Saving to trade up - a realistic aim?

A

arwen

Guest
Age: 24
Spouse’s/Partner's age: 27

Annual gross income from employment or profession: 62,000
Annual gross income of spouse: 50,000

Type of employment: professional – private sector

In general are you spending more than you earn or are you saving? saving

Rough estimate of value of home: 265k (unsure of current valuation – bought in 2006 for 325k, assume has decreased in value)
Amount outstanding on your mortgage: 290K
What interest rate are you paying? 5% (I think)

Other borrowings – None

Do you pay off your full credit card balance each month? Yes
If not, what is the balance on your credit card? 0

Savings and investments: 22k in savings account

Do you have a pension scheme? Yes both in occupational pension schemes

Do you own any investment or other property? No

Ages of children: None

Life insurance: Yes


What specific question do you have or what issues are of concern to you?


We want to be able to trade up/acquire a second property within the next 2 years. We understand the value of our current home has decreased since we purchased it and obviously would not like to have to sell for less than the value of our mortgage but this may be inevitable. We want to save towards a deposit for a new home (plus associated stamp duty costs) which we estimate will cost in the region of 400K, therefore, we will need 40K deposit, 20K approx for stamp duty, plus an additional sum to cover the shortfall should we need to sell for less than our outstanding mortgage as well as any associated costs.

Questions – on current salaries should we be able to save 2,500 a month between us (to save 60k within 2 years) or is this too optimistic? Joint net take home pay is approx. €6,600, mortgage is 1,150 (interest and capital). We are currently running 2 cars (no loans for either one) – should we get rid of one – it’s not essential for work purposes.

Also – should we aim towards selling our own house or should we consider retaining it as an investment property or would this even be possible given its value and our incomes etc? In the current rental environment the rent would cover the interest payments but should rents decrease, this may not be an option.
 
on current salaries should we be able to save 2,500 a month between us


Absolutely! That leaves you with roughly €4000+ per month. Unless you're big into your lattes I can't see how a couple could not live on that.
 
yep, you definitely should be able to save that! Take it out as soon as your salary hits your account, that way you should very quickly adjust to a smaller disposable income (don't get too stressed if it takes a few months to become comfortable, or alternatively, ease yourselves in by starting at 1250 and working up over three months to 2500). 6600 - (2500 + 1150) = €2850pm to live on. Sit down and look at all your regular bills to get a feel for what will remain out of that for day to day living and see if you are comfortable with trying to do that.
Also just make sure that you are getting the best rate on your current savings, shop around with your lump sum, you aren't looking to do anything with it for a few years so you can afford to tie it in for a period of time. Then look for the best deal for a regular saver, bearing in mind that there may be restrictions on the maximum amount you can deposit per month with some accounts.
 
It looks like this is all possible.

In two years time you may be lucky enough to both of had two pay rises as well so you combined salary could be €120k ish.

If you have saved for the deposit and stamp duty; (which looks very possible) and you breakeven on sales value v mortgage in two years time, then a 400k house would mean you would borrow 360k, which is well within your salary brackets.

You must be on a 35 year mortgage at the moment I guess, you could plan to drop this to 20 years on your next property, still have money left over and not pay as much interest to the bank.

This all assume banks don't tighten their lending further, but who knows....

My many concern would be getting the best return on ya savings and planning for any other major cash out flows, new cars, weddings, loss of job, plan for a family etc.

As for renting out, you can't say right now. Wait until the time comes then you will know what rent you can acheive and you will know if can get a good return on your investment.

Make hay whilst the sun shines!
 
Okay thanks a lot everyone, it sounds very manageable when it's laid out clearly. hopefully we won't have many unexpected outflows over the next few years, we won't be buying new cars and a wedding is a little further down the road!! looks like a lot of discipline and less coffee (yes Flax we are fond of lattes unfortunately!!) up ahead!
 
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