Do I need own mortgage cleared before buy to let?

lightspeed · 18-02-2023 7:37pm #1

Hi

I understand I need 30% deposit for buy to let. I am living in my own house on a 30 year mortgage which I obtained 2 years ago.

I'm due to start a new job on in finance on salary of 65k. My current mortgage isn't too high at about 700 euro a month.

I'm debating whether to change car and buy new car perhaps electric with savings and finance loan.

Alternatively to that I'm thinking I could drive an older car I still have, save to get the 30% deposit for the buy to let.

My question is would a bank be willing to grant me a but to let mortgage on a rental property whilst I'm only 2 years into a mortgage on my own home?

Not sure how relevant but im 36, I live with my partner, we have a 1 year old child and deeds/mortgage in my name only.

d mc · 18-02-2023 7:44pm

https://www.boards.ie/discussion/2058284855/do-i-need-own-mortgage-cleared-before-buy-to-let

The bank will calculate what you would be able to borrow based on income, expenditure etc, then based on deposit saved, remaining balance on existing mortgage, child, they will give you a figure on what you'd be allowed to borrow.

A quick chat with your bank should answer all your questions

Good luck and be careful 🤞

lightspeed · 18-02-2023 9:23pm

Thanks I understand I would need to contact a bank to get any certainty over how much they would lend but just wondering if typically its a required to all or most of your own home mortgage cleared before a bank would consider granting an additional buy to let mortgage?

I was holding off contacting any bank yet as I wouldn't have the deposit saved so was thinking they wouldn't provide much clarity at present.

phormium · 18-02-2023 9:41pm

Nothing to do with your existing mortgage but all to do with income! You could have 10 mortgages and still get another BTL one if you had the income to support it.

It will come down to the bank's lending policies on income v debt ratio and how much rental income they factor in to the equation.

herbalplants · 18-02-2023 9:56pm

It has nothing to do with your own mortgage, nothing at all. It is all down to how much you afford per month to pay for this new mortgage for buy to let.

Also you need to be able to show that you can cover the mortgage for the months you don't have tenants.

Before all this, you need to do a bit reading on all the rules regarding to letting and tenants. It is not for the faint heart, you need to be able to deal with all that.

lightspeed · 18-02-2023 10:51pm

Thanks, my assumption is that property prices will continue to rise so at some point the capital appreciation would largely cover outstanding mortgage and there would be a reasonable profit after mortgage balance is paid. The cash flow from rental income would be an added benefit but I'm aware there is huge headache to evict a non paying tenant.

On that note, would you know if you are fighting say a year for a tenant to pay their rent, upon eventually getting new tenant would have 1 year loss to claim against income tax?

So for example, say in 2023 im expecting 20k but I only make 5k due to unpaid rent. Then in 2024, I make 20k from new tenant, for tax purposes would I carry the 15k loss and only pay income tax on 5k?

DFB-D · 18-02-2023 11:14pm

The mainstream lenders won't consider an additional morgage the last time I queried this for someone.

However, there are (or were until recently), alternative lenders who will lend 3.5 times income with another mortgage in place, but not for investment mortgages, which we couldn't find in the current market.

I was also trying to find lenders for investment mortgages for pension funds as well, but no joy.

But if you find any, let me know!

lightspeed · 18-02-2023 11:48pm

https://www.boards.ie/discussion/comment/120259449#Comment_120259449

So who are buy to let mortgages aimed at?

Is it just for people who have paid offer mortgage on family home and now wish to obtain buy to let for investment?

You mention there were some that will lend even where there is an existing mortgage in place but not for investment mortgages.

If not for investment, why would anyone be looking for another mortgage for another property?

DFB-D · 19-02-2023 1:52am

The circumstances in that case were buying a new home for personal use outside of Dublin, but with a mortgage still in place on the Dublin home.

So it met the requirements for a personal mortgage, but mainstream lenders would not consider.

On other occasions, I have had clients fail to source buy to let mortgages from mainstream or alternate lenders. If you know of a lender doing so, I would be interested to know....

dotsman · 19-02-2023 2:38am

Em...

https://aib.ie/our-products/mortgages/residential-buy-to-let-mortgage

https://personalbanking.bankofireland.com/borrow/mortgages/articles/buy-to-let-mortgage-options/

https://www.permanenttsb.ie/mortgages/buy-to-let-mortgage/

I don't understand why the 3 main banks would not be giving buy-to-lets. They are all actively advertising them, there's no economic reason to withdraw them that I can see, nor have I heard anything about them being withdrawn (would be massive news that I would expect to generate huge conversation in the mainstream media).

The circumstances in that case were buying a new home for personal use outside of Dublin, but with a mortgage still in place on the Dublin home

What you are describing is most definitely not a "buy-to-let".

@lightspeed - the only impact your current mortgage would have on your ability to get a buy-to-let loan would be:

repayment/credit history - as long as everything is in order with your home loan with no issues in the recent past, everything should be ok
repayment capacity - obviously, what you are currently paying will be taken into consideration when determining your repayment capacity for hte buy-to-let loan.

