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Second mortgage approval & discounting of rental income

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  • 19-07-2012 1:56pm
    #1
    familyman5
    Registered Users Posts: 5 ✭


    I have a property (currently rented) and am trying to buy another house (I'm renting myself in the meantime).

    I now understand that rental income is discounted heavily (50%+) by banks when considering how much more you can borrow. And also that repayments are stress tested at interest rates of close to 7%, even though my existing property is on a tracker @ 1.95% (yipee for me).

    These 2 factors are having a huge affect on what I can hope to borrow, according to our mortgage broker - has anyone got any extra information on this? specific banks? similar experiences?

    Thanks
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    #2
    Eddie2008
    Registered Users Posts: 49 ✭Eddie2008


    We have recently got mortgage approval on a second property. They did not discount as we had (and on purpose) rented our existing property out and could prove its income. Some people will advise what rent they can achieve but the bank may discount this.

    BOI would be the only option, we spent may months doing the research. My advice is to go direct and ring up the mortgage centre, they are actually quite good. They will give you approval in principal without having to submit all the documentation, just provide a dummy property. Provided you tell the truth you will at least know what you can afford. If you phone tomorrow, you should get your answer by the end of next week and it was very easy.

    Sorry to all brokers, and there are good ones here on boards but to get the best rate from BOI, you have to go direct. Also got an inside track on how they stress test, so we did our figures before applying. Just stress your total new combined mortgages at 7%, then make sure that after your new mortgage and outgoings you have €3000 left over (if you have one child). They will only for 75% of rent, so if you have €1000, add €750 to your monthly income.

    Since our approval, we went sale agreed and submitted all our documentation and the loan has since been sanctioned.

    Let me know if you have any questions.


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    #3
    familyman5
    Registered Users Posts: 5 ✭familyman5


    really useful stuff Eddie2008 - thanks!

    just a clarification or two if you can spare a minute - you say "Just stress your total new combined mortgages at 7%, then make sure that after your new mortgage and outgoings you have €3000 left over (if you have one child)."

    By this you mean add use a mortgage calculator to figure out repayments at 7% on existing & new mortgage, and subtract these from my monthly income?

    You also said "They will only for 75% of rent, so if you have €1000, add €750 to your monthly income." Are you saying that €1000 rental income is only being treated as €750. This is what I meant by discounting (by 25% in your case), which is where we are going to have a problem in getting approval.

    thanks again & for the quick reply


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    #4
    Eddie2008
    Registered Users Posts: 49 ✭Eddie2008


    just a clarification or two if you can spare a minute - you say "Just stress your total new combined mortgages at 7%, then make sure that after your new mortgage and outgoings you have €3000 left over (if you have one child)."

    By this you mean add use a mortgage calculator to figure out repayments at 7% on existing & new mortgage, and subtract these from my monthly income?
    Yes, use jeacle.ie and add your gauranteed monthly income including rent. Do not include bonuses, child benefit, commissions etc

    You also said "They will only for 75% of rent, so if you have €1000, add €750 to your monthly income." Are you saying that €1000 rental income is only being treated as €750. This is what I meant by discounting (by 25% in your case), which is where we are going to have a problem in getting approval.
    Sorry, then yes 25%. When we did this, we were a little disheartened but are actually very comfortable with it now. We are 'fingers crossed' now buying a property well within our means and hopefully live a comfortable life. The important thing is at least you now know what you can afford rather than playing a guessing game.


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    #5
    killers1
    Registered Users Posts: 1,443 ✭✭✭killers1


    Eddie2008 wrote: »
    just a clarification or two if you can spare a minute - you say "Just stress your total new combined mortgages at 7%, then make sure that after your new mortgage and outgoings you have €3000 left over (if you have one child)."

    By this you mean add use a mortgage calculator to figure out repayments at 7% on existing & new mortgage, and subtract these from my monthly income?
    Yes, use jeacle.ie and add your gauranteed monthly income including rent. Do not include bonuses, child benefit, commissions etc

    You also said "They will only for 75% of rent, so if you have €1000, add €750 to your monthly income." Are you saying that €1000 rental income is only being treated as €750. This is what I meant by discounting (by 25% in your case), which is where we are going to have a problem in getting approval.
    Sorry, then yes 25%. When we did this, we were a little disheartened but are actually very comfortable with it now. We are 'fingers crossed' now buying a property well within our means and hopefully live a comfortable life. The important thing is at least you now know what you can afford rather than playing a guessing game.

    Delighted to hear it worked out for you....


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    #6
    Eddie2008
    Registered Users Posts: 49 ✭Eddie2008


    Killers, I meant yourself when I said good brokers. You're advice got us on the right road. You are providing an invaluable service here on boards and wish you the best of luck too. Anyone who needs broker, forget everyone else, contact killers. We contacted several and in our opinion he was the only one who knew exactly how the current process works. He is a true expert in his field.


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    #7
    dearg lady
    Closed Accounts Posts: 2,091 ✭✭✭dearg lady


    sorry to hijack, but this doesn't really warrant a thread of it's own. Eddie and familyman, you guys rented out a full property? Does anyone know where things stand if it's just a room rented out? Would the bank take that rent into consideration? The example is a joint purchase, one owner still living there, the other owner looking to move out, rent their room, and purchase their own place.


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    #8
    killers1
    Registered Users Posts: 1,443 ✭✭✭killers1


    dearg lady wrote: »
    sorry to hijack, but this doesn't really warrant a thread of it's own. Eddie and familyman, you guys rented out a full property? Does anyone know where things stand if it's just a room rented out? Would the bank take that rent into consideration? The example is a joint purchase, one owner still living there, the other owner looking to move out, rent their room, and purchase their own place.

    Unfortunately 'room rental' isn't factored in as income in any way, shape or form by the banks anymore


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