Sell London property to fund PPR?

[MMon13]

Good evening Everyone,

I hoped to get some input on my situation. I have outlined the financials below and, for context, have provided some bullets too. Essentially, we are mulling over the sale of our London apartment to fund a property deposit here in Dublin.

-Both my spouse and I are Irish. We have recently relocated back to Ireland after a long period in the UK
-The property referenced below is in the UK. We are currently renting in central Dublin
-The London property rents for GBP2k per month. Mortgage payments are GBP1.2k.
-Our initial thinking was that we would continue to save with a view to being able to hold onto the London property. I am (Was!) in London frequently on business, and thought in the medium term I could use it as a base of sorts. The industry I am in (Financial services) is predominantly London centric and I felt, if anything went wrong with my current employer, having a toe hold in London would be advantageous
-My wife is now pregnant, and the news of our impending arrival has certainly concentrated the mind. Whilst we could 'make do' in our current flat with a baby, I do think life friction would increase quite significantly

Based on the above, I suppose my three options are to:

a) Continue to rent the London property, and keep saving toward a sizeable deposit for a house in Dublin. I think we could realistically have EUR300k+ behind us in 18 months-2years
b) Sell the London property, using the equity accrued to fund the deposit for a property in Dublin (Looking in the EUR 800k-1m range)
c) Buy a cheaper property in Dublin (around EUR550-600k), and continue to rent the London property. Reasses things in 2-3 years.

Age: 36
Spouse’s/Partner's age: 36

Annual gross income from employment or profession: EUR120k Basic salary, circa EUR140k bonus
Annual gross income of spouse: EUR50k

Monthly take-home pay: EUR10k per month

Type of employment: Private sector

In general are you:
(a) spending more than you earn, or
(b) saving? Saving. Between 4-5k per month.

Rough estimate of value of home? GBP 575k
Amount outstanding on your mortgage? GBP 285k
What interest rate are you paying? 1.99%

Other borrowings – car loans/personal loans etc? Car Payment- EUR500 per month

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

Savings and investments:
Main investments are via my pensions;
UK pension of GBP170k
PRSA of EUR40k

Also have EUR100k in easy access savings, and some stock options

Do you have a pension scheme? Yes-currently E2k per month being paid into my pension (A combination of my AVC and company matching)

Do you own any investment or other property? No.

Ages of children: One on the way

Life insurance: Yes. provided by my firm.

Thanks in advance for any advice/ input.

 

[_OkGo_]

Your UK property is profitable now but if you take on extra personal debt for your new PPR in Dublin, then it very likely won't be when viewed as part of your entire financial situation. I'm not very familiar with how your foreign rental income will be taxed but after all expenses and tax, what is your rental net profit, £7/8k?? Or 2.4-2.7% based on your £290k equity. And as for a long term investment, if this property was mortgage free, the rental income is very low £24k/£575k. Again after expenses and tax, will it net £10k (1.7%)? Is it really a good choice to keep it for the long term, I don't think so.

I think we could realistically have EUR300k+ behind us in 18 months-2years

You are saving at 4-5k per month so where will you get the additional €200k in 18 months on top of the €100k cash you already have? Unless you have significant stock options, this does not sound realistic

For simplicity, the table below is 'as of today' so it does not reflect the 18-24 month wait in option A

Scenario	A	B	C
UK	€640k (£575)	€0	€640k (£575)
Irl	€1m	€1m	€600k
Total Value	€1.64m	€1m	€1.24m
UK	€305k (£275)	€0	€305k (£275)
IRL	€900k	€600k	€500k
Total Debt	€1.25m	€600k	€805k
LTI (Base salary - 170k)	7.35	3.53	4.7
Cash	€0k	€50k	€0k

I think your best and only option is B. It retains €50k cash to allow you to furnish the property and overpay the mortgage. It would have a 60% LTV to avail of the best rates. You could easily be 'comfortable' after 24 months of overpayments to get it down to <€500k balance. I don't think any bank would want to offer you a second mortgage for A or C considering your LTI would be very high and both A and C would wipe out your cash reserves too. And even if you did get the second mortgage, I don't think option C will get you anything near the level of house you really want so you will want to move again in a few years.

