We currently rent. We plan to move to another county within four years. Should we buy now?

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Raey

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Title updated- hopefully clearer.

Couple currently renting in Kilkenny. €1.1k per month.

Plan to move to Cork for buy our forever home within 4 years. Most likely scenario is 3 years but could be as low as 1.5 years. Career dependent and out of our hands.

There is a property for sale in the same estate that we rent in. On sale for €300k. If we buy, we would want to keep the property and rent it out after we eventually move back to Cork. We should be able to achieve €1.3k rent (before tax) on this property.

We are trying to establish:
  1. Should we continue renting or buy given we uncertainty on timelines and fact that we know we will not be here longer than four years?
  2. If we buy, how much of our cash deposit should we use?
  3. If we buy, what are the implications on getting a second mortgage for our forever home? Are we shooting ourselves in the foot?
I have attempted to model and the buy option looks attractive but expect I am missing some important considerations.
  • Combined Salary: €170k
  • Savings: €120k (all cash)
  • Savings per month: €2.5k
  • Rent per month: €1.1k
  • First property price: €300k
  • Forever Home property price: €600k
  • Assumed mortgage rate and periods: 2.45% & 30 years
  • We have seperate pension savings.

Option 1 (Rent)Option 2 (Buy)
Initial Time Period2 Years2 Years
Opening Savings€120,000€120,000
less deposit€0-€60,000
plus additional Savings€60,000€60,000
Closing Savings€180,000€120,000
Rent Paid€26,400€0
First Home Price€300,000
less deposit-€60,000
Borrowing over 30 years€240,000
Interest Accrued€11,625
Payments made (€949 p/m)-€22,781
Loan Balance after 2 years€228,844
Forever Home Price
€600,000​
€600,000​
less deposit
-€180,000​
-€120,000​
Borrowing over 30 years
€420,000​
€480,000​
Interest Paid over 30 years
€164,584​
€188,096​
 
Overall I would say continue to rent given that you might move to cork in as little as 1.5 years, you might pay a few extra thousand over 30 years renting vs buying now, but you are saving yourself risk and hassle.

There are a few assumptions baked into the above that in my opinion are not guaranteed. There are costs with being a landlord (management fees, repairs, finding tenants etc) which will impact the net revenue of the property. You are assuming that you will be able to get the best mortgage rates on the market buying your second home, but you might find your selection limited because it is your second property. In addition BTL rates are higher etc.
 
You are looking at this wrong. You should not be looking at 30 years. You should be looking at the next two years or maybe 5 years but detailed planning beyond that is pointless and leads to false confidence in the outcome.

With €120k of cash, you should not be looking at owning €900k worth of property with €780k worth of mortgages. That is too much borrowing - way too risky. So if you buy, you must assume that you will sell when you move to Cork.

Buy house and sell after two years

Annual cost of renting money : €180k @ 3% : €5k
Annual cost of renting house: €1.1k : €13k
Buying will save you €8k a year

Savings after two years: €16k

Transaction costs of buying and selling

Stamp duty: €3k
Legal and other fees on buying : €3k
Legal fees on selling: €2k
Auctioneers fees selling: €3k
Total transaction costs: €11k

If you stay longer than two years, the savings will be even higher.

Advantages of buying:
You have a stake in the Irish housing market, so if prices continue to rise, you will have a "hedge".
Owing your own place is just nicer than renting

Disadvantages of buying:
If house prices fall, the value of your property will fall - but that suits you as the €600k house will also be cheaper. (although you will be better off if you had not bought.)
Your deposit will be used up in your home, so you will need to sell to buy again in Cork.
It's much easier buying if you are a cash buyer.
 
I think you would be better off buying your forever home in Cork now!

That gets rid of all the transaction costs of buying and selling a home, but gives you the all important stake in the property market.

You have 20% of the price as a deposit.
With €170k cash, you can borrow the balance required easily.

Tell the lender you are moving to Cork and buying a home.
You will get the home loan rate.
You can rent it out in the meantime.

