Obtain a 2nd mortgage and rent out current property

Gwen971

New Member
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My partner and I own a 2-bed apartment in Dublin and would like to rent it out and buy a house. Is this possible given our profile ?
Would the banks approve us ? Any idea which ones would be most favorable to our situation ?

Current Apartment market value : 315K
Outstanding mortgage balance : 230K.
monthly repayment : €1425
Expected rent :€2100

Budget for New house : 450K
Current savings : 110K
Avg monthly saving : 3K
combined annual revenue : 117K both in permanent full time jobs.
3 dependants : avg 600 childcare/month
Car loan : 745€/month

Thank you
 
To me, it looks like you'd need to sell the apartment.

Mortgage borrowing (no exemptions):
3.5 x 117k = 409.5k
409.5 - 230 (outstanding mortgage) = 179.5
179.5 + 110 (current savings) = 289.5k

You may qualify for an exemption. Worth running it by a mortgage broker for sure.
 
To me, it looks like you'd need to sell the apartment.

Mortgage borrowing (no exemptions):
3.5 x 117k = 409.5k
409.5 - 230 (outstanding mortgage) = 179.5
179.5 + 110 (current savings) = 289.5k

You may qualify for an exemption. Worth running it by a mortgage broker for sure.
So unless we can get a 4.5 income to value exemption, this is not possible ?
Any recommendations for brokers or banks ?
 
Budget for new house: €450k
Savings: €110k
mortgage required: €340k

If you sell your apartment, you will be able to reduce the mortgage by €85k

So your mortgage will be €255k or just over twice your income.

It is clear to me that you should do this.

You reduce the risk of interest rate rises
You reduce the risk of a bad tenant not paying the rent
You reduce the risk of mortgage default
You avoid all the hassle of being a landlord
You pay off your car loan which seems to be very big if the repayments are €745 a month.

Overall, your financial planning looks to have been poor.
You have built up savings of €110k while paying mortgage interest and interest on your car loan.

Brendan
 
So unless we can get a 4.5 income to value exemption, this is not possible ?
BOI and KBC will allow a certain amount for rental income, perhaps at about 50% to cover the risk of non-payment or other issues.

You absolutely need to clear the car loan though. Most banks will assume someone with a car loan is very likely to roll over to a new loan once the current one is cleared, so that, childcare and the shortfall in post-tax rental income covering the mortgage on the rental will impact the affordability calculations.
 
Avg monthly saving : 3K
combined annual revenue : 117K both in permanent full time jobs.
3 dependants : avg 600 childcare/month
Car loan : 745€/month
These numbers don't stack up. On a combined income of €117k, you are taking home approx €6850/month without any pension or health BIK, plus €420/month for children's allowance. Your car loan, mortgage, childcare and savings total €5770 so a family of 5 are surviving on €1500 a month for absolutely everything else?? You may be moving €3k into a savings account but it is not real savings. Even if you have significant bonuses on top of the €117k, it is still modest for a family of 5 and doesn't align with having a car loan of €745

I'm going to make some assumptions based on your username and your existing mortgage that you are 49/50 years old. Your current mortgage has approx 15/16 years remaining depending on the exact interest rate. With a new loan and similar term, you are looking at repayments of €2240 based on €360k (20%LTV) at 2.3% for 16 years. The other €20k of savings would disappear in the costs of buying, moving and furnishing.

You would be committing to €5k in mortgage, childcare and car loan payments which is madness on your income. You would have no safety buffer as pretty much all of your €110k savings would be used. Even if everything went well with the rental, it would still be cash flow negative so it would put you under severe financial pressure for the next 15 years.

