Second time buyers

Liam McPoyle

Hi all.

Looking for some general advice.

Current situation is as follows.

Married, both of us working, combined gross annual income recently increased to €140,000.

We currently own where we are living, approx €225k left on the mortgage.

Property is a 2 bed duplex (2 up 2 down) in Saggart.

We had it valued around 2 years ago at around €180k, a smaller neighbouring property sold for around €190k approx 18 months ago so with the current uplift in property values in the Dublin area I'm estimating that it wouldn't be too far from being out of negative equity.

Savings are currently around €5k, Mrs BC has been on unpaid maternity leave for the last 3 months (back to work in a few weeks) and we had some medical expenses so they have taken a bit of a hit.

We have shares that have vested and are worth around €20k based on current market value.

We have more that will vest around March next year and based on CMV they will be worth approx €25k after all taxes and charges are paid.

We sat down last night and did some maths and have come up with a figure for monthly saving of €3000. That's probably the max we can afford to save when factoring in mortgage, bills, child care etc.

So all going according to plan, when the next batch of shares vest next year we should have around €40,000 in personal savings and the shares will be worth around €45k based on CMV (I'm not concerned with them reducing in value at all, the shares are in a company that has massive growth plans in place and are in an industry that is growing steadily)

Even factoring in our personal savings not being as good as projected, we should have a deposit of a minimum of €70k and the current property will more or less be out of negative equity.

The kind of properties we are looking at are currently in the €450 to €500k range so we would most likely need to borrow around the €400k mark.

What are the realistic chances of this being granted?

I know the general rule is for second time buyers to have a 20% deposit but are there allowances made for this requirement?

Our ages are probably going to go against us (Mrs will be 40 next year, me the year after) so that's a concern.

My parents had previously mentioned that they would give us a hand when we are looking to move so I think we could probably get an additional €15 to €25k from them but I believe that in itself can lead to problems.

Basically what I'm looking for is a bit of a steer in terms of our options and what we realistically need to do to get approval for the kind of numbers we are talking.

TIA.

catrionanic

Your salaries should stand you in good stead for an exemption on the 20% deposit rule. Aim to apply early in the year when the banks still have plenty of exemptions available.

You won’t get an exemption on both the deposit and the 3.5x salary rule though. But based on your earnings, they would allow you to borrow 490k, assuming your existing home is out of negative equity by then.

Liam McPoyle

catrionanic wrote: »

Your salaries should stand you in good stead for an exemption on the 20% deposit rule. Aim to apply early in the year when the banks still have plenty of exemptions available.

You won’t get an exemption on both the deposit and the 3.5x salary rule though. But based on your earnings, they would allow you to borrow 490k, assuming your existing home is out of negative equity by then.

Cheers.

So am i right in thinking that if we had a deposit of €70k we could realistically borrow say €400k based on our salaries and not get snookered with the 20% rule?

What kind of buffer should we allow for solicitors fees, taxes etc?

Alkers

You should consider if it would be better overpaying your current mortgage or saving the 3k per month?

Liam McPoyle

Simona1986 wrote: »

You should consider if it would be better overpaying your current mortgage or saving the 3k per month?

Herself had mentioned that alright.

What kind of advantage could that give us?

rameire

Business Cat wrote: »

Herself had mentioned that alright.

What kind of advantage could that give us?

less interest per month that you are being charged on the mortgage.
less debt to be factored in when they are looking at your mortgage potential,
although you aim to redeem the old mortgage it shouldnt be an issue on new borrowing too much.
less negative equity to cover if the house is sold under your estimated future value.

as for exemptions, ask for one as soon as you apply.
I got an exemption and it was approved in December.

costs
estate agent fees of about 1.75% on selling the house
stamp duty 1%
solicitor fees for buying and selling anything from 5k to 10k inclusive of land fees, searches and postage.
removal cost anything from 800 and up.

if you are going to be wanting to move quickly, look for your life insurance well in advance, if there are any issues with life insurance it can take anything up to 6 weeks to resolve. get it done early.

JDD

3k a month is a phenomenal amount to be saving with a take home pay of, I expect, around €6.5k. I imagine on a €225k mortgage you're probably paying around €1k a month in a mortgage repayment and probably the same again in childcare? And then when you take food, bills, car loans, travel costs etc into account you're going to have very little left to actually live on. While the bank would look very favourably on that level of savings I'm not sure I'd want to go that extreme...

