Advice on mortgage deposit percentage for a short time buyer

hypheni · 25-02-2023 9:17pm #1

I'm here in Ireland for the past 4+ years and due to the falling rental market I am in the process of buying a house. I don't know where my future will be to be honest hence I wanted to stay cash rich and stick to rental places. But the bad rental market strengthen my decision of purchasing a property and this was fueled up by an urge of good living standard. While looking for mortgage in Irish market, I found myself very eligible with additional support from HTB scheme. Now, I studied about the 5 years rule of HTB and when I say short term, I definitely meant a horizon of 5+ years.

After few months of dilemma and trying to cope with the rising interest rate, I booked a house and paid the booking amount. Now on the mortgage I am planning to put 20% of the total valuation from my savings and that's where my query is. What is more beneficial in terms of getting back my initial deposit money while selling the property after 5+ years with respect to 20% and 10% deposit? Also, I am currently thinking about paying off the debt ASAP and opting for 24 years term with a rate of 2.9% from BOI.

I know, its a very bad idea to think about selling a thing before getting hands on it but a house being the biggest purchase in our life one should be certain about the approach towards it. Any suggestions or feedback will be highly appreciated.

MrMusician18 · 25-02-2023 9:30pm

It makes no difference if your deposit is 10% or 20% now when it comes to selling later.

The question of the size of deposit is whether you plan to invest it and achieve a net return greater than the interest rate. To be honest it's impossible to predict that. So the next question is do you have expensive debt or a purchase you are planning like a car or renovations. If you have no savings then these will need to be financed by expensive personal loans.

If you have no plans for the money, then the larger deposit makes more sense

MrMusician18 · 25-02-2023 9:34pm

Also BoI don't have a mortgage product available now at 2.8% Their lowest now is HVM 4 year fixed at 3.2.

hypheni · 25-02-2023 9:53pm

Thanks @MrMusician18. Really appreciate your response.

Luckily I do not have any debts nor I look for any loans to fulfill my dreams. On the expensive car / renovation, I have savings to support my wishes and I always try to match with my earning power.

The only thing that's in my vision is: if I have to leave the Irish property market after 5+ years, I should get back the deposit money (at least). Of course unless the housing market has gone to a really bad state.

Rest I will count the monthly mortgage repayments as rent / living cost.

walterking · 26-02-2023 9:41am

The biggest mistake people make when buying property is NOT looking at selling it.

Old adage, "the day you buy is the day you sell"

My first house was a 3 bed semi in Ballinteer. (£65,000 - 1989) Young and single - was told I should have looked at a 1 bed apartment.

When I went to sell it 4 years later (moved to the UK) it was sale agreed in 2 weeks because the target market was substantial.

So, you are correct in looking at the saleability of the property BEFORE you buy.

New houses with the htb seem to be priced higher than secondhand houses, so also look at secondhand houses which might be in better locations. And if the finance allows, buy 3 bed - you can rent one bedroom out completely tax free if you charge less than €14,000 a year. (Rent a room relief)

No one knows what the market will be in 5 years, but a good location and a good house will always sell well.

hypheni · 26-02-2023 11:09am

Many thanks @walterking for sharing your thoughts. Personal experience always counts and someone like me who was born in the year when you bought your first house its an absolute delight to hear about your experience. Thanks a lot for that, really motivating.

Now, on the used house, I was really looking for one here in Limerick, even I was thinking about getting an apartment. But while adding up public transport and housing standard in the requirement, I could only find a few. Either we got 4 bed house which was priced pretty close to a 3 bed new built, or some apartments in the city with so much of hustle bustle.

Now I am after a 3 bed terrace house in a good area in Limerick and as you mentioned it can be easily shared with one single tenant. At least till Ireland has got this big rental crisis or till we become 3 from 2.