Savings 65k, 2 houses, 1 mtge, no other debt: 30k to mortgage, pension or keep as is?

[Male Doon]

Hi, I would really appreciate feedback and opinions on my query below. I will try to give all the relevant information, so here goes...

My wife and I (in our late fifties) moved house in Feb 2004, to a house just outside Dublin. We don't intend moving anytime soon.

Purchase price 296k, borrowed 267k currently owe 197k, with just under 14 years left to pay (ECB tracker +.85%). Current repayment 1380pm.

We own a house outright in Dublin, finished mortgage in 2007. We have rented it out continuously sinse moving in 2004 (we have been lucky with tenants). Current rental income 1200pm.
Everything above board re tax etc, sinse day one of rental income.

Each house was valued at 450k at the height of the market (2006) so I suppose current value would be in the region of 200k each now.

I have been with the same company for the last 15 years, with pension brought forward from a previous employment.

We have savings in the region of 65k total but between the jigs and the reels, our income is less than half what it was five years ago, and we are beginning to dip into these savings to continue as we were before...which can't continue, I know!
Like many others, I am getting very uneasy with the current economic situation, worried to an extent that savings will be compromised etc.

So my query is, should I put a lump sum into my mortgage, say, 30k? I think that this would reduce our mortgage by about 200 euros per month.

Or should I put a lump sum into my pension?

I would hate to wake up one of these mornings to hear that our savings have disappeared but still owing 200k on our mortgage!

Thanks in advance for any comments..

 

[Guest105]

I would be inclined to sell the second home and keep the savings intact. You say its currently worth circa €200,000, if you manage to get that you will be able to clear the mortgage and not be lumpered with repayments especially when you both heading in to your sixties.

Life is for living when you reach that age and you should be out enjoying yourselves rather than facing the prospect of struggling to pay a mortgage until you are over 70 years of age.

 

[Gekko]

With a rental yield of 7.2% and a cheap tracker on the PPR, it would be crazy in my view for them to either sell the investment property or clear the mortgage on their home.

The €65,000 would yield approximately €2,194 per annum (after DIRT) if lodged in BOI's 2 year 3%/6% savings product. If paid off the mortgage it would save the couple approximately €2,015 per annum.

 

[Jim2007]

Regardless of the current situation, you are far to exposed to the property market, especially at your age. Best practice recommends that at your stage in live you need to start reducing your financial risks by moving to low risk income generating assets such as bonds, blue chips and cash.

If I was in your shoes, I'd start be reducing my exposure to the property market - sell the Dublin house use the proceeds to pay down the current mortgage and then look at what to do with the cash on hands. You don't give enough information on the pension situation to comment, but if it was a defined benefits one, I'd be hesitant as it is likely that in the future they will be discovered to be underfunded and benefits will be cut, in my opinion. If you decide to hold cash, then spread it around to reduce your exposure to any one institution. And of course it goes without saying, concentrate on reducing your outgoings.

An observation, people in Ireland are far to preoccupied with home ownership to realise just what a high risk game they are playing - the country is a wash in property, there is no active market and valuations are just guess work. Furthermore, we're part of the Euro zone and our economic situation will have to converge with that of the rest of the zone, which means a lot tighter credit control and much less cheap money, so how anyone can reasonable expect prices to return to previous levels in the next few years, is beyond me.

Jim.

 

[Male Doon]

Thanks for the replies (so far)...

Part of our thinking in 2004 was that the house in Dublin would be like a kind of pension, but we all know what happened since.

We intended all along to sell the house in Dublin, just a question of when. The rental contract with the tenants was renewed in March. We had been wondering whether to put the house up for sale before then but reckoned it would be a struggle to sell it this year, so hoping that it might be easier next year.

Our main concern right now is the security of our savings, which is why we were wondering about putting it into the existing mortgage.

By the way, the pension is not defined benefits, it is no great shakes, relatively speaking total value around 60k in managed funds, ring-fenced, as far as I know, in low risk category.

