Monthly mortgage repayment amount % of nett pay

Aldaniti

Hi Folks. We are thinking of buying a second house in Dublin for circa €500k/550k and renting our current house. The shortfall after tax on the rental is projected at €150 monthly.

The new mortgage will be over 20 years and cost circa €2500 monthly.

We plan to sell the rental property in 5 years and based on 5% value increase over the five years (realistic?) and amortisation reduction of around €60k we'll make around €100k and put that towards the new mortgage and reduce (along with amortisation) it to around €300k.

All great but the new mortgage will be 33% of take home pay.

Any thoughts or observations greatly appreciated from anyone in a similar situation.

I also understand this might be a repeat post so apologies for any inconvenience and any moderator I'd free to relocate this post.

JJJackal

Aldaniti wrote: »

Hi Folks. We are thinking of buying a second house in Dublin for circa €500k/550k and renting our current house. The shortfall after tax on the rental is projected at €150 monthly.

The new mortgage will be over 20 years and cost circa €2500 monthly.

We plan to sell the rental property in 5 years and based on 5% value increase over the five years (realistic?) and amortisation reduction of around €60k we'll make around €100k and put that towards the new mortgage and reduce (along with amortisation) it to around €300k.

All great but the new mortgage will be 33% of take home pay.

Any thoughts or observations greatly appreciated from anyone in a similar situation.

I also understand this might be a repeat post so apologies for any inconvenience and any moderator I'd free to relocate this post.

Have u got mortgage approval? Are you earning enough to get a 400,000 mortgage with a second property if that's 33% of net?

Graham

Mod Note

Aldaniti, welcome to the accommodation & property forum. Your recent duplicate posts have been deleted. All responses to your question/s will appear in this thread.

Aldaniti

JJJackal wrote: »

Have u got mortgage approval? Are you earning enough to get a 400,000 mortgage with a second property if that's 33% of net?

Thanks for the response.
Yes. Our maximum mortgage capacity is 490k based on combined income of 140k.

The stress test with one bank was 3150 monthly (for both mortgages) so they said our maximum new mortgage repayment capacity is 80% of that. That is € 2520 monthly.

Aldaniti

Graham wrote: »

Mod Note

Aldaniti, welcome to the accommodation & property forum. Your recent duplicate posts have been deleted. All responses to your question/s will appear in this thread.

Thanks Graham. Apologies. It was a mistake. I thought my post didn't appear!!!!

jlm29

What are your circumstances? Do you have kids? Plan on having kids? Are you both happy and secure in your jobs? There’s lots of variables that nobody here knows.

TimeToShine

There are better, less stressful ways to invest your money. To do what you suggest you'd have to:

-Move house (costs money, a lot of effort, stressful)
-Find a suitable tenant for your current home (again, a pain in the arse)
-Go through full mortgage application
-Pay stamp duty, legal fees, snagger fees, property tax on new property acquisition
-Pay the same again when you sell up
-Pay mortgage interest rates
-Assume the next recession (due in 18 months) doesn't hurt the house value too much

And many more variables besides.

Aldaniti

Thanks. Yes. Happy in jobs. Have two kids aged 6 and 3. Childcare costs 1200 monthly.

Aldaniti

TimeToShine wrote: »

There are better, less stressful ways to invest your money. To do what you suggest you'd have to:

-Move house (costs money, a lot of effort, stressful)
-Find a suitable tenant for your current home (again, a pain in the arse)
-Go through full mortgage application
-Pay stamp duty, legal fees, snagger fees, property tax on new property acquisition
-Pay the same again when you sell up
-Pay mortgage interest rates
-Assume the next recession (due in 18 months) doesn't hurt the house value too much

And many more variables besides.

Thanks for the response.

I guess our trouble at the moment is that our current house is a two bed with limited expansion potential.

A recession would hurt one salary. I'm a civil servant. Can you enlighten me about the recession in 18 months? Are there any links to articles that opinion. ?

Thanks again.

Cuddlesworth

Aldaniti wrote: »

Thanks. Yes. Happy in jobs. Have two kids aged 6 and 3. Childcare costs 1200 monthly.

There is a risk, infrequent, of non-paying tenants during that period. You could be looking at 9-15 months of non payment on the rental property, plus 10k+ in damages after eviction.

If both properties drop by 10%, would the bank let you sell in 5 years? Or could you find yourself as a long term unwanted landlord.

Aldaniti

Cuddlesworth wrote: »

There is a risk, infrequent, of non-paying tenants during that period. You could be looking at 9-15 months of non payment on the rental property, plus 10k+ in damages after eviction.

If both properties drop by 10%, would the bank let you sell in 5 years? Or could you find yourself as a long term unwanted landlord.

Thanks

I was thinking of renting it to the council for ten years to offset that risk.

With that in mind is there anything else that would worry you?

Fann Linn

Aldaniti wrote: »

Thanks

I was thinking of renting it to the council for ten years to offset that risk.

With that in mind is there anything else that would worry you?

Is your LA already using properties such as yours for rental.

Aldaniti

I have a 12k fund to cover a rental speed bump. I'm curious to see if what I'm planning is way out there in terms of sanity.

colm_c

Are you sure your sums are right? Seems like you have a very low mortgage on your current place? 600 per month.

Then there will be capital gains tax when you sell, so another 33%.

Between the hassle and risk, you'd do well to clear an additional 50k after 5 years, which is 10k per year.

Nothing to be sniffed at, but seems a whole lot of hassle, when you could sell your place now and have a lower mortgage on the new place, pay it off earlier...

Not to mention, banking on house prices to rise 5% per year indefinitely is madness.

Aldaniti

Thanks Colm C. I should've said that I'm looking at an increase in total of 5% over five years or 1% per annum. This will bring the house back to what I paid for it in 2004. Thanks recession! So no cgt because no gain. Or am I wrong?

My current mortgage isn't 600 per month. It's 1300. The bank take 600 as being the stressed shortfall in the rental income. That is the rent minus tax and mortgage. So we have to demonstrate we can han
Repay 80% of 600 plus new mortgage.

Does this then seem less extreme?
Thanks.

Brego888

Correct no CGT if no gain and even at that it would only cover the the percentage of time that it wasn't your principal residence.

JJJackal

Are you mortgage approved? For me at least, I am surprised the bank have agreed to lend you so much based on your current risk (1 property to be rented, and childcare costs)

Aldaniti

Hi Jackal.

Yes we are mortgage approved in principle for a loan of 450k. The reason is that our savings and mortgage repayments are together circa €2700 per month.

I agree. I was surprised myself by the amount of loan but then again the bank aren't the ones paying back the loan.

Dolbhad

Taking on a tenant is really stressful. It’s been covered in other treads here but when renting to the council, be prepared to have the house in worse case scenario handed back in worse conditions. You’ll may have to input money into it for selling it. You won’t know until the time.

Maybe it’s different in Dublin, but renting to council in Cork is for ten years as far as I was aware so selling in 5 years would not be an option. You seem to be betting on a rising market every year and no one can predict that. You made get more or less.

I know you’ve said you bought the property in 2004 but house isn’t in negative equity as you’ve paid part of mortgage off in the meantime. Would you consider selling it now while market is still robust and buying a property once comes in you like and try balance. Would seem like the less stressful option instead of waiting for a rise which may or may not happen.

Aldaniti

I think you're right about waiting to sell and also the limits associated with renting to council.

Do you think €2500 per month mortgage is an extremely large amount?