Looking to move house, tracker mortgage and 150K savings

[Bolddefender]

Age: 40
Spouse’s/Partner's age: 38

Annual gross income from employment or profession: 50,000
Annual gross income of spouse: 47,000

Monthly take-home pay ~5,000

Type of employment: e.g. Civil Servant, self-employed - one Public Servant and one semi state

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

Rough estimate of value of home 200,000
Amount outstanding on your mortgage: 165,000
What interest rate are you paying? ECB +0.5

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:
About 150,000 on deposit (Rabo, per TSB, CU etc)

Do you have a pension scheme? Yes ( both through work)

Do you own any investment or other property?

Ages of children: 3yrs, 1yr, and another due in Sept.

Life insurance: Yes


What specific question do you have or what issues are of concern to you?
With 2 kids and one on the way we need/would like to move up to a larger house. Once upon a time we thought we would keep this house as an investment but no longer an option.
We are looking at buying 4/5 bed house. We are thinking of using most of the savings and keeping about 10-15k for raining day money.
If we get 200K and pay off mortgage, 35+150=185K.
Buy house at 400K, means 225K mortgage.

We currently have 1700 crèche fees for 2 kids. With another on the way it may become more sensible for one to give up work or take career break.


Questions are:
Is it wise to move and lose tracker or can this be avoided? ie should we extend existing house using savings and stay where we are (would work for short term but would see us moving in a couple more years anyway).

Is it best to put most of the money into house as I presume variable rates are going to be higher than deposit rates.

Any other advice

 

[goingforgold]

This is a difficult one to answer as it's more of a personal choice than anything really.

If I were in your position financially and personally I think I would look to keep mortgage to a minimum so as to give flexibility to one of you to give up work ( as you suggested), and live quite comfortably at the same time. If you were to use savings to clear current mortgage you would be practically mortgage free.

I would use some of the savings to do an extension, put some away as rainy day fund and use the remainder to reduce your mortgage. You then give yourself options in life without having a financial burden hanging over you...

 

[amgd28]

I would concur. Would suggest that if you have space for an extension, to get it done from savings - ideally in such a way that some of the cost of the extension is "left in" as value should you decide to sell subsequently. Some extensions can actually reduce the value of the house.

With this strategy you will have the flexibility for one of you to stay at home for a couple of years while the kids are very young - this would be nigh impossible if you went ahead with the proposed move. If you moved and you both continued to work, you would be taking on a lot of financial risk for a big house that your family will only get the benefit of at the weekends!

The other thing is that the stress of moving with two small kids and one on the way is not something I would volunteer for

Of course if there is no space on the site for an extension and you are feeling very cramped, that may be a different story, but from your post it seems an extension is a viable alternative....

But if the extension buys you a couple of years with lower stress and a happier family you have plenty of options to move after that...

 

[Brendan Burgess]

If you are breaking even with a cheap tracker, you will find it very expensive to make the full repayments on a SVR mortgage for a higher amount.

Your best plan is to stay where you are for as long as possible without extending your home. Make a decision to move in , say 5 years time, and it will be easier to put up with the present house.

If you have a mortgage with Bank of Ireland or Ulster Bank, they will give you a reduced rate on your new mortgage for the first 5 years of your loan. I do not expect the other banks to follow suit, but they may well do so, so I think you should keep your €150k on deposit.

Alternatively, you could buy a house for €400k with a €150k deposit, means you would need a €250k mortgage. This would be very comfortable for you.

Keep your existing home as an investment. The rent on a property worth €200k is probably around €16,000 a year? The interest on €165,000 is around €1,000 a year, so it's a very profitable investment.

€600k in property may be too much risk for you. If so, let out your current house and rent a suitable house. Buying is better, but renting is well worth considering.

Brendan

 

[Bolddefender]

Going to do up the finances in spreadsheet I found on here and and see what the monthly budget is like. We may be a little better than breaking even but kids only back in creche since November and wife back working in Dec, so only back on normal finances really this month.
The mortgage is a Danske Bank tracker, I'm hoping there is some kind of trade in on that as that may help.
Have considered renting out the house but we'll pay tax (correct??) on that so the €16,000 a year (more like €14,000 to be honest) will be reduced to paying mortgage only at current rates or less if rates rise much.

 

[Brendan Burgess]

Danske are not doing trade-ins at the moment, but they might well do at some stage, as they have stopped writing business here. Definitely worth hanging onto in the hope of a deal.

You should ask them for a deal now, but be prepared for a refusal.

 

[michaelm]

Is it wise to move and lose tracker or can this be avoided? ie should we extend existing house using savings and stay where we are (would work for short term but would see us moving in a couple more years anyway).

I would suggest you don't let the Danske tracker be a financial handcuffs and the deciding factor. I wouldn't put money into an extension if you think you'll be moving anyway. Now could be the perfect time for you to move. Your kids haven't started school, you've two incomes so will land a mortgage no problem, no need to volunteer info re third child or plans to become single income, houses are selling.

It's difficult to get back what you put into an extension when selling; if you have a third child and are one income you may find it very difficult to get a €200k+ mortgage. We find a huge quality of life dividend from being a single income family.

 

[br1an]

A few observations on this;

You are breaking even monthly, but have very healthy savings for your salaries. Are you breaking even because you save robustly?

Childcare, we have 3 kids and were facing similar Creche fees (which will reduce as they start school and you will then be paying aftercare fees). We went with an Au-Pair which is a little under half the cost all things considered. This may be an option you could consider if extending your home or buying a larger one.

Having built my own home and if you decide to extend, I would strongly advise you hire a good architect who will do more than just do drawings. You'll want someone who will stay with you until the project is complete.