Application for 2nd Mortgage

stormtropper1

Hi
I'm looking for some help and advise on what way to proceed with getting a second mortgage and buying a 2nd house , The amount I could expect to borrow in another mortgage and what would be the best way to apply to get that mortgage (broker /bank) .

Before anyone asks , I need to move from my current house to be closer to family but as I would be moving back to Dublin the house prices I'm looking at are expensive.

So my situation is couple earning approximately 70/75k per year. 1 working full time for years and will remain so and the other on contract work but normally works 3/4 days per week and has been for the last 4 years.

Bought house in 2006 €325k currently owe €170k house now valued at 200/220k (tracker rate), we don't want to sell the house as that would compound our loss so ideally we will rent it out for a few years and depending on the property market we might sell it at a later date depending if the prices start to increase more outside of Dublin to bring this difference down .

The property prices for the houses we have been looking at are around 480/500k , we have the 20% deposit saved but I'm not sure if that should be 30% for a second mortgage.Or if the new mortgage rules apply to a second mortgage or if your in negative equity or if the bank can make exceptions to the new rules depending on each application.
We would have a very good credit rating never missed a payment or have any outstanding debts ,no credit card debt, full record of saving etc . Any loans taken out have been paid off early , No outgoings except general living expensives no kids.

I'm not sure what other information is relative so any help or advise would be appreciated. Any further info needed to let me know or pm me
Thanks in advance.

Fol20

I'm afraid you may only be able to get about 100k maybe a little more. Based on a salary of 75k you could borrow about 260 on 3.5times your salary or maybe 300 at a stretch. Then coupled with the fact that you already have debt of 170k, it's not looking likely that they could give you much on what your looking for unless you sell your first house.

Trish56

Under Central Bank Regulations you can only borrow up to 3.5 times gross salary. = €262,500. Your o/s mortgage would not be deducted from this. Your application would be assessed on your income, ages, dependents, childcare, short term borrowing, net disposable income. your existing property would be taken into consideration and the figures used would be an interest rate of 4% and a certain % of your rental income would be considered this depends on the lender. Plenty of people are taking out 2nd mortgages and renting out existing and once all the figures add up there is no problem. 20% Deposit is fine but it looks like you will be caught with the 3.5 times income. Contract income may be an issue.

Perhaps you should ring up a bank or a broker and ask them to do calculations for you.

stormtropper1

Trish56 wrote: »

Under Central Bank Regulations you can only borrow up to 3.5 times gross salary. = €262,500. Your o/s mortgage would not be deducted from this. Your application would be assessed on your income, ages, dependents, childcare, short term borrowing, net disposable income. your existing property would be taken into consideration and the figures used would be an interest rate of 4% and a certain % of your rental income would be considered this depends on the lender. Plenty of people are taking out 2nd mortgages and renting out existing and once all the figures add up there is no problem. 20% Deposit is fine but it looks like you will be caught with the 3.5 times income. Contract income may be an issue.

Perhaps you should ring up a bank or a broker and ask them to do calculations for you.

Thanks Trish for your reply , I suppose I'm looking for some impartial advise and what better way than chatting about it with someone without any bias so thanks for that really appreciate it, I've read many posts on the matter but none exactly like my issue, I've read that the banks can do some mortgages without using the 20% rule and that really isn't our issue we would have more than the 30% should we need it , renting out our current house at the current rent prices in our area would mean in effect not having any payments or outgoings or very little to be honest and lucky I guess , other half has been offered full time contract (government hse ) but prefers contract as it offers more felxablity once you can show a certain amount of hours being worked for the last few years would that be taken into account? The 3.5 income rule so is our only issue so and if that could be overlooked everything else I think would add up , we could afford the new mortgage on the property but just because of the 3.5 rule we might not be able to apply for the amount / type / value of a house that we want, down the road we would likely sell the 1st house once their was some more equity built up in it and clear off what ever was made onto this 2nd mortgage, I don't really want to go through the stop gap of buying what we are allowed to borrow only to have to try move up again later if that makes any sense, funny ten years or so ago they would have given us this amount no problem but we didn't want to take out that much and we moved out of the city borrowed less and got more of a house !! Hindsight is great isn't it .. you hear of any particular brokers that are good? I know bankers can be sticky with rules these days but if all the sums add up and we could meet the repayments,I wonder would they give us the amount needed all things considered.

stormtropper1

Fol20 wrote: »

I'm afraid you may only be able to get about 100k maybe a little more. Based on a salary of 75k you could borrow about 260 on 3.5times your salary or maybe 300 at a stretch. Then coupled with the fact that you already have debt of 170k, it's not looking likely that they could give you much on what your looking for unless you sell your first house.

