2 mortgages? (tut tut I hear you say)...

DrPhilG

Living in a property now, with about €30k negative equity. Have just found our dream house, and look fairly likely to have an offer accepted at €130k. House needs about €15k of work done, bit run down.

I have €100k in the bank to spread about the deals. My plan is;

• keep €25k aside, for the work needing done and also for fees (solicitor, surveyor, stamp duty, and a bit spare for who knows what might crop up).
• Pay off €30k on my current mortgage to clear the equity
• Pay €45k deposit towards the new house and end up with a mortgage of €85k

Obviously, we're going about things back to front in that we're buying house 2 before we sell house 1! My question is whether the banks will see this as a major hurdle, or will they simply base their decision on our ability to pay both mortgages.

The mortgage on house 1 is currently about €450k a month, although that will reduce with the €30k lump sum. The mortgage on the second house would be around the same, no doubt higher rates but lower amount. So the total monthly outgoings on the 2 mortgages would be about €800. Even allow €1000k to take into account some interest rises).

Earnings brings another question. Do the banks take into account a second job? I don't just mean a part time low income thing, my second job pays €12,500 a year and my main job €18,500. Both are secure permanent positions. The wife's single income is €20,000 so our total per year is just over €50k.

From reading up various sites and advice pages is that 1 thing banks base their lending decisions on the percentage of net income that your mortgage would be, and it needs to be less than 40%. In our case, net monthly income is about €3300 and the total mortgage outgoings would be about 30% of that. Even if you only count the 2 main incomes, we're still creeping in under 40%.

Another thing is the size of the deposit, the higher the percentage you have as a deposit the better? In this case we'd be putting down about 34% deposit for house 2.

So (in my mind anyway) we can well afford to pay both mortgages, but bear in mind that we would be putting house 1 on the market straight away.

Any opinions on how likely the second mortgage is to be approved? I'm in the process of gathering the necessary documentation at the minute but I'm just curious about people's thoughts.

(I know the main comment will be "don't buy the second house yet" and I understand that perfectly. But it is the dream house and we'll gladly stay there for life if we get it)

Balmed Out

why not sell the existing house first ?

Try to limit the emotional investment in the second house, the way things are going its unlikely to sell quickly and it or something very similar will be sitting there cheaper in a year or two.

Think having the 2 mortgages is silly. There are very few people if any whose jobs are 100% secure. Not so much tut tut as face palm, have people not learned.

DrPhilG

Balmed Out wrote: »

why not sell the existing house first ?

I hadn't even given much thought to moving until I saw the house in question. Now it's too late to plan that far ahead!

Balmed Out wrote: »

Try to limit the emotional investment in the second house, the way things are going its unlikely to sell quickly and it or something very similar will be sitting there cheaper in a year or two.

Too late, emotionally invested to the hilt. It will sell quickly, we beat out a bid of just €5k below asking that would almost certainly have been accepted. If we don't complete now, this house will be gone in a shot.

With respect, you just have to take my word on it that there will not be something similar, cheaper later. We have searched long and hard and there isn't even something similar at twice the price at the minute. It is a very unique combination of location, size of house and size of site. There won't be another like it I guarantee!

Balmed Out wrote: »

Think having the 2 mortgages is silly. There are very few people if any whose jobs are 100% secure.

I don't intent to have 2 mortgages. As soon as I secure the second one I'll be selling the first house and will be left with nothing but a single €85k mortgage. I don't care if that second house devalues massively because I will be staying there til I'm carried out in a box!

Both our jobs are very secure also. There have been cuts in our organisation but not in our sectors as they are pretty untouchable.

Balmed Out wrote: »

Not so much tut tut as face palm, have people not learned.

I understand your point, it's not that I haven't learned. I just honestly believe that I have found a cheap property that is far too good to pass over in the hope that something better will come along.

seamus

There are two big question marks here:

1. You don't know exactly how much negative equity you're in until you try to sell. Asking prices around the area are no indicator of sale prices, so your €30k NE could easily become €45k when you try to sell, which screws with your plans.

2. Your combined salaries aren't that big, though admittedly you are aiming for a mortgage which is reasonable.

If you're dead set on it, my advice is to go for the largest mortgage you can get on the 2nd property. Initially anyway. Pay a €15k deposit & keep €25k for refurbs and other costs. This leaves you with €60k to play with for disposing of the other property.

