Trading up and want to keep existing home.

[tradingup]

I'm not sure if this is possible myself and my wife have mulled over this and we think it's a runner if we can get banks to agree first I said i'll post it here as we are probably missing something blindingly obvious (neither of us are great at finance).

We are both aged 38 one income earner taking home 900 a week after tax. Stay at home mum means no childcare but no income.

Current position
Tracker mortgage 20 years left 1% interest
Repayments 800 a month.
Value of house 310,000
Amount left on mortgage 190,000
Possible rental income 2000 a month pre tax
We are currently getting by and paying mortgage ok each month , we have 2 children under 10.
Savings of 320,000 ( we got lucky property sale after meeting each other and some other stuff we haven't been adding to this though) - Currently not saving but not over spending either.

Planned position
We want to buy a house for 400,000 , we would like to use some but not all of our savings.
What we have planned/purposed which may be laughed at by the bank given our low income is
Use 220,000 savings and get a mortgage of 183,000 over 21 years based on 3.5% interest rate we would have repayments of 1026 a month .
We are aware we would be over exposed to property , we would have 100k left for emergencies .
I calculate roughly that the 2000 a month we earn on our rented house would leave a profit of about 300 a month after tax . Even allowing for less if we got 226 a month profit from our rented house our mortgage repayments would remain the same.
We are down 220k in savings but in 21 years we would own both properties.

Is this a good plan or foolish? Will the banks just laugh at us?

Thanks

 

[cremeegg]

I calculate roughly that the 2000 a month we earn on our rented house would leave a profit of about 300 a month after tax

Is this €300 a profit or a cashflow surplus. I suspect that it is a cashflow surplus. So the deal is even better than you think.

(Profit is after you have paid the interest. Cashflow is after you have repaid the capital instalment).

If your gross income is greater than €53k per annum then you should be able to borrow €183k for a new property. The banks certainly will not laugh at you.

The bank may be concerned by the existing commitments, but as they seem to generate a surplus, they might even be looked at favourably.

You need to go through the details of the proposed rental a bit more thoroughly, for any better advice here and so the bank can see that you know what you are talking about.

 

[tradingup]

It's cash flow surplus.
I live in a 3 bed semi and the speaking to others that are renting in estate they pay 2000-2500 a month. There is actually no houses to rent to compare against online.
What details do I need to give on the proposed rental ?
Currently the mortgage repayments are 800 a month its a tracker mortgage. So a rent of 2000 will cover that even after tax allowing roughly for 50% tax.

 

[Clara16]

are you sure you can keep the tracker if you rent out the property, be careful if you are going to same bank for mortgage. you could send up on BTL rate.

 

[Sarenco]

Does your existing lender have a tracker mover offering?

I suspect you would be better off cashing out the equity in your existing home and using that as part of the consideration for your new home - but you would really need to crunch the figures to be sure.

The template set out in this thread may help -
https://www.askaboutmoney.com/threads/keep-apartment-as-rental-or-move-tracker.203907/

Also, bear in mind that you will get a lower mortgage rate with a lower LTV.

 

[RedOnion]

If it's a house in a good rental location, if a rent of 2,500 is achievable it's more likely to be worth 400k than 300k in the current market. You really need to get it valued as a starting point to such a big decision. Any estate agent will give you a free valuation for the purposes of sale. Similar with rent - I'd get an independent valuation if there's nothing comparable.

The only bit a bank would be worried about is your lack of monthly savings. Your cashflow won't leave much buffer if you can't rent the property, although you still have huge cash savings.

Personally, without knowing about your circumstances, I'd be looking to release the equity, combined with cash savings, and buy a house completely debt free. Build up your savings again each month, and you'll have a massive amount put aside in the 21 years, especially if through a pension vehicle. And no stress involved in being a landlord with 2 mortgages (although small).

 

[tradingup]

Does your existing lender have a tracker mover offering?

I suspect you would be better off cashing out the equity in your existing home and using that as part of the consideration for your new home - but you would really need to crunch the figures to be sure.

The template set out in this thread may help -
https://www.askaboutmoney.com/threads/keep-apartment-as-rental-or-move-tracker.203907/

Also, bear in mind that you will get a lower mortgage rate with a lower LTV.

Our existing mortgage is with PTSB , one appeal of keeping our home and renting it out is that we are relatively happy here and should we move and find that the new house has some unforeseen issues we have that option to move back .

Thank you for the link to that thread , there is quite a bit of reading in that so i'll do so over a cup of tea later and discuss it with my better half.
Thanks for all the responses so far , I'm going to try crunch the numbers on this myself that thread certainly will help.

 

[Sarenco]

PTSB actually has a pretty good tracker mover offering -
[broken link removed]

Incidentally, I agree with RedOnion that your figures seem off - I suspect you are either underestimating the value of your home or overestimating the likely rental income.

 

[tradingup]

are you sure you can keep the tracker if you rent out the property, be careful if you are going to same bank for mortgage. you could send up on BTL rate.

Wasn't aware of this , will investigate further thanks.

If it's a house in a good rental location, if a rent of 2,500 is achievable it's more likely to be worth 400k than 300k in the current market. You really need to get it valued as a starting point to such a big decision. Any estate agent will give you a free valuation for the purposes of sale. Similar with rent - I'd get an independent valuation if there's nothing comparable.

It's not worth 400k , checking the property price register similar houses without extensions that we have are selling for 290k , I guess 300k minimum for ours. I'd say I'm off with the rent figure ( again need to investigate more than talking with neighbours ) its also possible we are living in a time of inflated rents which may not always be the case.

Incidentally, I agree with RedOnion that your figures seem off - I suspect you are either underestimating the value of your home or overestimating the likely rental income.

As above I imagine my figures are most likely off .

PTSB actually has a pretty good tracker mover offering -

I wasn't aware of this , that's excellent again thank you.