Hi Flo , thanks for your reply , I could sell the house and be up the 50k but then using the figures I'd only have possible 300k new mortgage plus deposit 140k and no house , My current house is costing me nothing really to live in and if I rented the house out it would cover the re-payments each month, plus a few years more down the road prices might have come up a little more and the house could be sold for more than the current prices on offer in the area , also we would owe less on that mortgage as we are currently overpaying each month to reduce it even though it's a tracker . That's why I'm looking at the 2nd mortgage option I know we are a very good risk and very prudent with our cash , living like a monk and saving every penny for the last two years really does focus you on your goals , I would hope a bank would see this , statements etc and would be to our advantage but the new mortgage rules 3.5 times salary seems to me to be the only thing restricting us I think , I wonder would a bank have a sit down with you and go through all this with you weight it up and make a desession based on it.

bmwguy

Have you taken into consideration you will be taxed approx half the rental income of first house? Less some allowable expenses like mortgage interest etc but there will probably be a tax bill

For your new house, assume a 20% deposit and a 400k mortgage. You are asking the banks to allow you owe 570k on one class of asset, i.e. Irish property.

This is about 8 times annual income, and 1 of those incomes is a contract (I presume the smaller income)

Would you lend it yourself? I wouldn't.

Selling the house or renting out old and renting new house is about the best option for you. I know its not what you want to hear. Its time to talk to a few banks and brokers to get your full options.

Bandana boy

Your tracker most likely has owner occupied built into the terms
If your bank finds out you would have to switch to their current interest rate offering.

While you may get away with this any bank will fold this into your payback ability.

We are doing something similar and even though expected rental income is 4-500 above our current payments we had to build in 800 a month of our income being used to facilitate keeping the first house.

SarahMollie

Honestly, I don't think based on what you've outlined that you can afford what you're proposing.

1. You've not factored in needing to pay tax on any rental income arrising from your current property if it was rented out. Could you get 2x your mortgage payment in rent? Because thats roughly what you'd need.

2. Your partner may prefer to be a contractor but Banks still prefer full time, permanent employees. They may not lend anythign against her income. You'd have to submit an application/at very least talk to a broker.

3. You seem to want the best of everything, having your cake and eating it too comes to mind. You don't want to "compound your loss" and while I get that on paper, you need to also think that if the crash hadnt happened, the houses you're looking at in Dublin would be significantly more expensive than they are now. Yes, on paper you make a loss, but you're also buying into a market that has seen a reduction in prices.

4. €75k for a couple is not a very high income to be supporting loans on two high value assets. You seem to view the 3.5x ratio as a pesky annoyance that's getting in your way, but its actually there largely to protect people from themselves.

stormtropper1

bmwguy wrote: »

Have you taken into consideration you will be taxed approx half the rental income of first house? Less some allowable expenses like mortgage interest etc but there will probably be a tax bill

For your new house, assume a 20% deposit and a 400k mortgage. You are asking the banks to allow you owe 570k on one class of asset, i.e. Irish property.

This is about 8 times annual income, and 1 of those incomes is a contract (I presume the smaller income)

Would you lend it yourself? I wouldn't.

Selling the house or renting out old and renting new house is about the best option for you. I know its not what you want to hear. Its time to talk to a few banks and brokers to get your full options.

