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Buying against current property

  • 14-03-2004 4:18pm
    #1
    paulj13
    Registered Users, Registered Users 2 Posts: 212 ✭✭


    Hi
    Forgive me if this topic has already being covered off but its hard to hard specific topics on this matter.

    My wife and I have decided to move out a little further then our current location in Dublin 17. We current own a 4 bedroom mid-terrace house and have been repaying a mortgage on the property for some years now. The current value of the house is around 250k and our mortgage is around 80k with repayments of €380 a month.

    I wish to approach our lender (EBS) and ask if I can borrow to buy a house out in Mulligar (looking at a property around 250K) without selling our current house. Basically, I wish to use the equity in the house we currently have to place against the value new house. I then wish to rent our current house out to cover the repayments of both. With DCU and other colleges in the area the four bedrooms should be well in demand.

    That’s my thinking at the moment, my questions are these:
    Will my lender even entertain us? I work full time and I’m earning approximately 40k a year. My wife runs the house and we have two children. We have approximately 7k in savings.
    What is the Tax implications of undertaking this? In other words if I wish to rent my current home how much will I have to pay in tax as this will be a house own for profit.
    Is there any way to minimise the tax repayments or avoid it??
    Given the current housing markets is it a bad time to be looking at this?


Comments

  • #2
    Victor
    Registered Users, Registered Users 2 Posts: 78,580 ✭✭✭✭Victor


    Originally posted by paulj13
    Will my lender even entertain us? I work full time and I’m earning approximately 40k a year.
    They will talk to you, especially as you have maybe €170,000 in equity in your existing house. You will present a lower risk to them. However, ensure that the family home is not endangered by this proposal.
    Originally posted by paulj13
    We have approximately 7k in savings.
    You should always maintain some savings separate to your investments.
    Originally posted by paulj13
    What is the Tax implications of undertaking this?
    You can only have mortgage interest relief on your principal private residence (your current home, this would transfer to the new home). You can write off all the interest on the investment property against income, but you will be taxed on the balance.

    If you ever sell the rental property, it would be subject to capital gains tax (currently 20%) pro-rata the number of years you lived in and owned the house. Make sure you keep receipts for every expense you have or will incur relating to the house, especially major items like extensions, replacement windows, etc.

    You should talk to an accountant and / or a solicitor that specialises in such deals.
    Originally posted by paulj13
    In other words if I wish to rent my current home how much will I have to pay in tax as this will be a house own for profit.
    It would be taxed at your higher rate of income tax.
    Originally posted by paulj13
    Is there any way to minimise the tax repayments or avoid it??
    Manage it so that most of the loan is on the non-residence. Having the rental income in your wife's name will also help by using her tax credits.
    Originally posted by paulj13
    Given the current housing markets is it a bad time to be looking at this?
    It's a risk, you need to weigh up the risks against the rewards.


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