Myself and my husband are in a similar, if perhaps less favourable position than you. Same combined salary, mortgage just out of negative equity, three kids and we have been looking to borrow a similar amount.

So, a few things for you to be aware of first. Yes, there are exemptions to the deposit rules available, and you'd be best applying in November/December of this year so that you'd be looking to draw down the mortgage in early 2019.

As for your disposable income, the banks will look for you to have €2100 plus €250 per child to live on per month after paying your mortgage repayment, childcare, and any outstanding loans. The mortgage repayment will be stress tested by 2%. So an approximate worked example is if you drew down a mortgage of €450k with BOI on a 3% fixed rate, stress tested to 5%, your mortgage repayment would be approximately €2500 per month. So, presuming this is your first child, €2.5k mortgage repayment plus €2450 living expenses plus say €900 per month childcare equals €5850 - presumably under your take home pay right now? You'll also have to add in any outstanding loans if you have any.

Next - the deposit. Our mortgage advisor told us that they like to see the monthly amount of the new mortgage being put away each month, for at least six months but ideally twelve months. Even better if that amount adds up to the stress tested mortgage repayment, and since you want to apply for an exemption you want to present as good a case as you can. Now this does not have to be solely in savings - they count in your current rent/mortgage repayment and any loan repayments that will be paid off in advance of drawdown. If you have a mortgage of €1k you'll need to be putting away €1.5k a month to cover the stress tested mortgage repayment. Given you have €20k in share assets, and perhaps the offer of a gift of €15k from parents, you'd be well on your way to having over a 10% deposit by the end of the year if you put away €1.5k a month. A gift doesn't necessarily look bad on an application, just as long as you can prove that you can save a certain amount each month yourselves that covers the mortgage repayment.

And lastly good luck! P.S. I don't know what your jobs are but clearly if you are permanent and in the job over five years that helps with the exemption application. Even better if one of you is civil/public service.

JDD

I should also say we got approved for an exemption with BOI two weeks ago, so you're certainly in a favourable enough position.

mloc123

Combination of income and saving 3k/month on top of paying your current mortgage should leave you as a strong candidate for a 90% exception... if the rules do not change in the next 2 years, which would be my only concern.

Alkers

Your repayment capacity can be demonstrated by your current mortgage repayments plus any mortgage overpayments plus any regular fixed amounts going into savings which then are left alone. Once those amounts combine to more than your stress tested new mortgage repayment, you'll be fine.

bleary

If you're still in negative equity then you are exempted from the requirement for 20% deposit. Most banks require 10% though.
I would save the deposit rather than Paying down mortgage for next few months. I think a lack of savings on the salary you are on would concern an underwriter.

Cuddlesworth

JDD wrote: »

3k a month is a phenomenal amount to be saving with a take home pay of, I expect, around €6.5k.

Around 8k per month net, minus costs.

A quick look at myhome would imply that a 2 bed duplex would sell around in Saggart for around 220k+ currently(ground floor sold for 218)

While their income is high, the fact that they only have 5K in savings means they are unlikely to meet stress testing for a larger mortgage plus a interest rate rise when looked at by a underwriter.


If I was you, I would take a serious look at your spending and knock down your mortgage as fast as possible. It strikes me that if one of you lost your job right now, you would run out of money incredibly quickly.

JDD

Cuddlesworth wrote: »

Around 8k per month net, minus costs.

A quick look at myhome would imply that a 2 bed duplex would sell around in Saggart for around 220k+ currently(ground floor sold for 218)

While their income is high, the fact that they only have 5K in savings means they are unlikely to meet stress testing for a larger mortgage plus a interest rate rise when looked at by a underwriter.


If I was you, I would take a serious look at your spending and knock down your mortgage as fast as possible. It strikes me that if one of you lost your job right now, you would run out of money incredibly quickly.

I put €140k into the deloitte tax calculator. It came out with a monthly net income of €6,987 and that's presuming no pension paid by either them. Still it's higher than I expected so perhaps they can save more than I thought.

They won't get a mortgage right now with only €5k in savings, even if they got the rest of the deposit as a gift. However if they save hard to the end of the year, and apply for an exemption in Dec/Jan they'll be in a good position to get approval. Presuming prices go up by 8% this year their duplex should be well out of negative equity, though of course the houses they are looking to buy will have gone up in price. That said, they could possibiy get mortgage approval for more than €400k given their disposable income. And if they get an exemption (presuming their credit scrore isn't awful and neither of them are on contracts) they could afford a 10-15% deposit on a house worth €500-€530k.

