Private Residental Mortgage bank who will take into account retained profits and rental income

[DublinRoaming]

Hi All
I’m looking for some advice.


My father passed away last year, and I now have the opportunity to buy out my siblings’ shares of the family home and live in it as my main residence.


I’m self-employed, owning an IT services LTD company for the past 14 years. The company has about €100k in the bank and takes in around €105k per year with very minimal outlays and I pay myself €35k annually


In terms of assets:

• I own a rental property that’s fully paid off (valued around €330k) and generates €2k per month in rent.
• I own 50% of another property, with €95k left on the mortgage (5 years remaining), generating €1,850 rent per month, with a €1,350 monthly mortgage.
• I recently sold another rental property, which added €180k to my savings.

I thought I’d be in a good position to apply for a mortgage of around €330k. However, Bank of Ireland told me today that they don’t take rental income or retained earnings into account. Based on my €35k salary, they said the max they could lend was 3.5 times that amount, less the €90k outstanding—so around €40k. I was completely shocked.


Does anyone have advice on alternatives? Are there banks that factor in rental income and retained profits?


Thanks in advance!

 

[Brendan Burgess]

is the answer not glaringly obvious?

I thought I’d be in a good position to apply for a mortgage of around €330k.

I own a rental property that’s fully paid off (valued around €330k) and generates €2k per month in rent.

 

[DublinRoaming]

i dont want to sell my rental i own it outright and if i did sell it there would be a lot of CGT to pay ..so not glaringly obvious.
also will take ages to get tenant out .. new no fault eviction rules etc

any other ideas ? broker ? etc ?

 

[Brendan Burgess]

Are your siblings in a hurry for the money?

You can start the sales process of the investment property now.

Then start paying yourself a higher salary from the company and get a mortgage for a higher amount.

But if you don't want to do any of that, just sell the family home.

 

[ClubMan]

In terms of assets:

You own 1.5 rental properties but it's not clear from your post where you currently live. Do you own a PPR in addition to the 1.5 rental properties or are you renting or something?

I own 50% of another property, with €95k left on the mortgage (5 years remaining), generating €1,850 rent per month, with a €1,350 monthly mortgage.

Based on my €35k salary, they said the max they could lend was 3.5 times that amount, less the €90k outstanding—so around €40k.

What €90K outstanding?
Isn't it €95K ÷ 2 = €47.5K outstanding?
Or is it the full €95K because you're jointly and severally liable with your co-owner?

which added €180k to my savings.

What is the total of all of your personal savings?
Can you (legitimately and sustainably) take money out of the company for the purpose of this property purchase?

I now have the opportunity to buy out my siblings’ shares of the family home and live in it as my main residence.

How much will you need to buy your siblings out?

 

[DublinRoaming]

ou own 1.5 rental properties but it's not clear from your post where you currently live. Do you own a PPR in addition to the 1.5 rental properties or are you renting or something?

I sold my PIR recently and cleared the mortgage leaving me with 180k
living in family home now as its empty and awaiting probate

What €90K outstanding?
Isn't it €95K ÷ 2 = €47.5K outstanding?
Or is it the full €95K because you're jointly and severally liable with your co-owner?

90k outstanding on joint mortgage BOI said I'm jointly and severally liable with the co owner

How much will you need to buy your siblings out?

need min of 200k ideally 330k as i would like to renovate

What is the total of all of your personal savings?
Can you (legitimately and sustainably) take money out of the company for the purpose of this property purchase?

190k total in personal savings
100k in ltd company bank account if i took it all out i would loose 55k to revenue

 

[ClubMan]

Sorry, but you're not being very clear...

You still haven't clarified what the property is worth.
That's also going to influence how much you can borrow.

I sold my PIR recently and cleared the mortgage leaving me with 180k

I recently sold another rental property, which added €180k to my savings.

So you have €360K in cash?

90k outstanding on joint mortgage

I own 50% of another property, with €95k left on the mortgage

Which is it?

need min of 200k ideally 330k as i would like to renovate

190k total in personal savings

Based on my €35k salary, they said the max they could lend was 3.5 times that amount, less the €90k outstanding

€35K x 3.5 = €122.5K
- 90K = 32.5K mortgage loan
+ €190K savings = €222.5K.

What's the issue?
Just defer the renovations until you can afford them.

 

[DublinRoaming]

Hi apologies if im not being clear i hope this clears it up .

So you have €360K in cash?

no i have 190k in cash

You still haven't clarified what the property is worth.
That's also going to influence how much you can borrow.

600k split 3 ways .. so i need 400k to pay off my siblings

Which is it?

95k owing on joint mortgage

€35K x 3.5 = €122.5K
- 90K = 32.5K
+ €190K = €222.5K.

( 35kx3.5) -90k = 34.25k what bank will allow me to borrow

400k ( what i need to get to pay off siblings) less savings (190) = 210k
210k less 34.5k = 175k

shortfall is 175k


my question was can anyone advise of a bank that will take into account retained profits and rental income as part of an affordability calculation

 

[Brendan Burgess]

100k in ltd company bank account if i took it all out i would loose 55k to revenue

How do you intend to get it out in the long-term? You are paying 12.5% on the profits now and will be paying 55% on the net amount when you take it out.

It seems to me at your stage in life, you need the cash.

And you need the salary as well for mortgage purposes.