Assuming that the €60k covers the negative equity when you sell, you can then put the balance against the mortgage in your new house.

Anecdotally, you should apply for a mortgage with a bank that's not your current mortgage lender. If you get a second mortgage for a homeloan, that means your current mortgage effectively becomes an investment property - a much less stable loan for the bank, so your current mortgage lender will refuse you a second mortgage on that basis.

Allegedly, anyway.

DrPhilG

seamus wrote: »

1. You don't know exactly how much negative equity you're in until you try to sell. Asking prices around the area are no indicator of sale prices, so your €30k NE could easily become €45k when you try to sell, which screws with your plans.

True, but I'd be surprised if it's that much of a difference. I'm comparing to recent sales in the same estate and prices for a number of houses in a nearby one. And simply knocking 35% off the peak value gives a similar figure.

If the worst came to it, I could borrow some money from my father to pay any extra unexpected equity shortfall and pay him back pretty quick as I wouldn't have the second mortgage to pay anymore.

seamus wrote: »

2. Your combined salaries aren't that big, though admittedly you are aiming for a mortgage which is reasonable.

Back on that topic, does anyone have experience of how lenders class your wage? I've heard a few times that a second income from the same person isn't counted. But the mortgage advisor has recommended getting a salary cert completed for both employers. As I said, the second job is as secure as the first and pays nearly as much. Main job pays about €1200 net a month, second job pays €900 net.

The salary cert forms take into account an average of overtime so I wouldn't see why they wouldn't count a solid second income.

seamus wrote: »

If you're dead set on it.

Fraid so...

seamus wrote: »

my advice is to go for the largest mortgage you can get on the 2nd property. Initially anyway. Pay a €15k deposit & keep €25k for refurbs and other costs. This leaves you with €60k to play with for disposing of the other property.

Anecdotally, you should apply for a mortgage with a bank that's not your current mortgage lender. If you get a second mortgage for a homeloan, that means your current mortgage effectively becomes an investment property - a much less stable loan for the bank, so your current mortgage lender will refuse you a second mortgage on that basis.

Good thinking, thanks. I'll be discussing with the mortgage advisor in more detail today once I've sent in my paperwork.

PhoenixParker

What's your 15k estimate based on?
It sounds low for a house that's "run down".

I would put your curent house on the market like yesterday.
Be prepared to knock more than a few K off to secure a quick sale.
As someone else said max out the mortgage on your new house.
but
I would then pay as much as possible off your existing mortgage.
Do not spend a penny on the new house until the old house is sold.
The money for that can come out of the house sale.

wyndham

Is the second house inhabitable? Could you scrape together enough to buy it for cash? Through family, etc?

DrPhilG

Sorry I may have overstated the condition of the new house.

The floors in a few rooms have warped due to being left empty, the fireplace and central heating boilet were removed and a new bathroom suite is needed.

€15k is a generous budget and included a 10% contingency. It could be habitable within a few weeks.


No way I could buy it cash, thought I might but not going to work. Plus if I did I'd have nothing to pay off the NE in the old place.

The_Conductor

Dr Phil-

With respect of the negative equity associated with house no.1 - the figure you have is purely hypothetical- you are not going to know just how much it is until such time as you sell it. If you reckon its only 35% off market peak prices- I don't mean to be funny- but its a magic house- as its the only one in the country not to have fallen significantly more than this (in some areas falls could be almost 65-70% at this stage- and economists see no end in sight)..

With respect of house no.2 that you've fallen in love with- while I accept that you have been very financially prudent and have savings in the bank- which is quite unlike the situation of the vast majority of people- you really cannot assume that any lending institution will either lend you a second mortgage, or bridging finance until such time as you offload property no. 1. Bridging finance as a concept, is no longer for all intents and purposes, in existence.

The only way I can see you proceeding with this is by organising the finances privately- which you suggest you may be able to do.

One thing- do not assume that house no. 1 will sell in a particular timeframe for a particular price- these are funny times we're in- your neighbours house could sell in 2 days for price x, while an identical property might take 2 years for price x -25%- there simply is no way of telling...........

Personally- I would seriously steer anyone away from getting emotionally attached to any particular property- and instead get them to focus all their energies into trying to sell the first property. The way things are going- the property they are after falling in love with- could very well be on the market for literally years- as could house no.1- having 2 mortgages, is a millstone no matter how you try to gloss it up..........

