We want a 5 year plan to trade up from our apartment to a house

[Lookingtomove]

Hi,
Current Situation – Living in 2 bed apartment with 2 kiddies, looking to move (buy if possible or rent if necessary within the next 5 years) and looking for financial advice as to what options we have and steps to take.
Value of Property €140K
Amount on Mortgage €160K (was originally 225K)
Tracker mortgage +.75% with AIB, repayments €570p/m, currently pay €750 p/m
Salary combined - €65k p/a, €3,900 p/m
2 young children – part time crèche fees €900p/m
Curently saving approx. €800 p/m, total savings 5k
No other loans etc
So, what to do! We would love to move to a large home in the suburbs of Dublin, a modest 3 bed semi d to accommodate our family.
At the moment we are eligible (I am presuming) for a negative equity mortgage. Is this our best option? Does this mean selling our current property and taking the negative equity to a new home? At our current rate of repayments negative equity should be over in a couple of years for us, will this leave us in a worse off position?
Can we afford to save up for a second deposit, buy a second home and rent our apartment? The mortgage is small and rents in the area are generally €900 p/m.
All advise appreciated, we are looking to create a 5 year plan to move us and want to explore all options.

 

[Brendan Burgess]

It's great to see someone planning ahead 5 years. Most people want to move NOW! and don't like being advised to take their time.

If you pay at €570 per month, you will have reduced the mortgage to €130k in 5 years.

You must stop overpaying your mortgage immediately. The conditions of the mover tracker require you to have 10% of the price of the new home in cash. The Central Bank requires you to have a 20% deposit. The 20% requirement does not apply if you are in negative equity.

So ceasing to overpay your mortgage will result in you having a much bigger deposit and could help you to escape the CB guidelines.

On a salary of €65k , the most they can lend you is €227k. How much will "a large, modest, home in the suburbs of Dublin" cost you?
5 years at €1,000 per month would leave you with €60,000. You would also have €10k equity, assuming no change in the value of your apartment.

It will be very tight. You certainly should not be considering borrowing this on an SVR of 4.5% when you can borrow €130k of it on a tracker of ECB + 1.75%.

Brendan

 

[Lookingtomove]

Thank you so much for getting back to me Brendan – the advice is greatly appreciated. The way I see it we have 2 options – you might have a read and see if you concur –
1. Cease over paying our mortgage and save to obtain a 10% cash deposit for a new home. A couple of questions – based on current salary we can get a mortgage for €227k – if we obtain over and above a 10% deposit can this sum be used to gain a larger mortgage than €227k? E.g. we see a home for €260k – we require a €26K deposit, can savings be used to cover the balance between price of property and mortgage given? With a negative equity mortgage do we keep the tracker on the negative equity mortgage we move and pay the SVR on the balance?
2. Keep our current apartment & rent it out to cover the mortgage & resulting tax liability. Save a 20% cash deposit and buy a second home, mortgage approval limited to €227k
I suppose with rising property process and the fact we are currently “only” in negative equity to the sum of €20k, I am nervous of us losing a window for the negative equity mortgage. We hugely regret buying an apartment in the first instance, I really don’t want to make the same mistake again.
Thanks so much for the input and advise.