DFB-D · 19-02-2023 10:54am

https://www.boards.ie/discussion/comment/120259962#Comment_120259962

Yes, that circumstance was personal, as clearly stated, and they successfully obtained an additional mortgage from an alternate lender, but not a bank.....

But the OP should speak with a few advisors/ brokers to see what is possible. There is not much point reading websites, unless they clearly say they are encouraging this type of loan while another mortgage is in place, it is a waste of time.

19-02-2023 12:04pm

https://www.boards.ie/discussion/comment/120259358#Comment_120259358

Nope doesn't work that way unfortunately. You are taxed on earned income, if you you have a non paying tenant you can't write it off against future taxes. You can only write off expenses or mortgage interest.

As a current landlord I wouldn't advise getting involved in the rental market its more work than you'd expect and the legislation is very volatile at the minute.

ApeEvolved · 19-02-2023 12:25pm

https://www.boards.ie/discussion/2058284855/do-i-need-own-mortgage-cleared-before-buy-to-let

In my opinion your salary is way too low to be getting into the buy to let game, particularly where the macro environment is at right now.

Id hold off and assess in a couple of years.

lightspeed · 19-02-2023 11:31pm

https://www.boards.ie/discussion/comment/120260608#Comment_120260608

Ok perhaps a silly question, but what is a rental loss so? What circumstances would a loss arise if not from not paying tenants? Is their no tax relief for non paying tenants?

Would a rental loss only occur where I've had to pay the mortgage along with other expenses but I've failed to find a tenant for much of the year which I assume in reality doesn't happen?

lightspeed · 20-02-2023 9:22am

When you refer to macro environment do you mean the ever increasing rise of interest rates?

Dont property values typically rise with inflation? As a landlord if interest rates rise, can't I increase rent to compensate which I assume is what all other landlords will being doing also?

With regard to salary, after tax including pension deductions I should come out with approx €3500 per month. From this, I pay €700 mortgage, approx 250 on gas & electricity. A few hundred on other living expenses. My partner receives invalidity pension and contributes to the food bill each month.

If I saved up approx 50k and bought a property for 150k, buy to let calculators im looking at show repayments at €564 a month with APR of 4.65%. I feel if I had to I could afford to front this cost with my own salary reasonably comfortably.

With regard to security of rental income, I understand with HAP payments, they are paid directly by the council so should always he received on time I assume.

Are there much disadvantages to landlords accepting HAP payments? I often hear that many landlords try to avoid HAP presumably to take rent in cash and try avoid the nice folks in revenue finding out about it. I assume also if any damage done to property, council has to foot the bill to fix.

redlough · 20-02-2023 9:26am

https://www.boards.ie/discussion/comment/120259358#Comment_120259358

Bad assumption to make.

Property prices are at a peak now. Or close to peak. They are not sustainable and will decrease. If you buy at the peak you shouldn't build a financial case of the prices continue to increase. This is what everyone done in the Celtic Tiger and then it all fell apart

You need to have a business case that is based on the price going down, not up.

If it then goes up happy days but if it goes down you are not left in a huge hole

20-02-2023 10:07am

https://www.boards.ie/discussion/comment/120263871#Comment_120263871

I think you need to do a bit of research into rentals before jumping in.

If the tenant stops paying their portion of the Rent the HAP payments will be put on hold.

If you purchase within a RPZ you would not be able to increase the rent to match current rates of inflation.

You don't state where you intend purchasing but €150,000 sounds quite low. If its a 1 bed property you might struggle to get a mortgage.

Just to cover the mortgage payments you would need to be getting over a grand a month in rent.

redlough · 20-02-2023 10:19am

https://www.boards.ie/discussion/comment/120263871#Comment_120263871

Renting has loads of costs associated with it. The biggest is the tenant. They all show up in suits etc with references from work. Then if sh*t hits the fan the references are worthless and their work will not get involved.

At the moment it is next to impossible to remove a tenant even if they are not paying any rent. You can be years going around in circles in the courts with legal fees etc.

Then even if you don't have a un-paying tenant are you going to supply furniture/white good? most houses in Ireland do. You will be surprised how often they break when someone who doesn't own them are using. Washing machines with all sorts fired into them, if broken you just have to fix.

Then I would check around websites like boards/reddit etc and look on at horror as people spew out advice on how to screw over landlords at every turn, because every landlord is a multi billionaire and sure it costs them nothing.

Also people seem to think they if they are paying 2k a month rent thats 2 k to the Landlord, by the time tax hits it then it is closer to 1k. Not leaving you a lot of profit if anything happens. Cash in hand :-) no chance, especially with the new tax breaks. Plus tenants are onto the cash in hand and you will end up with them using it to bargain with you or report you to revenue.

At this moment in time the majority of small landlords are leaving rentals, a lot are moving to AirBnB setup or a lot are just selling up.

On HAP the council does not fix. That is up to you. The only time the council will fix is if you hand over the house totally to the likes of DCC and they run it for you, this used to be an option but you don't get the same amount of rent you could potentially get from renting yourself.

lightspeed · 20-02-2023 7:43pm

So if I rent out my property on the HAP and tenants trash it causing damage, what are my options?

