Using property with no mortgage as a deposit

peadard1

Hi, I'm looking to see if anyone has experience here.

I will soon be in a position where I will be able to buy a two bed apartment (Roughly 70k) in my hometown without needing a mortgage. I won't look to live here as I will be looking to rent it out for roughly €800 per month.

I would then be looking to buy a property for myself and my partner to live. This property could be anywhere from 150-170k.

The area's I need advice are -

(A) Would I be classed as a first time buyer when trying to buy the house as I wouldn't have needed a mortgage to buy the apartment but I would still be a property owner?

(B) If I am classed as a second time buyer is it possible for me to use the apartment as a deposit against the house? Or would I have to have a 20% cash deposit to get a mortgage on the house.

(C) If I could use the apartment as a deposit what way does that work? If house was worth 170k and apartment worth 70k do the bank loan you 170k or 100k?

I appreciate there could potentially be difficulty being a landlord but all going well I could have my mortgage being fully paid from rent off the apartment and effectively own two properties without using my wages.

There is nothing set in stone at the moment and will be contacting the bank soon for advice but wanted to check in here first and appreciate any advice given. Thank you

Baby01032012

peadard1 wrote: »

Hi, I'm looking to see if anyone has experience here.

I will soon be in a position where I will be able to buy a two bed apartment (Roughly 70k) in my hometown without needing a mortgage. I won't look to live here as I will be looking to rent it out for roughly €800 per month.

I would then be looking to buy a property for myself and my partner to live. This property could be anywhere from 150-170k.

The area's I need advice are -

(A) Would I be classed as a first time buyer when trying to buy the house as I wouldn't have needed a mortgage to buy the apartment but I would still be a property owner?

(B) If I am classed as a second time buyer is it possible for me to use the apartment as a deposit against the house? Or would I have to have a 20% cash deposit to get a mortgage on the house.

(C) If I could use the apartment as a deposit what way does that work? If house was worth 170k and apartment worth 70k do the bank loan you 170k or 100k?

I appreciate there could potentially be difficulty being a landlord but all going well I could have my mortgage being fully paid from rent off the apartment and effectively own two properties without using my wages.

There is nothing set in stone at the moment and will be contacting the bank soon for advice but wanted to check in here first and appreciate any advice given. Thank you

Ok...so the answers in order of questions asked is NO...NO and then NO. Based on your questions I’d stay well clear of buying an investment property.

You need savings as a deposit. You don’t have any if you put all of it into an apartment. If you’re putting apartment as collateral for the house the bank would need a lien or mortgage on the apartment however they wouldn’t even consider doing that.

Also you do realise you have to pay tax possibly up to 54% on your rental income. So it I doubt that net amount would cover mortgage on the house.

There are so many more things wrong with your thinking but I’m not even going to go there.

peadard1

Appreciate the reply and the points given.

I am aware of the tax from renting a property. I was under the impression though it was max 48%. The net after this would be €100 short of what the mortgage would be on house based on a 20% deposit so it would actually just about cover it.

Yes savings would be gone too as all would be gone into apartment. Had never heard of the Lien term you gave but a quick google is an eye opener to it!

As I said I am not committed to anything at all, just exploring options and am open to all advice!

Graham

peadard1 wrote: »

(A) Would I be classed as a first time buyer when trying to buy the house as I wouldn't have needed a mortgage to buy the apartment but I would still be a property owner?

(B) If I am classed as a second time buyer is it possible for me to use the apartment as a deposit against the house? Or would I have to have a 20% cash deposit to get a mortgage on the house.

(C) If I could use the apartment as a deposit what way does that work? If house was worth 170k and apartment worth 70k do the bank loan you 170k or 100k?

(A) No for Revenue, probably for the bank/residential-mortgage.
(B) Unlikely but might be worth talking to a broker.
(C) See (B)

hurikane

You need to talk to Eddie Hobbs about gearing. He’ll sort you out.

Baby01032012

Baby01032012 wrote: »

Ok...so the answers in order of questions asked is NO...NO and then NO. Based on your questions I’d stay well clear of buying an investment property.

You need savings as a deposit. You don’t have any if you put all of it into an apartment. If you’re putting apartment as collateral for the house the bank would need a lien or mortgage on the apartment however they wouldn’t even consider doing that.

Also you do realise you have to pay tax possibly up to 54% on your rental income. So it I doubt that net amount would cover mortgage on the house.

There are so many more things wrong with your thinking but I’m not even going to go there.

He likely would be comsidered a FTB by the bank as he has never had a mortgage and that’s what defines FTB.