The downside is that when you want to move to Cork, you may well face difficulty in getting the tenants out.

Brendan
 
Thanks a million. That is very clear.

I had never considered "Buy Forever Home" now option. Now that you say it, it is clearly the superior option.

Is there a risk that I would be breaking my contract with the bank if we rented it out in the meantime (i.e. up to four years?) given the mortgage would be on PPR home loan rates rather than BTL rates?

This article in particlar spooked me: Irish Times Advice on the topic
 
Your bank may request proof that your employer will let you work remotely from Cork for a reasonable amount of the working week for you to be able to purchase as a PPR.
 
Banks have to set aside more capital for buy to let properties than for homes. So they have to classify them accordingly.

But that is really not a concern of yours. If you are in technical breach of your contract, so what?

It is understood that many people rent out their homes. That is all that you are doing. I don't think that any of the banks enforce their right under the loan agreement to charge a higher rate.

You could buy it as a buy to let property if you are concerned. But the interest rate would be much higher and you might have difficulty getting the home loan rate when you do move into it.

Brendan
 
And possibly getting rid of the tenant when you need to move in ...
 
jpd said:
And possibly getting rid of the tenant when you need to move in ...
Click to expand...

Whether the bank considers it a buy to let or a home is not relevant to ending a tenancy.

Under the current rules, the owner of a property can end a tenancy to move into it themselves.

But who knows what daft legislation we may have in two or three years?

I know of people returning to Ireland who could not move back into their homes because the tenants refused to vacate during Covid.

So it's a risk. But a risk worth taking as it's a lot smaller than the risks involved in buying a property in Kilkenny now and then wanting to buy in Cork in a few years.

Brendan
 
Also add furnishing costs, rtb registration, agency fees, hassle - even with good tenants.

Then add the interest rate difference between having a sub 70% LTV versus a 80%+ LTV on your mortgage

You're in a great position now that you could go for mortgage approval, get a rate of 2.15% fixed for 7 years and keep an eye out for the property that suits you.

It might come up in the summer, or you might have to wait, but when it comes you will be in a strong position.
 
peemac said:
Also add furnishing costs, rtb registration, agency fees, hassle - even with good tenants.

Then add the interest rate difference between having a sub 70% LTV versus a 80%+ LTV on your mortgage

You're in a great position now that you could go for mortgage approval, get a rate of 2.15% fixed for 7 years and keep an eye out for the property that suits you.

It might come up in the summer, or you might have to wait, but when it comes you will be in a strong position.
Click to expand...
Thanks!
 
On another note......and speaking as someone who rented in another country for over 12 years, it seems distasteful to encourage someone to enter the buy-to-let space for 2 or so years and then "get rid of" the tenant. So much for stability of tenure. Tenants with lives, hopes, and dreams should not become the collateral damage of amateur landlords. In an age when investors are more and more concerned with ESG , I'm not sure we should be encouraging such behaviour. Even if it makes some financial sense, just because you can, doesn't mean you should.
 
NotMyRealName said:
On another note......and speaking as someone who rented in another country for over 12 years, it seems distasteful to encourage someone to enter the buy-to-let space for 2 or so years and then "get rid of" the tenant. So much for stability of tenure. Tenants with lives, hopes, and dreams should not become the collateral damage of amateur landlords. In an age when investors are more and more concerned with ESG , I'm not sure we should be encouraging such behaviour. Even if it makes some financial sense, just because you can, doesn't mean you should.
Click to expand...
Should your anger and dissatisfaction be directed at the government and not people actually supplying houses? It seems the government are getting off scott free and the landlords being scapegoated as per usual.
 
NotMyRealName said:
So much for stability of tenure. Tenants with lives, hopes, and dreams should not become the collateral damage of amateur landlords.
Click to expand...
If the OP buys a house and lets it to a tenant saying that they will be moving into themselves after two years, what is the issue?

The idea that tenants should have a right to live in a house forever is nonsense. Many people , tenants and home owners, move home.

Brendan
 
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