Also worth considering what your circumstances would look like in the next 5-10 years. If you have a second child, you will either be paying ~€2k/month for childcare or you might consider your spouse taking some time out of work. You would be carrying substantial debt (A or C) if you were a 1 income family on €120k.

 

[MMon13]

Thanks very much for getting back to me.

You are saving at 4-5k per month so where will you get the additional €200k in 18 months on top of the €100k cash you already have? Unless you have significant stock options, this does not sound realistic

Sorry- I was unclear regarding my compensation. Total comp is eur260k. Basic salary of eur120k, and cash bonus of eur140k.

I was leaning toward (B) prior to writing my initial post, and your response has solidified that further. I dislike debt, and am firm believer in an easy life.....by which I mean keeping things as uncomplicated as possible!

 

[NoRegretsCoyote]

The gross yield on the UK property is 4%. You are funding it at 2% but being a landlord at a distance just has extra costs and hassle involved.

Think of the risk. If the place floods or you get a rogue tenant you are suddenly without an income but in another country and still have to pay the mortgage.

If you try to borrow here in Ireland the UK property will impact on how much a bank will lend.

Also, you will be living and earning in euros while you have an asset in another currency.


To me it seems like too much hassle unless you actually intend returning to the same property in London at some point.

 

[_OkGo_]

Thanks very much for getting back to me.

Sorry- I was unclear regarding my compensation. Total comp is eur260k. Basic salary of eur120k, and cash bonus of eur140k.

I was leaning toward (B) prior to writing my initial post, and your response has solidified that further. I dislike debt, and am firm believer in an easy life.....by which I mean keeping things as uncomplicated as possible!

Apologies, I misread it as your total package was €140k (20k bonus). But now even more so I think you should absolutely go with option B. Option A is 2 years of waiting while sacrificing home comforts with an expanding family. And C is similar in that you will not have the property type that you really want. You could really enjoy the next 2 years in the home you will likely live for several years or you can 'make do' in an apartment while holding on to an investment property that isn't really significant relative to your earnings. Your combined income is ~€300k, why make those sacrifices to hold on to a property that is earning maybe €15k gross?

With your level of income, it is not unreasonable to think that you could be effectively mortgage free in a €1m property in 5 years time going with option B. All while being able to maximize your pension in that time.

If you have a particular itch to be a landlord, review your situation in 4/5 years and consider investing in Ireland at that point. The yields should be much better than your current UK property and your overall financial situation should be very healthy and low risk at that point.

One other thing to consider re pensions, because you are well in excess of the thresholds for tax relief (20% up to salary of €115k) it might be in your interest to renegotiate the terms of your contract with your employer so that the employer contribution is much higher and not subject to the tax relief limit. All while avoiding any risk of it being deemed a salary sacrifice.

It is probably in your best interest to talk to a good Financial Advisor considering the very high income that you have.

 

[Blackrock1]

option B for sure, buy the best house you can now for your family and enjoy living in it, 800k-1m is still not going to get you everything you might want in dublin but its a lot better than spending 600k and being a remote landlord.

dont underestimate the costs of fitting out a new build or renovating a second hand property either.

 

[MMon13]

Hi All,

I wanted to provide an update given how useful the advice provided was.

The sale of our London property should be completing in the next few weeks. We will come out of that with roughly EUR350k which we can put towards a property here in Ireland. Whilst I was already fairly sure that selling the UK PPR was the right thing to do, this was cemented by being unable to get much in the way of a mortgage here in Ireland as they aggregate the overall debt.

I have begun the process of finding a good Financial advisor as I do think some additional advice would be useful.

Thanks again for all the help.

 

[Thirsty]

Always good to hear back from posters.