Also you are not fully correct saying you need savings for a deposit in all cases, in a self build mortgage for example the site is considered towards the deposit as is any works done proper to applying for the mortgage so you could have no savings but still meet the deposit rules.

I think there is certainly a chance that a fully owned apartment could be considered as security against a mortgage.

Baby01032012

Baby01032012 wrote: »

Ok...so the answers in order of questions asked is NO...NO and then NO. Based on your questions I’d stay well clear of buying an investment property.

You need savings as a deposit. You don’t have any if you put all of it into an apartment. If you’re putting apartment as collateral for the house the bank would need a lien or mortgage on the apartment however they wouldn’t even consider doing that.

Also you do realise you have to pay tax possibly up to 54% on your rental income. So it I doubt that net amount would cover mortgage on the house.

There are so many more things wrong with your thinking but I’m not even going to go there.

He likely would be comsidered a FTB by the bank as he has never had a mortgage and that’s what defines FTB.

Also you are not fully correct saying you need savings for a deposit in all cases, in a self build mortgage for example the site is considered towards the deposit as is any works done prior to applying for the mortgage so you could have no savings but still meet the deposit rules.

I think there is certainly a chance that a fully owned apartment could be considered as security against a mortgage.

OP I think you would be classed as a first time buyer as you haven't had a mortgage before - it's a bit of a misnomer really.

I'd agree with earlier posters though that your use of the word 'deposit' seems a bit out of place and I think you might need to read up a bit more in order to get your terminology right when you meet a mortgage adviser.

When we're talking about the deposit, that's the 10/20% value of the property that needs to be covered by the buyer. As another poster noted, if you're building on a site you own, you can count the site value as part of the property value, thereby improving your ability to cover the Loan-to-Value requirement. However, you've asked if you can use a separate apartment as part of the deposit - I don't see how this makes sense. How can you use the apartment to pay for your house, without losing ownership of the apartment? If you mean including it in your equity figures, similar to the self-build example, that just doesn't make sense as it's a separate property.

As for your question C about using the apartment as a deposit, here I think you're again misusing the word deposit - it sounds like you mean using the apartment as security against the mortgage? 'Security' means that you're telling the bank that if you don't pay your mortgage, you do have an asset they could sell in a worst case scenario to get their money back.
I don't see why you wouldn't just put the mortgage on the house? You're going to have to do that anyway to get the rest of the money for the house, so why try to put two properties at risk?

Regarding your plan to use the rent from the apartment to pay the mortgage, you'll still need to demonstrate at least 6 months of repayment capacity to the bank in order to get the mortgage - if you're relying on the rent for this you'll be a long time getting everything in order.

Claw Hammer

No way is the o/p's plain going to work.
The only way to do it is to buy the house first using the smallest amount of money possible as deposit. After that support, save up and buy the apartment with the remaining funds plus the savings. That way
the with an on mortgage department for investment purposes and highly mortgaged house which is the object of the exercise.

jlm29

You’re essentially looking for a 100% mortgage, which won’t happen I’d imagine. It’s against the central bank rules. If you own a property outright though, it would put you in a good position for an exemption on the 3.5 rule, or for a lower deposit if you were classed as a second time buyer.
But given that were entering very uncertain economic times, it’s a bit of a mad plan.
You could live in the mortgage free apartment, save like crazy and buy the house, or as above, buy the house first and keep saving for the apartment

lsjmhar

Reading this is so interesting. It just highlights the lunacy of the last boom/bust with people buying several properties. How nobody thought it was crazy at the time when you consider the challenges this issue arises is really strange.

From this, it appears you need a new deposit for every property, starting at 10% and up to 30% for second property, etc. Requiring the salary to cover those repayments then places more financial constraints.

There must still be some serious debts owed to banks and 'vulture funds' when you consider this info. All that has changed is the rules, the money is still owed. Wow!!

peadard1

Thanks for the replies folks. I'm unsure how to quote on this as I've only signed up to the platform but just a few points.

Yes I can now see how my use of the term Deposit is wrong here. I probably was thinking of it more as a security but can see from some of the replies about why it would be mad to tie two properties and have that risk.

If I was to go ahead with it (It's only something that crossed my mind!), getting a 10% mortgage on the house and then saving up again to buy an apartment would seem the best way to go about it so they are kept separate.

And finally I wouldn't actually be relying on the rent from the apartment to pay the mortgage. I would be well able to cover the mortgage on my salary and I have over 6 months of statements to prove it as well as 9 years of continued employment. I was thinking of it as a potential revenue stream.

From a tax perspective you would be much better to have the mortgage on the rented property rather than the residential one as you can write off most of the interest against tax.

Lux23

Keep your money and use that as a deposit.