Alkers

Cuddlesworth wrote:

If I was you, I would take a serious look at your spending and knock down your mortgage as fast as possible. It strikes me that if one of you lost your job right now, you would run out of money incredibly quickly.

Op states that their income has only just increased to that level as a result of a parent returning to work...

mike_2009

If you're cashing in those shares take into account capital gains tax....you're allowed a certain amount per year but over that and the Government will want their fair share (!).

Cape Clear

Cash is king always better to have savings for a rainy day than to be over paying a bank loan.

Liam McPoyle

Cuddlesworth wrote: »

Around 8k per month net, minus costs.

A quick look at myhome would imply that a 2 bed duplex would sell around in Saggart for around 220k+ currently(ground floor sold for 218)

While their income is high, the fact that they only have 5K in savings means they are unlikely to meet stress testing for a larger mortgage plus a interest rate rise when looked at by a underwriter.


If I was you, I would take a serious look at your spending and knock down your mortgage as fast as possible. It strikes me that if one of you lost your job right now, you would run out of money incredibly quickly.

Savings took a hit as missus is on unpaid maternity leave since November.

Mortgage is currently around €900 per month (tracker), we both have car loans, hers @ €430 per month which will be cleared in 2 months, mine at €160 wont be cleared til June 2019 but I'm thinking of just clearing it with the savings I have and funnelling that into savings.

We are paying €260 a month for vhi but are toying with not renewing it in June this year.

We have worked out that combined net pay will be approx €7500 per month.

On the basis of clearing both car loans we are looking at the following monthly outgoings.

Mortgage - €900
Childcare - €900
Car Tolls / fuel / tax / insurance - €500
Heating / esb / phone / broadband - €300
Groceries - €500
Management fee - €80
Vhi - €260
Life insurance - €70
Miscellaneous - €400

Total of approx €3900

Obviously things crop up on a month to month basis so outgoings the guts of €4000 + savings of €3000 leaves a buffer of about €500 a month.

That's where we came up with the figure of €3000 to save per month. We don't live extravagant lives, we have not had a holiday since 2016 and we rarely go out.

I know We need to speak with a mortgage broker / financial advisor to get a proper plan nailed down but im just trying to get an idea of where we are at.

I'm still not clear on what advantage whacking off more on the mortgage would do?

I'd have thought that having €30k+ in ready cash would be better than having a property well away from being in negative equity?

Liam McPoyle

mike_2009 wrote: »

If you're cashing in those shares take into account capital gains tax....you're allowed a certain amount per year but over that and the Government will want their fair share (!).

When the current shares vested tax of 40 odd percent was taken, surely we wouldnt get stung on CGT too?

mike_2009

You may be right about no CGT, it's been a few years since I looked at this but worth checking to make sure....tax stuff makes my head hurt!

Cape Clear

Business Cat wrote: »

Savings took a hit as missus is on unpaid maternity leave since November.

Mortgage is currently around €900 per month (tracker), we both have car loans, hers @ €430 per month which will be cleared in 2 months, mine at €160 wont be cleared til June 2019 but I'm thinking of just clearing it with the savings I have and funnelling that into savings.

We are paying €260 a month for vhi but are toying with not renewing it in June this year.

We have worked out that combined net pay will be approx €7500 per month.

On the basis of clearing both car loans we are looking at the following monthly outgoings.

Mortgage - €900
Childcare - €900
Car Tolls / fuel / tax / insurance - €500
Heating / esb / phone / broadband - €300
Groceries - €500
Management fee - €80
Vhi - €260
Life insurance - €70
Miscellaneous - €400

Total of approx €3900

Obviously things crop up on a month to month basis so outgoings the guts of €4000 + savings of €3000 leaves a buffer of about €500 a month.

That's where we came up with the figure of €3000 to save per month. We don't live extravagant lives, we have not had a holiday since 2016 and we rarely go out.

I know We need to speak with a mortgage broker / financial advisor to get a proper plan nailed down but im just trying to get an idea of where we are at.

I'm still not clear on what advantage whacking off more on the mortgage would do?

I'd have thought that having €30k+ in ready cash would be better than having a property well away from being in negative equity?

Looks like you have a pretty good idea of where your money is going. just notice you don't have any figures down for items like property tax, home insurance etc. Are these items that you intend paying for out of your monthly buffer as they fall due?