We don't have any other debts at present.

 

[Gekko]

the country is a wash in property, there is no active market and valuations are just guess work

And you're suggesting that the OP sells his investment property in this climate when he doesn't need to?

I don't think that's a good idea.

 

[Jim2007]

Our main concern right now is the security of our savings, which is why we were wondering about putting it into the existing mortgage.

And if prices were to fall another 20% - 50%... where your savings be then?

The objective to reduce the risk by spreading it over different classes of assets. The more exposed you are to a single asset class and in this case even single assets within that class the bigger the hit will be if it goes wrong and at your age you can't afford to take those risks.

Jim.

 

[Jim2007]

And you're suggesting that the OP sells his investment property in this climate when he doesn't need to?

I don't think that's a good idea.

OK, I've already said why I believe this is a high risk game, give us your views on why it is safe him to remain with such a high exposure level, given that the couple are in their late 50s and with the exception of 120K everything else is in property.

I was over in Ireland last summer looking at a couple of houses and unlike most people I was in a position to pay hard cash within 24 hours if necessary and I had Swiss bank documents to prove it. I walked away because I was scared at the number of developers willing to cut prices by 40% - 50% when they heard it would be a cash sale and the money would flow in quickly. That to me is not a market, it's a high risk crap game and not to get involved in at 52 years of age like me.

Jim.

 

[Gekko]

I was scared at the number of developers willing to cut prices by 40% - 50% when they heard it would be a cash sale and the money would flow in quickly. That to me is not a market, it's a high risk crap game

I'm not disputing the fact that the OP is overexposed to property or that in an ideal world he would be more diversified in relation to his investments.

However, "we are where we are" as the saying goes, and in my view it's outrageous to advocate the sale of the OP's investment property in the climate you describe above.

It's a pity that the loan isn't on the investment property as the OP would then be able to claim a deduction for 75% of the mortgage interest (and as the OP currently has no scope to claim mortgage interest relief in relation to his residence).

 

[Greta]

I think as OP didn't sell at or near the top of the market, it's better for him now to ride out the hard times than to bail out in the current climate, as he can afford both properties.

And besides, he wasn't asking for advice re selling his property. Though I noticed that nowadays "Sell, sell, sell" in relation to other people's properties seems to be a very common advice, whether it was asked for or not

Male Doon, I suggest you adjust your level of spending to fit with your reduced income, so you don't deplete your savings. A little tightening of the belt isn't actually that hard or painful.

I understand your worries about the security of your savings and for this reason it might be best for you to pay a little bit off your mortgage, say, 10-20K, and maybe top up your pension a little, say, by 10K. And diversify your cash between different currencies/countries, say, open a sterling account with 10K and an account in a strong Euro country, like Germany, with another 10K. And maybe put a bit of money into gold.

That way, Irish government won't be able to take that much from you and you won't worry so much.

Also if you don't have a lot of money sitting in one bank account, you'll be less likely to dip into savings. It's a psychological thing, if people have a lot of money easily accessible, they tend to spend it more than if the amount is smaller and the rest is in different - and not easily accessible - accounts

 

[PATMAC]

It's a pity that the loan isn't on the investment property as the OP would then be able to claim a deduction for 75% of the mortgage interest (and as the OP currently has no scope to claim mortgage interest relief in relation to his residence).

Hi I have an apartment in Budapest would I be able to claim this if I sold it?

 

[Gekko]

Hi I have an apartment in Budapest would I be able to claim this if I sold it?

I was referring to the fact that 75% of the interest arising on loans for the purchase, improvement or repair of a residential rental property can be offset against any rental income from that property. The OP has rental income but his rental property is debt free. If his mortgage was on the rental property (rather than on his home) he'd have scope to reduce his income tax bill.

This has nothing to do with the disposal of property (interest isn't deductible for capital gains tax purposes).