Hi Amberley
This is a very tough one.
On a combined salary of €35k, you are paying the repayments on a €63,500 mortgage and rent.
On a combined salary of €35k, you were able to overpay a mortgage of €150,000.
Yet, UB won't give you a mortgage of €103k, because you don't meet the stress tests.
Let's look at the numbers:
If I were a lender, making a "common sense" decision and not subject to Central Bank guidelines, I would feel that you were a good credit risk. I would be concerned about your ability to meet the repayments when interest rates rise. However, I would insist that you take out a 7 year fix on most of the loan. That means that you would be paying a lower rate than you are now and that you would be insulated from rate rises for the next 7 years at least. I would allow you keep €20k on a variable rate, so that you could overpay your mortgage without penalty.
I suspect that Ulster Bank has no discretion here at all. If they were to break their rules, the Central Bank would go after them. If you were to get into trouble with your mortgage, you would blame UB for irresponsible lending.
Did you not think of this when you bought the house?
Presumably you bought the house knowing that there was a lot of work to do? You probably underestimated the cost. And is there a danger that you are still underestimating the cost?
Can you increase your incomes in any way?
our mortgage is e368pm and with the additional mortgage top up would have been e600pm in total aprox. With the personal loan we would be paying e893pm.
I find it hard to see how a couple can live on a combined income of €35k, pay a mortgage and pay rent. I don't think you can afford to pay €893 a month.
You are self-employed. Can you get a full time paye job anywhere? It should boost your income. You may only have to do it for a few years to qualify for the higher mortgage. After you draw down the mortgage, you could go back to self-employment.
In the mean-time, you could spend the €40k doing what is necessary on the house.
The very high mortgage rates in Ireland are contributing to your problem
You are paying 3.8% or 3.9%. The average new business variable rate across the eurozone is 2%. You have an ok Loan to Value, but a high Loan to Income multiple. You should probably be paying around 2.5%. This would allow you borrow more.
What you should do...
Proceed with the loan application for the personal loan and get the money to finish the house.
See if it's possible to cut the cost of the renovation.
You will really struggle with the repayments but you absolutely can't allow any arrears whatsoever as you may need to switch lenders later
Apply for permanent jobs or higher paying jobs
Don't fix your mortgage rate, as you may be able to switch lenders in the future
At a later stage, re-mortgage or get a top-up to replace the expensive loan.
You must prepare yourself for the possibility that you may have to sell the house if the repayments are too much of a burden.