I think your priority for now is to forget about the rental and look at clearing the car loan, improving your pension arrangements and probably most importantly is start planning for the potential expense of your kids going to 3rd level if that's what they are planning. Then you should consider whether moving is the right option
 
These numbers don't stack up. On a combined income of €117k, you are taking home approx €6850/month without any pension or health BIK, plus €420/month for children's allowance. Your car loan, mortgage, childcare and savings total €5770 so a family of 5 are surviving on €1500 a month for absolutely everything else?? You may be moving €3k into a savings account but it is not real savings. Even if you have significant bonuses on top of the €117k, it is still modest for a family of 5 and doesn't align with having a car loan of €745

I'm going to make some assumptions based on your username and your existing mortgage that you are 49/50 years old. Your current mortgage has approx 15/16 years remaining depending on the exact interest rate. With a new loan and similar term, you are looking at repayments of €2240 based on €360k (20%LTV) at 2.3% for 16 years. The other €20k of savings would disappear in the costs of buying, moving and furnishing.

You would be committing to €5k in mortgage, childcare and car loan payments which is madness on your income. You would have no safety buffer as pretty much all of your €110k savings would be used. Even if everything went well with the rental, it would still be cash flow negative so it would put you under severe financial pressure for the next 15 years.

I think your priority for now is to forget about the rental and look at clearing the car loan, improving your pension arrangements and probably most importantly is start planning for the potential expense of your kids going to 3rd level if that's what they are planning. Then you should consider whether moving is the right option
That's a pretty good analysis.
However as I didn't give full context it is somehow difficult to imagine the actual situation.
We're 30yo, we have 17 years outstanding on our current mortgage.. And we save these 36k a year on bonuses/commissions only (that i did not disclose in my original message) which actually leaves us with a very comfortable monthly disposable income.

We need a bigger house now, thus seeking a new mortgage (we've been approved by 2 banks in the meantime btw).
Our idea was to try and retain our current property as an investment for the future, mostly because it wasn't very expensive 3 yo ago and the prices have risen so much that it would be much more difficult to buy the same as an investment in the future (factoring in that we'd need 30% deposit).

That being said, our first plan was to clear the car loan, but new arrival in the family made us change direction, so looking to move house first, clear loan second.
Even though one tries to be smart at financial planning it is no always easy and there aren't much information out there to help us out.
 
Even if you have been approved for a loan to buy the home you want, you should not keep the apartment.

When you go have gone purchase agreed on the new house, you should put your own on the market.

There might be a gap between buying the new house and selling you apartment, and that is fine. It's a lot less stressful than trying to synch the sale of your own and the purchase of the other for the same day.

So when you can, sell your existing apartment and use the proceeds to clear the car loan and reduce the mortgage.

With that in mind, you should make sure that you are able to apply the sales proceeds against your new mortgage without penalty. For example, if you expect to have €60k, then make sure that €60k of your new mortgage is on a variable rate, so that you can clear it without penalty.

Brendan
 
Even if you have been approved for a loan to buy the home you want, you should not keep the apartment.

When you go have gone purchase agreed on the new house, you should put your own on the market.

There might be a gap between buying the new house and selling you apartment, and that is fine. It's a lot less stressful than trying to synch the sale of your own and the purchase of the other for the same day.

So when you can, sell your existing apartment and use the proceeds to clear the car loan and reduce the mortgage.

With that in mind, you should make sure that you are able to apply the sales proceeds against your new mortgage without penalty. For example, if you expect to have €60k, then make sure that €60k of your new mortgage is on a variable rate, so that you can clear it without penalty.

Brendan
Thank you for your insights.

By reading several threads here I saw it is always recommended not to keep an existing property for rental purposes?
Isn't that a thing? Trying to own an investment property so to prepare for the future?
Does everyone just put a lot of money onto Pensions and that's it?

The way I see it, having a property that somebody else is paying for you is ideal. Factoring in the turnover and say we have 2 vacant months per year and taxes it is still very interesting in the long term as once it's paid off, it's a great source of income, isn't it?

Obviously if we must sell, it will be far more convenient to do it without being in a sale chain but I guess I'm trying to understand how to build up some funds.
 
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