 

[MMon13]

I thought I would chance my arm and ask for yet more advice on how best to proceed......

Having sold our London property, my wife and I are waiting on mortgage approval before we start looking at properties. We actually started this process in March, but are only now at the final stages of the application due to being messed around by the mortgage broker we opted to use. We have been told that, based on our circumstances, we may be able to borrow up to EUR700K.

I suppose what I'm trying to understand is, if we are indeed approved up that amount, how much of that should we draw down? We're hoping to get a 5yr fixed with Avant at 1.95%. We will have EUR500k for the deposit, and will be looking at homes in the EUR1m range. I would be comfortable borrowing 500k, less comfortable borrowing 700k, although the plan with either would be to pay the loan down aggressively. I have seen elsewhere on this forum that, given how penal investing outside of a pension/ property is in Ireland, one should borrow as much as possible although perhaps I have misunderstood that.

I have updated the template to reflect our current situation:

Age: 36
Spouse’s/Partner's age: 36

Annual gross income from employment or profession: EUR121k Basic salary, circa EUR160k bonus. Total comp of 281k.
Annual gross income of spouse: EUR50k

Monthly take-home pay: EUR10k per month

Type of employment: Private sector

In general are you:
(a) spending more than you earn, or
(b) saving? Saving. Between 4-5k per month.

Rough estimate of value of home? N/A
Amount outstanding on your mortgage? N.A
What interest rate are you paying? N/A

Other borrowings – car loans/personal loans etc? Car Payment- EUR500 per month

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

Savings and investments:
Main investments are via my pensions;
UK pension of GBP182k
PRSA of EUR57k

Currently have EUR500k sitting in cash.

Do you have a pension scheme? Yes-currently E2k per month being paid into my pension (A combination of my AVC and company matching)

Do you own any investment or other property? No.

Ages of children: First child is due early September

Life insurance: Yes. provided by my firm.

Thanks again for any advice you can offer.

 

[NoRegretsCoyote]

Other borrowings – car loans/personal loans etc? Car Payment- EUR500 per month

I can't see the logic of a car loan when you have €500k in cash.

Currently have EUR500k sitting in cash.

To benefit from the deposit guarantee scheme make sure that you have no more than €100k per person per bank. (A couple can have €200k in a joint account)

Life insurance: Yes. provided by my firm.

Do you think it would be enough? You will be heavily reliant on your income for your lifestyle.

 

[Sarenco]

To benefit from the deposit guarantee scheme make sure that you have no more than €100k per person per bank. (A couple can have €200k in a joint account)

The proceeds of a house sale would be covered under the scheme as a temporary high balance.

Unless the annual bonus is practically guaranteed, I think it would be unwise for the OP to borrow more than €600k (3.5 times joint salaries).

 

[MMon13]

I can't see the logic of a car loan when you have €500k in cash.

This is a fair point. We opted to go down this route when we first moved back to Ireland as we wanted to build up our EUR balance and like the flexibility of PCP. We don't have long left on the agreement so will take a stance on that in the next few months. The outstanding balance is in the region of 20k.

To benefit from the deposit guarantee scheme make sure that you have no more than €100k per person per bank. (A couple can have €200k in a joint account)

We have the money split across 3 joint accounts

Do you think it would be enough? You will be heavily reliant on your income for your lifestyle.

4x base salary with the premium covered by my company.

 

[MMon13]

Unless the annual bonus is practically guaranteed, I think it would be unwise for the OP to borrow more than €600k (3.5 times joint salaries).

It's a great point. Whilst nothing in life is guaranteed, we work off a 'floor' with regards to the variable component so that there's a reasonable understanding of what one will earn each year.

In 5 years my total compensation has risen from EUR218k to 281k today. My basic salary has increased by 13k in that time, with my bonuses making up the remainder. I am not naive enough to say that this will keep increasing YoY, or that it's 100% guaranteed, but I am reasonably confident that the bonus will at least stay in this ballpark.