If your year end is 31 December, I think you could take it out before 30th June (6 months) and maybe reissue a corrected P60 for last year.

This would show you with a salary of €100k
And you would have €45k cash.

Just to be clear, if you accrue directors salary it must be paid within 6 months of the year end to avoid it being deemed salary. (I can't remember the detail and I might not be wording it correctly, but I made a very expensive mistake in this regard a few years ago. Salary was paid in July and August and I paid something like 8 months interest to Revenue on it.)

 

[skrooge]

my question was can anyone advise of a bank that will take into account retained profits and rental income as part of an affordability calculation

If I'm reading this correctly the €190k is made up of €90k which is yours and €100k which is the companies?

The issue from the banks side is the company has the savings not you. It would have to add the company to the loan contract - or at the every least the company would own €100k of the property and at that stage it is starting to sound like a commercial loan rather than a residential mortgage.

Also a bank is unlikely to lend against retained earnings what it will want to see is the annual income/profit.

While you have an extensive balance sheet it looks like you're asset rich but income/cash poor (for the purposes of what you want).

Any attempt to get at the equity built up is going to attract tax. It's up to you if you think it's worth the cost but whether you pay it now or later tax is hard to avoid paying it.

Given your short €175k (or perhaps it's €275k when you exclude the company's money?) the other option, as. Brendan has pointed out, of to give yourself a pay increase of €50k (or €79k).

 

[Brendan Burgess]

If I'm reading this correctly the €190k is made up of €90k which is yours and €100k which is the companies?

I must say, I did not read it like that at all, but I may have misunderstood.

I take it that he has €100k in the company which would give him an additional €45k in his own hands.

 

[DublinRoaming]

How do you intend to get it out in the long-term? You are paying 12.5% on the profits now and will be paying 55% on the net amount when you take it out.

i was going to let it build up and then perhaps buy another BTL in a few years ..

If I'm reading this correctly the €190k is made up of €90k which is yours and €100k which is the companies?

wrong .. i have 190k in my current account and 100k in the company

Given your short €175k (or perhaps it's €275k when you exclude the company's money?) the other option, as. Brendan has pointed out, of to give yourself a pay increase of €50k (or €79k).

im short 175k .. and i have 100k in the company .. .

I take it that he has €100k in the company which would give him an additional €45k in his own hands.

correct

 

[Dr Strangelove]

You have a housing need. It’s highly unlikely that the very best house for you given your circumstances is the precise house you grew up in. Sentimentality is driving this idea.

But if you’re insistent on this particular house a loan from your siblings might be an option.

 

[Fortune]

any other ideas ?

Start paying yourself more and come to an agreement with your siblings that allows you to live in the house until you've been earning enough for long enough to get the loan you want

 

[Fortune]

advise of a bank that will take into account retained profits

Unlikely, as they don't belong to you

 

[Fortune]

going to let it build up and then perhaps buy another BTL in a few years ..

Why cost yourself the extra tax?

 

[T McGibney]

The bottom line I suspect is that your work is not sufficiently lucrative to enable you to buy a €600k PPR.

If you want it badly enough, you should sell your rental property and bridge the gap with your savings, the after-tax company money, and a delayed payment arrangement for the remainder with your siblings.

If you don't want it that badly, you should forget the idea.

 

[DublinRoaming]

Start paying yourself more and come to an agreement with your siblings that allows you to live in the house until you've been earning enough for long enough to get the loan you want

ive 4600 a month coming into my current account 2300 salary and 2000 rent from unencumbered rental property (Saving 2300 pm)

 

[TomEdison]

im short 175k .. and i have 100k in the company .. .

In your wildest and most optimistic imaginings, the bank is not goin to treat as an asset the amount which would be taken in tax if the 100k were paid out of the company.

If you did pay it out, you'd still be short 130k.

Your rental income is 2000k/month from one property, plus (1350/2 =) 675/month from another. It nets out to about 32,000/year. Even if you could find find a lender willing to take your rental income into account, if they apply the 3.5 multiple that will secure a loan of 112k. Tantalisingly close, but not quite there.

Plus, as your rental income is already supporting an existing buy-to-let mortgage they wouldn't take it all into account; they won't take the same income into account twice for two different loans.

So I'm with others; even with a lovestruck lender, viewing you from a distance, in the dusk, with the light behind you, you're not going to look like someone to whom a 330k mortgage should be extended. I think Tom's suggestion is about right.

 

[DublinRoaming]

Your rental income is 2000k/month from one property, plus (1350/2 =) 675/month from another. It nets out to about 32,000/year. Even if you could find find a lender willing to take your rental income into account, if they apply the 3.5 multiple that will secure a loan of 112k. Tantalisingly close, but not quite there.

you are not talking into account my income from my ltd company....


my income breakdown
rental income is 2k a month plus 1850 ( less mortgage)


PLUS
salary of 35k from my ltd company
(company takes in 100k plus a year i just take out 35k) ( company would retain profits )

i have 4600 net coming in a month .. i dont really need 8k a month coming in

assets
1 house paid off worth 330k
1 joint house with 200k in equity , ~90k left outstanding 5 years left on mortgage.



my Income on my p60 is 70k


i could increase my salary from ltd company from 35k to 90k if i wanted but its not very tax efficient doing this .. so my question was would a bank look at annual retained profits and have the cop on to see why im only taking 35k ..and also take into account rental income from an unencumbered property