To sell or not to sell

[Stuck77]

Hi All. Just looking for a bit of advice. We have 2 properties, one is our PPR and one is now a rented property but has a tracker mortgage (1.1%). Neither are suitable as a family home so we now need to buy another house which will hopefully be our forever home. Both have been in negative equity as bought in the boom so we have been stuck in an unsuitable property with 2 young children. Now things have improved and our current home has finally reached market value equivalent to mortgage balance €130k.
The investment property was €350k and has a balance of €246k. I’ve recently realised it’s value has increased and it must now make 280-290 optimistically, worse case €275k. We have been struggling to get a deposit together. We currently have €30k and €20k due in inheritance. House prices are increasing alot where we live.
Bank of Ireland have said they would give us an exemption of 10% loan to value potentially as our incomes are good. However the tracker mortgage is with AiB. They will only do 20% for second time buyer but said we would qualify to carry our tracker rate to a new mortgage if we sold the property plus 1% so 2.2% on €247k of a new mortgage.
My question is should we sell the tracker property to avail of this offer or is the equity release still too low to make good financial sense? This property was originally meant to be my hubby’s pension fund as he is self employed with minimal pension.
Or should we keep it as a pension plan, go ahead with BOI and the 10% deposit and keep saving as much as we can till a good property comes up?
we are not too financially savvy hence ending up with these bad investments!!! So interested in some sound advice. I want the kids to have a family home while they are still young enough to enjoy it. Our current space is ok but no garden. Any banks I spoke to have said we could keep our current property while getting another mortgage but as it’s now reached mortgage value our plan would be to sell it once we find a new home.

 

[Brendan Burgess]

You need to provide more and clearer information to get a meaningful answer.

Home value: €130k; Mortgage €130k @ 2.9% with Bank of Ireland

Investment value: €275k; Mortgage €246k @ 1.1% with AIB

What rent are you getting on the investment property? €1,250 per month

Cash available: €50k including inheritance

What is the cost of the house you wish to buy?

Are AIB asking you to sell your home or the investment property?

Will Bank of Ireland allow you to keep both properties while giving you a mortgage for a new one?

Brendan

 

[Stuck77]

You need to provide more and clearer information to get a meaningful answer.

Home value: €130k; Mortgage €130k @ 1.1%

Investment value: €275k; Mortgage €246k @ What rate?

What rent are you getting on the investment property?

Cash available: €50k including inheritance

What is the cost of the house you wish to buy?

Are AIB asking you to sell your home or the investment property?

Will Bank of Ireland allow you to keep both properties while giving you a mortgage for a new one?

Brendan

Sorry Brendan. Just a bit new to this!
My PPR currently is with BOI 129k balance @2.9% fixed for one year.
The investment property which was once my ppr is 1.1% tracker, balance 246k
Rent is currently 1250. Mortgage 1125 so profit €125 as such
We were hoping to not spend more than €300k on a new home if at all possible. We are both 44 so mortgage term would be max 20 years so repayments higher

both BOI and AIB said they would give us a mortgage while keeping both properties. I don’t see use long term in keeping my current home as mortgage is €962 and max rent would be round €850. It would just give security for kids to hold onto it until new sale has gone through abd then sell. It’s impossible to find houses to rent here but a other option would be to sell it and rent until a new property is found. It doesn’t sit well with me tho!
I hope I answered your questions.

 

[Brendan Burgess]

Your investment property generates rent of €15,000 per year.
Let's say you have costs of €3,000
The interest is only €246K@ 1.1% or €3,000
So you are making a profit of €9,000 a year.
This is clearly worth keeping.

Rent is currently 1250. Mortgage 1125 so profit €125 as such

That mortgage payment of €1,125 is only €250 interest and €900 capital. In other words, you are reducing the loan balance by about €11,000 a year.

 

[Brendan Burgess]

They will only do 20% for second time buyer but said we would qualify to carry our tracker rate to a new mortgage if we sold the property plus 1% so 2.2% on €247k of a new mortgage.

A tracker at 2.2% has some value, but not a lot. For example, if you have a 20% deposit, you can fix for 5 years with AIB at 2.45% . So keeping the tracker is worth only .25% of €247k or €600 a year. It should not be a major consideration.

Keep your investment property as it's on a cheap tracker. Sell your home. Buy your new home either with AIB or Bank of Ireland.

As you pay off the capital on the tracker, you will build up more equity in the investment property. After a few years, revisit the figures. It may then be worth your while to sell the investment and pay down the mortgage on your home.

Brendan

 

[Stuck77]

Brendan thanks so much. That really makes sense. We were just discussing it together before I read your reply and we were saying it makes more sense to keep it. It’s great to see that you agree. When you write it all out in black and white it becomes so much clearer. Even as a pension plan lump sum for my hubby it’s pretty much a pension for no cost per month.

I feel we should keep the house we are in until we find another as renting is dead money. However demand and prices are pretty good at the moment. It’s hard to know.

 

[Brendan Burgess]

Even as a pension plan lump sum for my hubby it’s pretty much a pension for no cost per month.

No, it's not.

If your husband contributes to a pension, he gets tax relief on the contributions. The fund grows free of tax. And it may be taxed at a lower rate when he draws it out. An investment property is no substitute for a pension.

Sort out your housing needs and when you have done that, come back and ask about a pension.

Brendan

 

[Brendan Burgess]

I feel we should keep the house we are in until we find another as renting is dead money.

Rent is not dead money. You get the use of the house while you are renting it and you are not taking the risk of house price falls.

However, your conclusion is correct. If you can buy another house while keeping your existing house, you should do so. But as soon as you have signed the contract for your new house, put your existing home on the market.

Having three properties and three mortgages is very risky. It might work out, but it also exposes you to serious problems.

Brendan