Upgrading to a bigger house... hard to do?

ando

Hi guys,

I'm looking to buy a relatively small/cheap 2 bed starter house for now to keep mortgage repayments low and to stay for 2 or 3 years. At that point I'd be looking to move onto a larger 3/4 bed semi.

My question is that I've heard with the new rules that came in last February it’s very hard for people to move onto a larger house. I'm in the dark on this side of things and am looking for people's experiences / difficulties with upgrading to a bigger house.. As this is my plan I need to confirm my wife and I are not going to be stuck in a house that we've outgrown in a few years.

Thanks

Shermanator

All depends on what the market does in the next few years. you could find yourself in negative equity and you wont have a hope of upgrading (unless u have a big bag of cash under the bed), or you might end up with enough equity in the property to help out with the deposit on the upgrade.
all depends of course on your income and ability to pay a higher mortgage.

McGrath5

I would tread carefully OP.

If you are buying a property now, it is best to have an outlook where you could be in it for the next 10 years.

Buying now with the hope of trading up in a couple years is a foolish move IMO, there are to many variables out there to know what the market will be like in a couple of years.

The Mulk

You'll also spend 10-12k on fees/stamp duty when you're moving.
EA charges you 1.5% + VAT on the house you sell
Stamp Duty on your new home 1%
Solicitor fees for buying and selling(2 transactions)
Valuation fees and engineers report.
So this could wipe out any profit you might have.

Mrs OBumble

Also, if this is a first house for both of you, you only need 10% deposit.

For a 2nd or subsequent, you need 20%.

MAJJ

The Mulk wrote: »

You'll also spend 10-12k on fees/stamp duty when you're moving.
EA charges you 1.5% + VAT on the house you sell
Stamp Duty on your new home 1%
Solicitor fees for buying and selling(2 transactions)
Valuation fees and engineers report.
So this could wipe out any profit you might have.

All very valid in that quoted post , depending where you live and the market, trying to match the timing of sale/purchase could leave you needing short term rent at exorbitant cost.

slowjoe17

MAJJ wrote: »

All very valid in that quoted post , depending where you live and the market, trying to match the timing of sale/purchase could leave you needing short term rent at exorbitant cost.

This. Where in the country do you live? How does your mortgage payment compare to your current housing costs?

If the mortgage payment is significantly lower than your current costs, you have an option to overpay aggressively for n years. The equity in your first house can potentially make the math work.

If you are saving 250e/month, then you can save 3k/year + reduced interest on the mortgage - in 3 years, you'll cover the 10k mentioned above.

It's also the case that not all that 10k is additional cost. In terms of stamp duty, duty on the buying price in excess of first buying price would have been due in any case.

whippet

factor in the cost of actually owning / running a home. - Repairs, decoration, upgrades, furniture, LPT, maintenance etc ... the base line figure is not just (Monthly Rent - Mortgage Payment = Savings)

Personally I would argue against doing something like this ... the purchase of a property is not really something to do with a short-term view, that is why there are so many people stuck in 1 & 2 Bed apartments trying to raise a family and unable to get out due to neg equity etc.

Sleepy

One factor worth considering heavily is the 20% deposit rule for second time buyers.

In a rising market, larger properties tend to appreciate faster than smaller ones. So even if you get a capital gain on the starter home, the price of a 3/4 bed semi will have risen by more than that that.

Whatever equity you have in the starter home after 2 or 3 years isn't likely to be much (unless, as slowjoe17 suggests, you're aggressively over-paying your mortgage) as during the first few years of a mortgage your repayments are mainly interest rather than a reduction of the capital.

It'd be highly unlikely IMO that 2/3 years of mortgage repayments on a starter home would accrue enough equity to cover 20% of the value of a 3 bed semi within that timeframe never mind covering all of the associated costs of moving on top of that (solicitors fees, estate agent fees, stamp duty, valuation fees, surveyors fees, etc. It may well have done had you bought right at the bottom of the recession (in fact I know a few friends in exactly that situation who are now using the gains to finance a trade up) but personally I can't see prices rising at the same rate over the next 3 years as they have over the past 3, particularly with the new Central Bank rules in place.

Sleepy

Sleepy wrote: »

It'd be highly unlikely IMO that 2/3 years of mortgage repayments on a starter home would accrue enough equity to cover 20% of the value of a 3 bed semi within that timeframe never mind covering all of the associated costs of moving on top of that (solicitors fees, estate agent fees, stamp duty, valuation fees, surveyors fees, etc. .

The assumption here being the initial deposit is low though, which it isn't for everyone.

Add to that the fact that rents will most likely be considerably higher than a mortgage repayment I think buying makes sense even if you only stay in the place for a short while. You will be either able to over pay or save more per month than if renting which will actually put you in a better position come time to move to the bigger house. 10 to 12k is also an exaggerated amount for the fees etc imo.

The Mulk

Rowan Immense Rascal wrote: »

The assumption here being the initial deposit is low though, which it isn't for everyone.

Add to that the fact that rents will most likely be considerably higher than a mortgage repayment I think buying makes sense even if you only stay in the place for a short while. You will be either able to over pay or save more per month than if renting which will actually put you in a better position come time to move to the bigger house. 10 to 12k is also an exaggerated amount for the fees etc imo.

