Lump sum and mortgage debt - pay PPR mortgage, buy additional BTL or invest in equities

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Ecdaam

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Age: 45
Spouse’s/Partner's age: n/a

Annual gross income from employment or profession:
Net income based on 2016 tax return is ~€40,000
Annual gross income of spouse: n/a

Monthly take-home pay: €3300

Type of employment: e.g. Civil Servant, self-employed:
Early retirement due to ill-health

In general are you:
(a) spending more than you earn, or
(b) saving?
Breaking even most months, save occasional months, approx €500

Rough estimate of value of home: €295,000
Amount outstanding on your mortgage: €225k
What interest rate are you paying? 2.25% tracker
Repayments are €1380/month

Other borrowings – car loans/personal loans etc
BTL mortgage of €500,000 @ 1% tracker, interest only

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:
€25,000 in regular saver account
€100,000 in equities, USD denominated (approx $120,000)
€140,000 in ARF/AMRF

Do you have a pension scheme? Defined benefit semi-state pension of approx €500/month at 60

Do you own any investment or other property? Yes
BTL 1 - Value €175,000, rented @ €1,100. Section 23
BTL 2 - Value €100,000 (retirement home), leased to management company, approx €5000/year
BTL 3 - Value €150,000 (holiday home), in the process of selling
BTL 4 - Half share in €175,000 apartment, bought with ex-partner, rented @ €1248. I keep total rent in lieu of child support
Mortgage of €500,000 is interest only and is cross secured against BTL 1 and 2 above. Repayments are €420/month and these properties are in significant negative equity, 15 years of 25 term remaining.

Ages of children: 16 and 24

Life insurance: Mortgage protection on PPR

What specific question do you have or what issues are of concern to you?
Thanks for reading. I am selling the holiday home for €150,000 net. Originally my plan was to purchase a BTL in Dublin, approx cost €175,000, rental income would be ~€1,400 (ex-partner would contribute up to €25k to purchase if necessary). The extra cash flow would allow me additional savings each month, however I'm worried that I am already too over exposed to the property market. I'm now thinking of either using €150k against the outstanding mortgage on my PPR (2.25% tracker, 15 years of 25 remaining, current balance €225,000) or investing in additional equities. Paying against my PPR mortgage would reduce the remaining term to 5 years and would allow me to save the €1380 elsewhere for repayment against the BTL mortgage when it becomes due. Should I use the lump sum against my PPR mortgage or invest? I am willing to take on some investment risk but I'm also aware that I have significant mortgage debt that needs to be repaid.

My current income is made up of DSP Invalidity Benefit, rental income and rent-a-room to my son. All declared and tax returns are up to date. Sorry for the long post and thanks in advance for any advice/opinions.
 
Ecdaam said:
Do you own any investment or other property? Yes
BTL 1 - Value €175,000, rented @ €1,100. Section 23
BTL 2 - Value €100,000 (retirement home), leased to management company, approx €5000/year
BTL 3 - Value €150,000 (holiday home), in the process of selling
BTL 4 - Half share in €175,000 apartment, bought with ex-partner, rented @ €1248. I keep total rent in lieu of child support
Mortgage of €500,000 is interest only and is cross secured against BTL 1 and 2 above.
Click to expand...

Is this the situation:
BTL 1: €175k
BTL2: €100k
1/2 BTL 4: €90k
Total: €€365k
Mortgage: €500k
Negative equity: €135k

Or does your ex owe half of the €500k?

Whichever it is, you are way too much overexposed to property.

A 2.25% tracker is not particularly valuable. So use the proceeds of sale of the holiday home and the other cash to pay it off in full.

You will then live in a nice house mortgage-free.

You definitely should not buy another property.
You almost definitely should not buy equities. Effectively you are borrowing at 2.25% to buy shares. Over the long-term, this might work out. But it's way too risky.

Brendan
 
100% agree with Brendan.

While I'm not sure I entirely follow your figures, if I was in your shoes I would definitely apply the net proceeds of the holiday home sale against the PPR mortgage. I would also liquidate a sufficient portion of the equity portfolio to clear the PPR mortgage in its entirety.

What is your long term plan for clearing the interest only BTL mortgages? Are you hoping that prices rise sufficiently to allow you to sell the properties and clear the mortgages in due course?

Also, how do you have an ARF at 45? Was it inherited?
 
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Thanks Brendan
Yes, the 500k mortgage is in my name only. The only issue I see with paying off the PPR is that I may not have any lump sum opportunity in the future to build additional assets? Does that make any sense. My PPR will be paid off anyway at some stage.

Hi Sarenco, thanks, I'm not sure I had a set in stone plan for the IO redemption. I borrowed less than 80% LTV in 2007, I suppose I assumed that the asset value would be sufficient to cover the capital in 25 years. Right now the strategy is to save as much as I can to pay off against the capital and figure out how best to do this :)

I had a separate company pension plan that allowed me retire early on ill-health grounds - it was transferred to an ARF/AMRF (my co financial advisor suggested this) about a year ago when the company made some changes to the plan

Thanks again
 
With 15 years of cheap tracker to go on your buy to lets, you may be ok when the loans mature. But there is still a risk of a sustained long term fall in property prices. Which really underlines why you cannot increase the risk.

On reflection, is that loan with Bank of Scotland?

Before you pay down the mortgage on your home, maybe approach BoSI to tell them that you have a lump of cash. It's possible that they would do a deal with you for early repayment of the trackers. As they are interest only for 15 years, you should be looking for something like a 50% discount. You might well get it as they want out of Ireland and if they sell that loan, they will get less than 50% of the nominal value - if they have not already sold it.


Ecdaam said:
The only issue I see with paying off the PPR is that I may not have any lump sum opportunity in the future to build additional assets? Does that make any sense.
Click to expand...

You can borrow to buy assets and if the return after tax is higher than the cost of borrowing, you will do well. But if it's not, then you face disaster.

If you pay off your home loan, you will save the monthly repayments. You could then invest them in equities if you wish.

Brendan
 
Thanks for coming back to us Ecdaam.

Actually your situation is sufficiently unusual that I think you would be well advised to sit down with an independent financial advisor to talk through your options.

I still think your end goal should be the same - a (paid for) place to live and a moderate income. Don't take on any more risk than absolutely necessary.
 
I think you would be very lucky to get a financial advisor who understands the bigger picture and who would give you honest advice.

Many would play to your wish to invest in equities and sell you a fund which would earn them commission.

You don't need a financial advisor to tell you to pay off your mortgage.

Brendan
 
Hi Brendan - to answer your question, I'm not with BoSI unfortunately, I was with them originally but transferred to PTSB in '07. I saw recently that they were writing to some landlords with negative equity and arrears but I presume they're not doing any deals for serviced mortgages?
 
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