I don't see how council are not liable for repair costs. Is it the tenant I'd have to take legal action and sue for repair costs?

For non payment of rent, is it ever an option to sue in court for non payment of the debt?

If not then why not? I'm sure if I get bill phone etc and don't pay the phone company will appoint a debt collector and chase me for payment with interest.

walterking · 20-02-2023 8:01pm

Op is in cloud cuckoo land.

Current mortgage is circa €170,000, has partner (not sure if he/she is working) has a young child and gross income is 65k.

Sorry, but no bank or finance house will entertain you as the figures simply don't add up no matter how you look at them.

21-02-2023 9:05am

https://www.boards.ie/discussion/comment/120266761#Comment_120266761

As with the phone you chase the person who signed the contract for damages/arrears, the tenant signs the rental agreement. HAP is a rental assistance payment the council are not liable for the actions of the tenant.

You can always sue but if they are not working the chances of recouping the money is very slim, at best you might get a payment plan paying out a fiver a week until the debt is repaid. If you are owed 10 grand it would take nearly 40 years to get it back.

theintern · 21-02-2023 10:27am

https://www.boards.ie/discussion/comment/120263289#Comment_120263289

I don't mean this in the wrong way, but have you been watching videos on real estate investing from the US?

The government doesn't care if you have only have a tenant for a single day. They don't allow you to "write off" lost income. It sounds like you're coming at this from a US perspective which is a very different taxation environment to here.

Claw Hammer · 21-02-2023 12:48pm

https://www.boards.ie/discussion/comment/120266761#Comment_120266761

The council do not accept liability for damaged property after they introduce a tenant. You get to keep the deposit (one month's rent) that is all.

For non payment of rent, you have to complain to the RTB. You can eventually go to court when you get a determination order. You then have to find the tenant and hope they have assets to satisfy the judgement.

In any event you won't get a mortgage for a buy to let for a few reasons.

You can't afford it. To get a buy to let mortgage you need to be able to afford the repayments without rent from the property in question.
You haven't a clue about what you are proposing.

lightspeed · 21-02-2023 2:32pm

Thanks for the info but with regard to affordability im not seeing why I wouldn't be able to afford repayments?

As I mentioned after tax my monthly salary is about €3500k. From this I've a mortgage on my home of €700, utilities and leisure say another €600. My partner covers food bill from invalidity payment she receives. As I mentioned, I think it was near €600 a month repayments would be if I borrowed 150k from bank. So that's a buffer of aporox €1500 for any other unforseen costs should I need to fully meet repayments myself. So I'm not seeing the issue with affordability but if it's the case a bank might I understand the complication getting a buy to let property right now.

Toots · 21-02-2023 3:34pm

If you're applying as a single applicant, the bank won't take your partner's covering the food bill into consideration. What is the amount outstanding on your current mortgage?

phormium · 21-02-2023 4:58pm

Go talk to your bank and see what the story is and if they would lend you the money, I predict not as your income is just not high enough when they take into account stress testing and dependants. The proposal and mindset reads like something from around pre 2008 era and I was involved in lending in those years and unfortunately back then you might just have been approved for it but hopefully things are different now.

That will save you all the researching on whether or not being a landlord is a good plan or not.

lightspeed · 26-02-2023 8:26am

Can anybody clarify If a landlord is just renting out rooms but not in their own home do they need to register the tenants with residential tenancies board?

if I was to own a second house, could i just rent rooms and even leave one free to stay in myself? Im thinking I then could keep an eye on things and also evict tenant a lot sooner for non payment of rent?

dumb_parade · 26-02-2023 1:58pm

https://www.boards.ie/discussion/comment/120289462#Comment_120289462

I’d say you should go with plan b and buy a new electric car and be happy with it. I’ve been a landlord of a property that was funded by low interest tracker mortgage for the past 6 years. I am currently sale agreed on the property and glad to be rid of it. It’s not worth the hassle, the worry and the costs that you are clearly putting your head in the sands over.

27-02-2023 10:49am

https://www.boards.ie/discussion/comment/120289462#Comment_120289462

Not without the potential for major issues down the line.

You are really trying to overthink this without grasping the basics. Have you spoken to the bank about an investment mortgage yet?

Claw Hammer · 27-02-2023 5:33pm

https://www.boards.ie/discussion/comment/120289462#Comment_120289462

Lots of people had the same idea. It doesn't always work out. You still get complainst to the RTb and decisions against the owner. If you try to get a business loan, which is what you are seeking, the bank will want to interview you to see if you know what you are doing. Given the questions you are asking here, there is absolutely no chance of a bank lending money to you for residential investment purposes. You need to do a lot more research before you even think about borrowing money for that purpose. A big loan going wrong could be financially ruinous for. There are people still trying to shake off the legacy of 20-year-olds loans. Go onto the Bid X1 website, look at the legal documents for some of the properties. You will notice that the majority are sales by banks and or receivers. You will also notice the loans were taken out, in the majority of cases over 15 years ago. In some cases it is possible to see how much was originally borrowed. From that you can work out that not alone at the person the property seized from them but there will be left with a residual debt. Do you want to be in that situation in the years to come?

Do I need own mortgage cleared before buy to let?

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