Sell house for 300k- EA fee(1.2% + VAT) = 4428
Solicitor approx. 4000
Stamp Duty on 400k House = 4000
Total 12,428
That's what i'm paying, before the engineers report and bank valuation are taken into account.
I'm sure fees can be adjusted downwards for lower figures, so no exaggeration there.

Sleepy

Rowan Immense Rascal wrote: »

The assumption here being the initial deposit is low though, which it isn't for everyone.

Add to that the fact that rents will most likely be considerably higher than a mortgage repayment I think buying makes sense even if you only stay in the place for a short while. You will be either able to over pay or save more per month than if renting which will actually put you in a better position come time to move to the bigger house. 10 to 12k is also an exaggerated amount for the fees etc imo.

If the OP has a larger deposit, it would surely make more sense to try for the 3/4 bed semi from the outset?

The difference between what you'd be paying in rent versus mortgage can be substantial but when you include the other costs of property ownership: property tax, upkeep, home insurance etc. that margin decreases and unless it's above 3/400 per month I just can't see the value in buying a property with the intention to sell it on again in 3 years time at the kind of prices in The Mulk's post.

That's also discounting the fact that while the difference between rent and mortgage on a like-for-like property may be substantial, many of us would be quite happy to rent something that's not quite as nice as what we'd like to buy for a couple of years prior to getting a mortgage in order to save that bit more.

We'd also be assuming that the OP would see back every cent they spent on the initial property when it came to it's sale and that's rarely the case. Very few of us would be able to resist the temptation to put our own stamp on a property we own and while a can of paint to brighten up the living is only €25 quid, a new mirror for the bathroom might only be €50 in IKEA etc. those costs add up. I've been doing back of an envelope calculations for a property we're looking at and what's effectively a basic "freshen up" of an older house is well into the thousands without any structural, plumbing or wiring work.

The Mulk

The Mulk wrote: »

Sell house for 300k- EA fee(1.2% + VAT) = 4428
Solicitor approx. 4000
Stamp Duty on 400k House = 4000
Total 12,428
That's what i'm paying, before the engineers report and bank valuation are taken into account.
I'm sure fees can be adjusted downwards for lower figures, so no exaggeration there.

I see where you are coming from now with your figures, going by the op's post mentioning a cheap starter home etc (and going by what I'd be looking at myself for a starter apartment/house) I'd purchase price of 150 to 200k in mind and maybe moving up to a 300k place then. This would reduce the associated costs.

Sleepy wrote: »

If the OP has a larger deposit, it would surely make more sense to try for the 3/4 bed semi from the outset?

A single applicant and the 3.5 time salary rule can be a big hurdle in this and also a person may not want to commit to a big mortgage, large deposit and smaller purchase price makes sense in many ways. Often with years of saving and possibly gifts from parents etc having a big deposit in comparison to your salary is not a totally unusual scenario which would limit the overall purchase price. In any case the larger deposit thing was just a example of a different scenario that came to mind, of which there are many other scenarios and variables also.

Sleepy wrote: »

The difference between what you'd be paying in rent versus mortgage can be substantial but when you include the other costs of property ownership: property tax, upkeep, home insurance etc. that margin decreases and unless it's above 3/400 per month I just can't see the value in buying a property with the intention to sell it on again in 3 years time at the kind of prices in The Mulk's post.

300 to 400 per month less than renting is certainly a possibility the way the rental market has gone. Also while not ideal you have you do have the option of renting a room tax free if you want to which could bring in a lot of cash. I know of someone who is paying about 200 euro a month from their own pocket for their mortgage due to renting out rooms.

I'd personally have a similar plan in mind myself (to the op not the renting rooms), however rather than looking to buy a place as a starter home its more that I plan on settling down elsewhere not where I'm living now and will be for the next few years most likely. I wont pay the rent prices being looked for and I have well outgrown housesharing (I'd see the renting a room as above being a different proposition to sharing in a house) and am only just putting up with it as it allows me to save more.

I'd would most likely hold onto the place as an investment property also rather than sell when I move on, selling again in 2 to 3 years would add more work though even with the work I'd prefer my money to be going into my own place rather than a LL's bank a/c.

Sleepy wrote: »

That's also discounting the fact that while the difference between rent and mortgage on a like-for-like property may be substantial, many of us would be quite happy to rent something that's not quite as nice as what we'd like to buy for a couple of years prior to getting a mortgage in order to save that bit more.

Even the not so nice places are getting mad rent at the moment, there are places I wouldn't particularly like to visit never mind live in looking for crazy rent for what they are.

The Mulk

Just to add, we're 12 years in our house, we bought it for 295k and selling it for 300k!
I was 23 when i bought it so never rented, our mortgage has stayed the same circa €800 and the houses are renting for approx. €1400 now, so saved on rent in that time, it's hard to justify to ourselves paying over the fees, but looking at the long term picture it's a price we feel we need to pay to move on.
The house we bought was a 3 bed semi with big garden, so i thought we'ed stay here, but saw a house we always liked in the area so moving on!

I think even with a starter home have a look at access to schools etc and transport links, it'll make it easier to sell in the future