Liam McPoyle

Cape Clear wrote: »

Looks like you have a pretty good idea of where your money is going. just notice you don't have any figures down for items like property tax, home insurance etc. Are these items that you intend paying for out of your monthly buffer as they fall due?

Yep. Home insurance is reasonable enough as it's contents and all risk only, property tax, tv licence etc are the same. We've basically factored in all things that we know will have to be paid monthly as opposed to the occasional annual amount that crops up.

JDD

I'm personally of the opinion that a bank will want to see savings going into a savings account that will form the majority of your deposit payment, rather than paying down your mortgage with the same amount and using the equity to form the majority of your deposit. I know the effect is ultimately the same, and possibly it's fiscally more prudent as a savings account will not provide the same interest as the mortgage interest you would save by overpaying your mortgage for a year, but my experience is that banks don't really like when things differ from the norm. Approval in Principal would normally be given in advance of you selling your current property and shopping for a new one, and it'd be hard to get the AIP if you were just using a valuation of your house as proof of the equity you would have to discharge your deposit.

mloc123

Business Cat wrote: »

When the current shares vested tax of 40 odd percent was taken, surely we wouldnt get stung on CGT too?

You pay CGT on any profit made between the shares (RSUs I assume?) vesting and when you sell them. So for example, if your shares vest and are worth 10k and you sell them for 15k you are liable for CGT on 5k.

bleary

Business Cat wrote: »

I'm still not clear on what advantage whacking off more on the mortgage would do?

I'd have thought that having €30k+ in ready cash would be better than having a property well away from being in negative equity?

The benefit is that the interest you are paying on mortgage is costing you more than you would make in a savings account. However your savings are currently too low and as stated above banks would prefer to see some level of cash and savings.

Between that, paying low interest in a tracker and also possibly still being eligible for neg equity deposit exemption you would be much better advised not to overpay mortgage.
You should have 3 to 6 months salary saves in general for emergency.

Liam McPoyle

mloc123 wrote: »

You pay CGT on any profit made between the shares (RSUs I assume?) vesting and when you sell them. So for example, if your shares vest and are worth 10k and you sell them for 15k you are liable for CGT on 5k.

Soz, I don't know what RSUs are?

Basically the missus got them in her job as part of her overall package.

The first lot vested last year and after all taxes and charges were worth approx €18k, based on current share price they are worth around €20k.

So are you saying we'd be eligible to pay CGT on the €2k they have increased by?

What kind of rate is on CGT?

jlm29

Totally not what you asked, but I wouldn’t cancel health insurance- you could definitely reduce it though! €250 pm seems quite a bit.

mloc123

Business Cat wrote: »

Soz, I don't know what RSUs are?

Basically the missus got them in her job as part of her overall package.

The first lot vested last year and after all taxes and charges were worth approx €18k, based on current share price they are worth around €20k.

So are you saying we'd be eligible to pay CGT on the €2k they have increased by?

What kind of rate is on CGT?

RSU - Restricted stock unit, generally you are given these by the company and they vest over a set period of time. Yes, if you sold for 20k you are meant to pay CGT on the 2k, CGT is around 30%.

It is up to you to do a manual return etc.. on this to revenue and I am sure a lot of people do not know they need to or simply do not pay it. If you are audited it would be an issue.

Liam McPoyle

jlm29 wrote: »

Totally not what you asked, but I wouldn’t cancel health insurance- you could definitely reduce it though! €250 pm seems quite a bit.

Aye, the missus isn't keen to get rid of it.

I just find it hard to justify the cost.

It's only an average level of cover and we've never used it in over 3 years.

We will see maybe about reducing it come renewal.

Alkers

Business Cat wrote:

It's only an average level of cover and we've never used it in over 3 years.

You can get a reasonable couples policy for about 160pm with a high excess, not sure how much extra children are

Liam McPoyle

Simona1986 wrote: »

You can get a reasonable couples policy for about 160pm with a high excess, not sure how much extra children are

Little man is on an extra €30 or so.

jlm29

Business Cat wrote: »

Simona1986 wrote: »

You can get a reasonable couples policy for about 160pm with a high excess, not sure how much extra children are

Little man is on an extra €30 or so.

Mine is less than €100 for one adult and two kids- it’s not vhi though, I’m with Laya. It’s worth doing the research. Raising your excess and lowering your day to day can reduce premiums, if you don’t tend to be at the doctor much.
Anyhow, that’s very OT, so off with me!!