DrPhilG

Thanks for the reply smcarrick, I know you're one of the experts here!

I've tried to address your points below.

smccarrick wrote: »

With respect of the negative equity associated with house no.1 - the figure you have is purely hypothetical- you are not going to know just how much it is until such time as you sell it.

True of course. I was actually basing my estimation on 35% off the price we paid, which was still about a year or so before the peak. Also going on the sale prices for 2 houses in my estate recently, (although I agree that this isn't any guarantee)

smccarrick wrote: »

you really cannot assume that any lending institution will either lend you a second mortgage, or bridging finance until such time as you offload property no. 1. Bridging finance as a concept, is no longer for all intents and purposes, in existence.

Making no assumptions at all, and I'm looking into backup plans at the minute. What I've said to the mortgage advisor, (which funnily enough he was about to say to me too) was that my position is that I am willing and able to pay both mortgages if needed. Our net monthly income is about €3300 (plus my wife's second wage which is usually between €2-300) and in the worst case scenario of being unable to sell or rent house 1 and having to cover both mortgages, the payments could be close to €1000. That's factoring in higher rates on the second mortgage and increases in the first due to it not being my main residence. That means my outlay would be 30% of my net income which is still well inside the 40% I've seen mentioned as a current guideline on a few sites. Also 2 of our 3 incomes are on increasing scales that are not affected (yet) by the recession.

smccarrick wrote: »

Personally- I would seriously steer anyone away from getting emotionally attached to any particular property- and instead get them to focus all their energies into trying to sell the first property. The way things are going- the property they are after falling in love with- could very well be on the market for literally years- as could house no.1- having 2 mortgages, is a millstone no matter how you try to gloss it up..........

Again I agree, and I am prepared for things to fall through. But as I said, this property will not stay on the market for years, there is another bidder snapping at my heels with a cash offer.

There are other houses that we've seen in the bracket of about €30k higher, that are bigger and newer and I could certainly believe that within a year they will come down to what we can afford. But I'd still prefer this house. Not just because I'm obsessed with it, because those bigger newer houses don't have the same land attached, and they don't have anything like the same view. That is the key to this property, almost an acre of a site and incredible views. There are houses on the market for €50k more that don't offer the same or close.

Treehouse72

OP, just as a general comment, the worst financial decisions you make are when you base them on emotion. To me, in this thread you sound very emotional indeed and that's a red flag. You need to calm down a bit, if I may say.

Also, I do not believe your home is 35% below peak. That would make it one of the most exceptional houses in the country. When you say you're basing your valuation on prices in the area and that you paid less for it to begin with, this again sounds to me like emotion and hopeful expectation getting in the way of clear-headedness.

Finally, I think your plan is ok, as long as you sell the first house. Seems to me you are flirting with the idea that if it doesn't sell you could always hang on to it. This is mission creep. You need to commit to selling it so your plans aren't thrown off course.

DrPhilG

Treehouse72 wrote: »

To me, in this thread you sound very emotional indeed and that's a red flag. You need to calm down a bit, if I may say.

Really? I know I'm an impatient bugger and tend to not give up easily, but I wouldn't say I'm overly emotional. You're impartial though so I take it on board!

Treehouse72 wrote: »

Also, I do not believe your home is 35% below peak.

Nor do I. I think it's roughly 35% below what we paid. The prices were still on the way up when we bought.

Treehouse72 wrote: »

When you say you're basing your valuation on prices in the area and that you paid less for it to begin with, this again sounds to me like emotion and hopeful expectation getting in the way of clear-headedness.

Hopeful maybe, I am an optimist.

But as I said in the reply to smccarrick, I am basing my projections on being able to pay for both mortgages, even if the rates increase. If we sell/rent house 1 that's all the better but if we don't, we're not dependant on it.

Treehouse72 wrote: »

Finally, I think your plan is ok, as long as you sell the first house. Seems to me you are flirting with the idea that if it doesn't sell you could always hang on to it. This is mission creep. You need to commit to selling it so your plans aren't thrown off course.

I am committed to selling, renting sounds like more bother than it's worth and I'd prefer to just sell it before it plummets any further. But if selling doesn't work out I can rent it and wait. We can cover both mortgages, even if we lost one of our 4 incomes although as I said, they are as secure as can be.