Thanks for your comments, Bmwguy I don't know if you have read the journal article today on house prices etc , it makes for some interesting and scary reading , average borrowing is nine times the average salary, what I'm looking at is closer to seven when you take the equity that's already in the 1st house , so if that's the norm at the moment yeah I would lend it to myself , I would sell the 1st house in a year or two depending on what way the house prices keep going, I don't want or intend in being a landlord any longer than I have too be one and yes I have taken the tax that has to be paid into account . Time for me to chat with a few brokers .

stormtropper1

Bandana boy wrote: »

Your tracker most likely has owner occupied built into the terms
If your bank finds out you would have to switch to their current interest rate offering.

While you may get away with this any bank will fold this into your payback ability.

We are doing something similar and even though expected rental income is 4-500 above our current payments we had to build in 800 a month of our income being used to facilitate keeping the first house.

Thanks for your post , some helpful info appreciate that .

bmwguy

stormtropper1 wrote: »

Thanks for your comments, Bmwguy I don't know if you have read the journal article today on house prices etc , it makes for some interesting and scary reading , average borrowing is nine times the average salary, what I'm looking at is closer to seven when you take the equity that's already in the 1st house , so if that's the norm at the moment yeah I would lend it to myself , I would sell the 1st house in a year or two depending on what way the house prices keep going, I don't want or intend in being a landlord any longer than I have too be one and yes I have taken the tax that has to be paid into account . Time for me to chat with a few brokers .

Just looked for it there that's not what it says. It says the average house is 9 times the average industrial wage (1 single average income). That's 4.5 times the combined wage of 2 people on the average. Banks are lending 3.5 times and the borrower has to come up with the rest.

Your figure of 7 times is 7 times combined wage which is way above. It's going to be impossible for a bank to lend that. Not a hope in hell. I do understand why you want to do it but the rules are there now for a reason. What if there is another collapse in prices in a few years? You would owe a fortune with zero way out. It's what happened a decade ago.

stormtropper1

SarahMollie wrote: »

Honestly, I don't think based on what you've outlined that you can afford what you're proposing.

1. You've not factored in needing to pay tax on any rental income arrising from your current property if it was rented out. Could you get 2x your mortgage payment in rent? Because thats roughly what you'd need.

2. Your partner may prefer to be a contractor but Banks still prefer full time, permanent employees. They may not lend anythign against her income. You'd have to submit an application/at very least talk to a broker.

3. You seem to want the best of everything, having your cake and eating it too comes to mind. You don't want to "compound your loss" and while I get that on paper, you need to also think that if the crash hadnt happened, the houses you're looking at in Dublin would be significantly more expensive than they are now. Yes, on paper you make a loss, but you're also buying into a market that has seen a reduction in prices.

4. €75k for a couple is not a very high income to be supporting loans on two high value assets. You seem to view the 3.5x ratio as a pesky annoyance that's getting in your way, but its actually there largely to protect people from themselves.

Hi Sarah

Thanks for your reply and your honest opinion.

1. I have facterd the tax that will need to be paid I have that covered for 3 years approx and enough of a contingency if I don't have someone renting for part of that time frame too.
2. Yeah I agree I know past working experience means nothing about future work, however it's with gov body but I would prefer if other half just took a full time position.
3. Who doesn't want to have cake !!! You must not like cake ... all joking aside I get your point but why wouldn't I ? At the moment house prices are actually above pre crash levels as are the mortgage rates ....I'm not exactly onto a winner in that respect. I'm buying an over priced house on over priced mortgage rates with restricted rules that weren't in place before pre crash , Don't get me wrong I understand why they are in place now. I'm not a property developer and I fully intend to sell the 1st house once the price comes up a little more, I also don't want to be a landlord.
4. I agree it's not that much but the 1st house will be sold making a profit and that will be used to clear part of the 2nd mortgage reducing the risk for the bank, I suppose I do think of the 3.5 as a pesky annoyance.
I would counter that point with I clearly understand why it's there to protect people from themselves but I also know that if you stop paying for your mortgage you lose your house end of story and that's only right too . The banks aren't going to loan me 1 million knowing I can't ever pay it back, I suppose I'm thinking of it as a stop gap until I sell the first house. Anyhow thanks for your points and your post , I'm off to chat with a broker on the best way forward.
( have a read of the journal.ie article on mortgages from today it makes me want to sit on the fence a little longer )
http://www.thejournal.ie/readme/with-the-average-house-costing-e338k-the-market-is-looking-sillier-with-each-passing-minute-3414397-May2017/?amp=1

