Using future rental income for a mortgage application?

A

Aodhán

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I could buy a place for c. €500,000 using a combination of my deposit and a mortgage based upon my income. However, it would cost me about €625,000 to build the home I want, with the intention of renting out 2-3 rooms per year in it, my principal private residence.
The house would be in a very high demand area of Dublin so there'll be no issue renting it and receiving €30,000 or so nett income per year from it.

Would any mortgage lender in Ireland include that income when determining what they would lend me? What are my options to get that extra funding? If I ran out of money during the build, what options do I have?
 
Let's say you rent out 3 double rooms at €1,500 per month each. That would bring in €54k in gross rental income, or about €27k net.

Do you think it's realistic to get €1,500 for each room? (I'm basing that rent on a double bedroom in an apartment in Dublin city centre.)
 
Aodhán said:
Would any mortgage lender in Ireland include that income when determining what they would lend me?
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No.

Aodhán said:
If I ran out of money during the build, what options do I have?
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At the moment, with rising building costs and interest rates, self build mortgages are stress tested more than usual. Banks are adding contingency to any estimates you provide as budget.

Drawdown is in stages with each needing approval from the bank. If you run out of money, you will need to reapply for a topup, and there is a very real risk you won't be able to complete build.
 
Paul F said:
Let's say you rent out 3 double rooms at €1,500 per month each. That would bring in €54k in gross rental income, or about €27k net.

Do you think it's realistic to get €1,500 for each room? (I'm basing that rent on a double bedroom in an apartment in Dublin city centre.)
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I think it is, but I would only need circa €1500 per month nett to make the additional repayments on the additional mortgage. So even if I were to get €3,000 per month nett from renting, on top of my own €1500 or so contribution to the mortgage I would have the income to cover the repayment. I was initially thinking of the rent-a-room €14,000 per annum, but I read somewhere if you have a lot of expenses in that year you might be better off going for the full rent and writing expenses off against tax: €2,748.02 monthly repayment on a €500,000 mortgage according to Bonkers (https://www.bonkers.ie/compare-mortgages/your-results/). Would hiring a QS give the bank some certainty in terms of costs of the entire build?
 
Are you aware that you can't write off the full mortgage repayment but only the interest? And you would be able to write of only the costs linked to the rental, not the full cost.
 
I don't know how it would work in a house, apart if the rooms are fully independent.
And then I would imagine that they could be CGT implication if you go for full rental?
My understanding is that the rent a room is limited to 14000 whatever the number of rooms and that if you go other the limit, your full income is taxed (I am opened to correction)
 
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I'm not aware at all about what could be written off as I just found out about that alternative and I assume I'd have to talk to somebody who knows about that about its details. My initial plan was to just go with the rent-a-room €14,000 which would be sufficient for me to meet the repayments (along with my own contribution, of course) on a €500,000 mortgage. The CGT implications are a good call, as my idea was to live there as my home and just supplement my income/pay the mortgage by renting and then, when I can afford it, stop taking tenants. I don't know the CGT implications so I'd have to check that out, too.

My initial query, however, essentially revoles around if it is possible to get a mortgage for, say, 6 times my income and be able to say to the bank that I will make the repayment shortfall by renting rooms. Once it is, I can tackle what is the best way to go about securing it.
 
You are correct on that. Not only that, the €14000 includes utility bills and if you go even €1 over it, the entire €14,000 is taxed.
 
I don't think a bank will take potential rental income from rooms into account.
On a recent BTL mortgage I went for, they wouldn't take the income from the rental property in to consideration when assessing my annual income, however, best thing to do is just talk to the mortgage advisor in the bank. He will tell you for sure in one quick phone call.
 
Aodhán said:
The house would be in a very high demand area of Dublin so there'll be no issue renting it and receiving €30,000 or so nett income per year from it.
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Remember the Central Bank's macro-prudential limits. The will not take into account potential income, only your current income.

That's before the lender's own underwriting standards which are in general much more conservative than in 2007.
 
The advisor in AIB actually told me that not only will they not take the potential income of the property into consideration, but furthermore they will only take 60% of my existing rental income into consideration when assessing me.
 
They won't take potential income into account whatsoever, however if you can rent out some rooms or whatever to demsontrate rental income for 6+ months, this will be factored in. As per the above, it may vary bank to bank but I recall BOI considering it the same as per other income.
 
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