Treehouse72

DrPhilG wrote: »

But if selling doesn't work out I can rent it and wait.

Wait for what?

mari2222

Tut Tut

Idbatterim

you should put up your existing house asap! if the other house sells in mean time, withdraw your current house from the market...

Idbatterim

The floors in a few rooms have warped due to being left empty, the fireplace and central heating boilet were removed and a new bathroom suite is needed.

the boards probably warped because there was no air circulation for quite a while i.e open vents or windows. Also if the only work that has to be done is what you described, it wont cost anything like 15k! make sure you get a good high efficiency boiler though!

DrPhilG

Idbatterim wrote: »

the boards probably warped because there was no air circulation for quite a while i.e open vents or windows. Also if the only work that has to be done is what you described, it wont cost anything like 15k! make sure you get a good high efficiency boiler though!

The major costs were needing a new fireplace, boiler, fridge and oven. But that €15k was also including the repair/refurb plus some new furniture, taking a digger to the back garden etc. My total was about €12k, but I allowed the rest for any unexpected extras!

Treehouse72 wrote:

Wait for what?

20 years!

DrPhilG

Well our offer on the dream house has been accepted and we're now awaiting mortgage applications (being handled by a broker/advisor).

It seems quite possible that we'll be keeping the first house for the time being and renting it out. Rent will easily cover the mortgage as it's pretty low and will be lower if/when we pay a lump sum off it. Shouldn't be hard to rent either as we're in a good spot half way between 2 major towns so very handy commute to either.

Anyone have recent experience of getting a mortgage? We have 3 options for what to do with our lump sum €75k.

• Low deposit on the second house, pay as much as possible off the first one so selling remains an option
• Pay nothing off the first house, continue with the low mortgage we currently have (obviously likely to increase due to not being primary residence), and pay up to 50% deposit on the second house which will lead to a better interest rate
• Split the funds fairly evenly, dropping both mortgages to under €100k and fairly low payments

Any idea which option a potential mortgage lender will prefer? Am I likely to have difficulty getting a mortgage which would mean that the second option would be better as I'd be putting down a huge deposit? The original mortgage is with PTSB.

As stated before, Worst case scenario would mean our combined monthly payments for the 2 mortgages would be €1000 but even at that, it's only about 30% of our combined net monthly income.

The main reason I'm not overly worried about keeping the first house for a while is that I have a decent sized farm that I will possibly sell in the next few years, which should clear both mortgages. On that note, would this sizeable asset, (estimated worth €400k) be considered beneficial by lenders in regards to the mortgage or is it not relevent?

The_Conductor

It would be considered very beneficial- if used as collateral against either or both mortgages- however this would be the extent of it. I'd also be hesitant to suggest to them that you're planning on selling it off over the next few years (keep your ears open for suggestions of reform of CAT/CGT particularly in relation to farming- personally if I were in the market of selling- I'd do it sooner rather than later, before the favourable tax situation changes).

DrPhilG

smccarrick wrote: »

It would be considered very beneficial- if used as collateral against either or both mortgages- however this would be the extent of it.

Sounds good. At the minute I'm just making sure I actually get any mortgage, never mind a good one. Wasn't sure if lenders still give much weight to collateral. The mortgage advisor said that guarantors are not really common place these days so I thought that collateral would be viewed the same way.

smccarrick wrote: »

I'd also be hesitant to suggest to them that you're planning on selling it off over the next few years (keep your ears open for suggestions of reform of CAT/CGT particularly in relation to farming- personally if I were in the market of selling- I'd do it sooner rather than later, before the favourable tax situation changes).

Can't sell it for another few years, as I qualified for agricultural relief on it when I inherited it. Upside was that I got a big tax relief against the inheritance tax, downside is that I have to keep ownership of the land for 6 years.

What reforms are in the pipeline? My understanding is that I'll only be elidgible for CGT on any increase in value from what I have already paid inheritance tax on?

mari2222

The rate is likely to increase to fund the government deficit.

DrPhilG

mari2222 wrote: »

The rate is likely to increase to fund the government deficit.

Fair enough.

But I'd still only have to pay tax on any increase in the value I've already been taxed on, and it's more likely to have dropped a bit.