SarahMollie

stormtropper1 wrote: »

Thanks for your comments, Bmwguy I don't know if you have read the journal article today on house prices etc , it makes for some interesting and scary reading , average borrowing is nine times the average salary, what I'm looking at is closer to seven when you take the equity that's already in the 1st house , so if that's the norm at the moment yeah I would lend it to myself , I would sell the 1st house in a year or two depending on what way the house prices keep going, I don't want or intend in being a landlord any longer than I have too be one and yes I have taken the tax that has to be paid into account . Time for me to chat with a few brokers .

I've read the article that you mention and IMO its just an opinion piece, I wouldnt read too much into it. Look who the writer is and who he represents. Absolutely in his interests to rile people up as part of the populist agenda.

Secondly, it says that the average house costs 9x average salary.

1. Average salary is a bit of a misnomer. It includes everyone, and not everyone wants to buy a house. What about those who live in social housing who are on low incomes - they're included in those statistics too. If we knew the average incomes of those who are actually intending to buy, I'd imagine its a good bit higher.

2. Most people buy homes as part of a couple, so you could say that 9x average salary could be classed at 4.5x an average couples salary.... so the gap from what you can borrow to what you need isnt that huge and should be bridged by savings (ie your deposit). It doesn't say that the banks are lending anyone 9x income - they are absolutely not.

3. Prices are not back to peak levels - see the CSO http://www.cso.ie/en/releasesandpublications/ep/p-rppi/rppifeb2017/

Anyhow, let us know how you get on with your broker - I'd be interested to hear what they advise you, but I wouldn't be optimistic.

stormtropper1

bmwguy wrote: »

Just looked for it there that's not what it says. It says the average house is 9 times the average industrial wage (1 single average income). That's 4.5 times the combined wage of 2 people on the average. Banks are lending 3.5 times and the borrower has to come up with the rest.

Your figure of 7 times is 7 times combined wage which is way above. It's going to be impossible for a bank to lend that. Not a hope in hell. I do understand why you want to do it but the rules are there now for a reason. What if there is another collapse in prices in a few years? You would owe a fortune with zero way out. It's what happened a decade ago.

Yeah but your not taking the deposit into the figure or the fact I will only own one house in a few years time with a reduced mortgage amount. Say 337 M plus 140 dep not to far off what I want to buy , So any collapse down the road won't really matter as I will only have 1 mortgage to pay I'm getting some feed back that their is wiggle room if the house is bought as an investment prop with 30 % deposit, if their is another collapse at least I will be in the city ! I've worked through the last one so the risk of another doesn't bother me if it happens again, I don't intend in having to move ever again so this house I will be carried out of hopefully!! Thanks for your reply .

stormtropper1

SarahMollie wrote: »

I've read the article that you mention and IMO its just an opinion piece, I wouldnt read too much into it. Look who the writer is and who he represents. Absolutely in his interests to rile people up as part of the populist agenda.

Secondly, it says that the average house costs 9x average salary.

1. Average salary is a bit of a misnomer. It includes everyone, and not everyone wants to buy a house. What about those who live in social housing who are on low incomes - they're included in those statistics too. If we knew the average incomes of those who are actually intending to buy, I'd imagine its a good bit higher.

2. Most people buy homes as part of a couple, so you could say that 9x average salary could be classed at 4.5x an average couples salary.... so the gap from what you can borrow to what you need isnt that huge and should be bridged by savings (ie your deposit). It doesn't say that the banks are lending anyone 9x income - they are absolutely not.

3. Prices are not back to peak levels - see the CSO http://www.cso.ie/en/releasesandpublications/ep/p-rppi/rppifeb2017/

Anyhow, let us know how you get on with your broker - I'd be interested to hear what they advise you, but I wouldn't be optimistic.

Hi Sarah,
I will let you know how I get on, thanks for the reply