask about the investment - have you looked into whether you could sell it and transfer the tracker to your pdh?

Either way, you probably need to get rid of it.

I'd start coming up with a plan now:

Now. Continue with the savings. Pay it off against the mortgage - you can't touch it, and you save interest. UB let you pay up to 10% of balance extra each year on fixed rate.

T-12 months to move. Sell the investment property. It's a burden, and you're too exposed to property. (Increase pension contributions instead). Extra equity will help with the move.

Pay off the PCP, and make do with the newish car until after you move.

Now, you're in a great financial position. No debt, 250k equity, 30k cash from selling investment property. And household income of 160k. All in your 30's.

Then, start planning your move. For example will you have to buy & sell at same time? Is it possible with the kinds of property you are selling / buying?
 
Thank you!

That is really good helpful advice and i plan to follow it all.

Yes, annoyingly we will be looking to buy and sell at the one time. I think we should be ok though, there is a huge demand for my type of house. In good condition they appear to be going sale agreed within about 3 weeks.

The bonus has been roughly the same for the past 10 yrs but I guess its not "guaranteed".

Ive had a lot of people telling me id be mad not to keep the rental and ive always felt I was missing a trick. Ill be quite happy to off load it.

Im not looking to take on massive debt, we are v comfortable as it is. 700k is the dream, it may not make sense. There are cheaper options, we will look at everything when the time comes and do what feels right.

Thank you again.
 
@thos yes, unless in negative equity, CBI rules require 20% deposit.
In this case, the deposit would be satisfied by equity in existing house.
 
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