Buying Second Property + Retaining First Property & Mortgage

PleaseHelp123

Hi everyone,

Apologies in advance for the length of this one!

My partner and I were lucky enough to buy our first home in 2018, a 2 bed apartment in South Dublin. We were first time buyers and have been owner occupiers since then.

Down the line, we are looking to move out of Dublin and buy a bigger family home, in approx 2 years time. At that point we will still owe about 200k over 17 of 20 years on our current mortgage (property value currently 300k).

Our plan is to retain the current apartment and rent it out, as it will be invaluable once the mortgage is repaid. Although I have seen the numerous other posts here warning of the difficulties of accidental landlordship, tax implications etc and so if it becomes more hassle then it's worth after a few years we wouldn't be opposed to selling as a last resort.

We will be earning a combined 125k per annum at that point, so all else aside the bank should lend us 3.5 times that (437.5k). I know as second time buyers we will need at least 20% deposit and proof our income can cover both mortgages plus stress test, but I'm unclear what impact our current mortgage would have on our future borrowings? Will it reduce what the bank will be willing to lend us, given we will have approx 200k existing debt (albeit with 100k positive equity within)?

My initial understanding was that we need to go to our current bank, take out a new owner occupier mortgage for the new property, and convert Mortgage A to a Buy-To-Let, probably at higher rates. But I have seen mentioned on other threads the suggestion of just going to another bank for the second purchase and not changing Mortgage A? This sounds like the easier and better option financially but I'm worried there may be repercussions if Bank A later find out we didn't disclose the change in situation? I'm well aware banks should only be given need to know details, and happy to work the system to our best advantage, but I don't want to stray into fraud/deceit territory in the process.

We don't claim any TRS and are not on a tracker, just a decent low fixed rate for the first 5 years.

We're still in the very early fact finding stage as we try to understand the various options available to us, so any thoughts, advice or anecdotes would be hugely appreciated!

Let me know if any other details would be helpful, and thanks for anyone who took the time to read it through!

Graham

PleaseHelp123 wrote: »

I'm unclear what impact our current mortgage would have on our future borrowings? Will it reduce what the bank will be willing to lend us, given we will have approx 200k existing debt (albeit with 100k positive equity within)?

I would expect your borrowing limit to be reduced although this might be offset slightly by counting some of the rental income as income.

You might want to check if you'll actually have €100k of equity in the apartment after 4 years. Unless you've been overpaying your current mortgage significantly, paid a large deposit or seen significant capital appreciation, €100k sounds quite high.

wench

PleaseHelp123 wrote: »

Although I have seen the numerous other posts here warning of the difficulties of accidental landlordship, tax implications etc and so if it becomes more hassle then it's worth after a few years we wouldn't be opposed to selling as a last resort.

Selling up may not be an easy escape.

If you get a non-paying tenant that you can't evict, you'll have trouble getting anyone to take it off your hands.

PleaseHelp123

Graham wrote: »

I would expect your borrowing limit to be reduced although this might be offset slightly by counting some of the rental income as income.

You might want to check if you'll actually have €100k of equity in the apartment after 4 years. Unless you've been overpaying your current mortgage significantly, paid a large deposit or seen significant capital appreciation, €100k sounds quite high.

We paid a large deposit, ended up being about 25%, so only needed to borrow 225k from the bank. By the time we're looking at moving there'll be about 200k left to repay.

Any tips on a back of the envelope calculation as to how much our borrowing limit may be reduced by the existing mortgage?

fago

PleaseHelp123 wrote: »

We paid a large deposit, ended up being about 25%, so only needed to borrow 225k from the bank. By the time we're looking at moving there'll be about 200k left to repay.

Any tips on a back of the envelope calculation as to how much our borrowing limit may be reduced by the existing mortgage?

I think it'll depend on the lender but I did look at this option with AIB.
I was told by the mortgage advisor it would be possible for us but they would be doing it on the basis of the rental property being vacant i.e. that we would be able to service both mortgages.

So our salaries had to be able to service 200+437 in your example, plus having the 20% deposit.

The other part is if you keep the apartment you have 100k of equity locked up which you could use to get a smaller mortgage and keep the pressure off, or put you into a better house/area.

Banks might not now have the appetite for this amount of risk at the moment.

Net for us was we sold 12 months ago, renting off the purchaser since, yet to find a place(Covid hasn't helped)

Graham

No idea to be honest.

Absolute complete and utter guess based on nothing more than what sounds logical, - €200k, (potentially) + a small multiple of the rent.

Your best bet would be to go and have a chat with a broker sooner rather than later. They should be able to advise the best way to organise things in advance and give you an idea what you can/can't expect. You'll almost certainly get further with a broker than approaching a bank directly given it's not a straight residential mortgage scenario.

Draco

Looked into this with KBC when applying earlier last month, I'm in a similar enough situation. Currently living in the apartment, 190K left on mortgage, 320k+ value, rent would be about 2k+/month and our combined income higher than what you're expecting to earn. It was effectively a no go - we were told there would need a sitting tenant that's paid a few months rent to take into account any rental income. Without that it had a massive impact on what we could borrow - reduced it by the amount outstanding.

YMMV - talk to a broker anyway, it may have just been my experience with KBC. There may be something you can do now to prepare.

PleaseHelp123

Draco wrote: »

Looked into this with KBC when applying earlier last month, I'm in a similar enough situation. Currently living in the apartment, 190K left on mortgage, 320k+ value, rent would be about 2k+/month and our combined income higher than what you're expecting to earn. It was effectively a no go - we were told there would need a sitting tenant that's paid a few months rent to take into account any rental income. Without that it had a massive impact on what we could borrow - reduced it by the amount outstanding.

YMMV - talk to a broker anyway, it may have just been my experience with KBC. There may be something you can do now to prepare.

That’s really useful (and disappointing!) as we’re with KBC as well. Found them to be very inflexible during the initial mortgage process so I’m not surprised to hear they’re not very accommodating to this!

Thanks very much everyone, next step will definitely be approaching a broker before mentioning anything to KBC/any other bank.

I get the feeling lots of people just take a second mortgage with a different bank and say nothing about the original property now being Buy To Let, but I’ll get the broker’s opinion on how risky or irresponsible that might be!

Thierry12

You won't get much joy here OP

Crazy stuff anyway

You owe 200k on that apartment, your 17 years away from owning it

Sell it for the 320k and buy a house afterwards

Your plan only makes sense if you own the property

What your doing is gambling

You'll have 2 mortgages for 500+k and what happens if ye have a few kids and only one income, or ye split up or get sick etc

Graham

PleaseHelp123 wrote: »

I get the feeling lots of people just take a second mortgage with a different bank and say nothing about the original property now being Buy To Let, but I’ll get the broker’s opinion on how risky or irresponsible that might be!

I have a sneaking suspicion there would be a six figure hole on your ICB report that wouldn't go unnoticed.

Same with the CB register.

Graham

Graham wrote: »

I have a sneaking suspicion there would be a six figure hole on your ICB report that wouldn't go unnoticed.

Same with the CB register.

Not to mention the loan payments coming out of the OP's bank account.