 

[DublinHead54]

Looking at homes in the 1m range could easily become 1.2m or more. Have you considered where in Dublin you want to live? I've recently bought in South Dublin and found a huge variation in valuations of houses in the 800k to 1.2m range. What I mean is sometimes the 800k houses were better value in terms of location/condition and potential vs more expensive houses. The moral is just because you could buy a house worth 1.2m don't discount taking a smaller mortgage.

Also don't discount right now the cost of doing work in Dublin and getting people to do the work. Our house was in the region of 800k and costs are already at 20k for minor renovations and likely to hit 40k within the first year.

 

[MMon13]

Looking at homes in the 1m range could easily become 1.2m or more. Have you considered where in Dublin you want to live?

I'm definitely aware that asking price and what properties are actually selling for are quite dislocated at present. I thought we'd at least enter the bidding process and can pull out if/ when things get silly. We're primarily focused on south Dublin (Blackrock, Monkstown etc and a bit further inland), but might also consider Clontarf.

What I mean is sometimes the 800k houses were better value in terms of location/condition and potential vs more expensive houses. The moral is just because you could buy a house worth 1.2m don't discount taking a smaller mortgage.

Completely agree. I have seen some absolute kips that are asking for 1.2m, whilst other places that need a bit of work but are otherwise liveable are asking for 800k. I suppose I am somewhat averse to taking on a project, but this might be driven by my lack of knowledge around how much works would cost, is the price fair etc. Is there anywhere I could better understand this type of thing? How much does one budget for these types of works? I know it's a bit of a 'how long is a piece of string' question, but if we were going to do it I'd like to do it well.....

Also don't discount right now the cost of doing work in Dublin and getting people to do the work. Our house was in the region of 800k and costs are already at 20k for minor renovations and likely to hit 40k within the first year.

Yes, I would feel much more comfortable with doing works if I had an understanding of the costings involved. I'm aware of some ridiculous sums being quoted for fairly basic works. And then there is also getting this done in a timely fashion as I understand the demand for labour is sky high.

 

[Sarenco]

How much does one budget for these types of works? I know it's a bit of a 'how long is a piece of string' question, but if we were going to do it I'd like to do it well.....

Well, Dermot Bannon managed to spend over €600k on revamping a house that he bought for €900k in Drumcondra...

RTÉ Player

Watch all your favourite TV shows Live or On Demand on your PC, smartphone or tablet for free.

www.rte.ie

 

[Marc]

Don’t forget to keep paying your U.K. voluntary national insurance contributions towards your U.K. state pension which should accrue in addition to the Irish State pension.

you are also eligible to pay into a U.K. stakeholder pension for 5 consecutive tax years with U.K. income tax relief at source even as a non-resident



Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie

 

[DublinHead54]

Well, Dermot Bannon managed to spend over €600k on revamping a house that he bought for €900k in Drumcondra...

RTÉ Player

Watch all your favourite TV shows Live or On Demand on your PC, smartphone or tablet for free.

www.rte.ie

His TV show I feel is a bad advertisement for his business, he always goes significantly over budget.

I do think the glass box extension on the back of a Dublin house is now approaching 300k

 

[DublinHead54]

Don’t forget to keep paying your U.K. voluntary national insurance contributions towards your U.K. state pension which should accrue in addition to the Irish State pension.

Can you do this through HMRC? I worked in UK for 10 years and hold a UK passport, I'd like to keep paying voluntary contributions but not sure what class.

 

[Marc]

Can you do this through HMRC? I worked in UK for 10 years and hold a UK passport, I'd like to keep paying voluntary contributions but not sure what class.

yes form IT38. It’s a very simple process we do this for all our clients with at least 3 years National insurance contributions

UK State Pensions

Our aim is to help you to navigate these various rules and regulations and make a more informed choice about whether or not to top up your UK State pension

joom.ag

Marc Westlake
Chartered Certified and European Financial Planner
www.globalwealth.ie