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Second Mortgage & Renting First Home

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  • 22-10-2018 11:06am
    #1
    toadfly
    Registered Users Posts: 3,412 ✭✭✭


    So I currently live and work in Galway but hoping for a move home to Mayo next year. We own our house (or the bank does) since 2010 (bought for €185k, 10% deposit), paying Mortgage of around 700, if we were to rent it out we would get around 1000-1200 a month so enough to cover the mortgage and tax roughly.

    We earn about €70k between us (thats the basic figure, would be higher with bonus/overtime but I dont know if they take that into account) and are probably just out of negative equity. Thinking we are better in the long run to rent out rather than sell.

    Finding a house to rent/buy in Mayo would be another hurdle but we have family to stay with in the short term but do want to get our own place ASAP.

    I spotted a house for sale that I'm interested in but dont want the hassle of making an appointment with the bank just to be laughed out of the place if there is no chance based on our numbers. Guessing it would be a no but just curious really.

    I know I need to go to the bank to be sure but would there be any chance of being granted a second mortgage to buy or is there any point even starting the process of looking into it. The house we have spotted is listed at €275k.

    Any insight would be great, thanks.


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    #2
    theboringfox
    Registered Users Posts: 544 ✭✭✭theboringfox


    toadfly wrote: »
    So I currently live and work in Galway but hoping for a move home to Mayo next year. We own our house (or the bank does) since 2010 (bought for €185k, 10% deposit), paying Mortgage of around 700, if we were to rent it out we would get around 1000-1200 a month so enough to cover the mortgage and tax roughly.

    We earn about €70k between us (thats the basic figure, would be higher with bonus/overtime but I dont know if they take that into account) and are probably just out of negative equity. Thinking we are better in the long run to rent out rather than sell.

    Finding a house to rent/buy in Mayo would be another hurdle but we have family to stay with in the short term but do want to get our own place ASAP.

    I spotted a house for sale that I'm interested in but dont want the hassle of making an appointment with the bank just to be laughed out of the place if there is no chance based on our numbers. Guessing it would be a no but just curious really.

    I know I need to go to the bank to be sure but would there be any chance of being granted a second mortgage to buy or is there any point even starting the process of looking into it. The house we have spotted is listed at €275k.

    Any insight would be great, thanks.

    Most banks have an offering specifically for this purpose. They will normally though cap LTV on investment property at 70% so that would be first thing to check.

    The second big thing to check is the interest rate on the buy to let. Once you move your home to buy to let you might be on the bank's buy to let rates which are higher than for mortgage on own home. Make sure you can afford same.

    Seek financial advice but the above are 2 areas I would look at.


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    #3
    myshirt
    Registered Users Posts: 5,245 ✭✭✭myshirt


    You'll have to get permission from the bank to rent it. You'll lose mortgage interest relief, but it'll be mitigated by other reliefs. You will also incurr a CGT liability down the road when you do sell the house, if you sell it. If you stayed in the house you wouldn't incur it. So look into all these things also.


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    #4
    Deub
    Registered Users Posts: 1,326 ✭✭✭Deub


    You alao have to think : what will you do if your tenant stop paying the rent. Even though it is not what happens with the majority of tenants, it is a possibilty.
    You may have difficulties to pay 2 mortgages at the same time.


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    #5
    Fian
    Registered Users Posts: 2,192 ✭✭✭Fian


    Your mortgage interest will also increase. You can't have two ppr mortgages.

    investment properties are seen as a higher risk and so incur higher interest rates than principal private residence mortgages. Though the banks may well be reassing these risk weightings in light of the volume of mortgage arrears on pprs.


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    #6
    Samuel T. Cogley
    Registered Users Posts: 10,684 ✭✭✭✭Samuel T. Cogley


    You can go with another bank and say nothing to the first, however becoming a LL is a mugs game. Also 1200 on a 700 mortgage with a combined income of 70K won't cover itself.


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    #7
    toadfly
    Registered Users Posts: 3,412 ✭✭✭toadfly


    So essentially its a ball of hassle and not worth our while? I don't think we'd find it easy to sell though.
    theboringfox wrote: »
    Most banks have an offering specifically for this purpose. They will normally though cap LTV on investment property at 70% so that would be first thing to check.

    Thank you, I wasnt aware of the cap on LTV. Would our second house then be counted as the investment or would our first mortgage be recalculated? Guessing the first home as our second would then become our PPR.
    myshirt wrote: »
    You'll have to get permission from the bank to rent it. You'll lose mortgage interest relief, but it'll be mitigated by other reliefs. You will also incurr a CGT liability down the road when you do sell the house, if you sell it. If you stayed in the house you wouldn't incur it. So look into all these things also.

    I think our mortgage relief is gone as we are over 7 years in but I will check, thanks. I wasn't aware of the CGT issue so thanks for that.
    Deub wrote: »
    You alao have to think : what will you do if your tenant stop paying the rent. Even though it is not what happens with the majority of tenants, it is a possibilty.
    You may have difficulties to pay 2 mortgages at the same time.

    We definitely would and I dont think we'd even get a second mortgage because surely they take this into account? Might just need to sell and start again.
    Fian wrote: »
    Your mortgage interest will also increase. You can't have two ppr mortgages.

    Thanks for that.
    Samuel T. Cogley wrote: »
    You can go with another bank and say nothing to the first, however becoming a LL is a mugs game. Also 1200 on a 700 mortgage with a combined income of 70K won't cover itself.

    Im not keen on being a LL but just thought it was the only way as I think it'll be hard sell. There are a lot of house for sale and very very few to rent. Going to another bank - wouldnt the first mortgage show on our credit rating?

    If we were to rent short-term until we could sell - is it possible to do it under the radar or will it be caught at some stage?

    Realising how little I know. Will talk to the bank about figures but its looking like we'll need to sell if we want to buy again.

    Thanks.


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    #8
    Fian
    Registered Users Posts: 2,192 ✭✭✭Fian


    Samuel T. Cogley wrote: »
    You can go with another bank and say nothing to the first, however becoming a LL is a mugs game. Also 1200 on a 700 mortgage with a combined income of 70K won't cover itself.

    This is dangerous and likely to be cirminal. The standard forms will ask you if this is to be your PPR. If you lie to be granted the 2nd mortgage you will be committing an offence.

    http://www.irishstatutebook.ie/eli/2001/act/50/section/6/enacted/en/html

    http://www.irishstatutebook.ie/eli/2001/act/50/section/7/enacted/en/html


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    #9
    Samuel T. Cogley
    Registered Users Posts: 10,684 ✭✭✭✭Samuel T. Cogley


    Fian wrote: »
    This is dangerous and likely to be cirminal. The standard forms will ask you if this is to be your PPR. If you lie to be granted the 2nd mortgage you will be committing an offence.

    http://www.irishstatutebook.ie/eli/2001/act/50/section/6/enacted/en/html

    http://www.irishstatutebook.ie/eli/2001/act/50/section/7/enacted/en/html


    It will be their PPR. I'm not discounting it may be dodgy but plenty of people are doing it with apartments/houses bought during the boom. Anyway you're right in regards to it not being allowed so I'll say no more on the subject.


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    #10
    Fian
    Registered Users Posts: 2,192 ✭✭✭Fian


    Samuel T. Cogley wrote: »
    It will be their PPR. I'm not discounting it may be dodgy but plenty of people are doing it with apartments/houses bought during the boom. Anyway you're right in regards to it not being allowed so I'll say no more on the subject.

    Ah actually I had misunderstood, had been under impression second one was for rental purposes rather than the first. Less difficult then but they would still have a contractual obligation to notify of the change of use of the first home.


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