Getting 2nd mortgage to buy 2nd property

FrankC21

Hello,

How can we secure a 2nd mortgage to buy 2nd property? Our main goal is to keep current property and buy a 2nd property min 4 bed and rent out our first home family is growing.

Combined income of 90k

Current property acquired 2020 on a 5 years fixed rate payment @ 850per month.

Current property is 10 minutes walk to main hospital very high tenant working from hospital.

Current property value is around 360,000 and property value back in 2020 @ 260,000.

Family member currently renting 1 room and paying 500 each month and sharing bills.

Consistent savings of 1400 each month.

30k savings so far.

We went to 2 banks so far over the phone and a broker haven.

 EBS - We didn't qualify for affordability test we need to add 1900 on top of our current monthly savings sounds ridiculous.

AIB - can only give us 165,000 and current property rate will go up to repayment of 1900.

Haven - broker will not proceed because we donot have enough savings ratio to our current debts of 8k. This was 6 months ago

I have appt next week with ptsb face to face.

2nd option put our current savings for a granny flat

All advice greatly appreciated

SharkMX

Besides the fact that most landlords are getting out so that should be a sign to you what the rental game is like. You dont say how much you currently owe on your mortgage or how much would be any new property you would be looking at.

FrankC21

At this moment 220k still outstanding.

2nd property ranging 350k-270k we are not looking for newly build.

I have high confidence that current property location is of high tenant majority working 10 minutes walk from one of biggest busiest general hospital. The house behind me is a rented house and never unoccupied. All tenants working at the hospital.

OP, I can tell you one thing I’d do some very good research and speak to plenty of landlords before you go this way.

traco

Keep shopping around sltough there aren''t many options. Bear in mind the tax burden that will be on the rental income from the first property when rented as that will be a significant factor.

I don't know if the banks stress test like they do for commercial units. However for commercial they will have a an LTV threshold as test one and also test the repayments against the net rental income. For commercial they apear to be requiring 40% minimum equity and then they assess the rent roll against the repayments and end up at the lower of the two figures as the max loan value.

You need to get someone to explain the criteria being applied so that you can work the numbers from that side. Also check what interest rates are being used as investment rates will be higher than a domestic mortgage. No harm in wiping the 8k out if you can as its not helping the case even though its relatively small.

timmyntc

https://www.boards.ie/discussion/comment/121896041#Comment_121896041

The risk with being a landlord in this market is not having your rental go unoccupied, it's having your tenants refuse to pay and you not being legally able to evict them in a timely manner.

Buy to let mortgages have much higher interest rates, so that on top of you owing 220k on your first makes it very unlikely you will meet any lender's stress tests.

FrankC21

I appreciate it and I am doing research almost everyday and spoken to landlords who have property even outside of ireland.

This will be a long term investment for both of us. We know the risk and we had 2 tenants before renting our rooms and we know what it likes, pressure frustration and stress.

FrankC21

I understand thank you, prospect tenants are going to be professionals nurses and doctors. Majority works in healthcare.

How will be able to convince the bank?

So this will not be possible for our current situation. What can I do to increase my chance.

Rackstar

With the details shared, I think you would be crazy to do anything other than sell current house and buy the house you want.

AndyBoBandy

https://www.boards.ie/discussion/comment/121896097#Comment_121896097

How will be able to convince the bank? 

So this will not be possible for our current situation. What can I do to increase my chance.

Without wanting to sound smart or harsh, but the only solution is to have a bigger salary or more savings so you need to borrow less.

We know the risk and we had 2 tenants before renting our rooms and we know what it likes, pressure frustration and stress.

Renting rooms out and renting an entire property out are 2 very very different things.

ArrBee

Is your current mortgage interest only or something?

you say starting value = 260k and current debt on it is 220k. If there was a 40k deposit, your 850pm payments are just covering interest, yes?

And the mortgage term is 5years. What is supposed to happen in 2025 when the fixed term is up?

Having an interest only mortgage on your existing house will hold you back from a 2nd mortgage IMO.

While landlord experience can vary a lot (loads of bad stories on Boards - but we've been lucky I guess), I do agree that being close to a hospital will keep demand high. The issue you will face is making sure you have good tenants - no matter where the property is.

shimadzu

Its going to be very difficult to convince a bank to let you have borrowings of nearly 550K on a combined annual salary of 90K. With the cost of labor and supplies at the moment 30K is not going to go very far in terms of building a granny flat. If you are tight on space why are you renting out a room?

ctomas

The way the banks think is all about ability to repay. So you pay 850 per month now and saving 1400

they will assume there is risk based on interest rates that in the future your current mortgage will increase to approx 1550, that would reduce your savings per month to about 700.

They won’t assume that you can rent out in future so the best you’ll get about a 100k based on the ability to to use your 700 per month savings for repayments

figures above are just an estimate.

FrankC21

Im not asking 550k. We're just asking maximum 350k to 270k and not a new build an old house with 4 beds will suffice.

I have already got a quote for granny flat and we just need to put deposit for the materials and payment will in stages.

So those are the options We're looking at.

AndyBoBandy

https://www.boards.ie/discussion/comment/121896252#Comment_121896252

Im not asking 550k

you are though...

you already owe €220k on your existing home? and you want to borrow an additional €270k-€350k? that adds up to €490k - €570k of total borrowing.

Any bank that offers you a loan will be doing so in the knowledge that you already have an outstanding mortgage of €220k, and they will be counting your ability to pay them back in addition to paying back your existing loan, and therefore will only lend to you within the borrowing limits of 3.5 times salary.

If the limit of lending is 3.5 times your (combined) salary (€90k), then you can borrow up to a max of €315k, and as you already have a loan to the tune of €220k, then the most any bank will give you is €95k (they won't simply forget about that other €220k you owe another bank).

Red Silurian

https://www.boards.ie/discussion/comment/121896252#Comment_121896252

You're asking for 350-270k while already having a debt of 220k, that's where the 550k is coming from, or more accurately 490k-570k

My best advice to you would be to sell up and move rather than take a mortgage out for the purposes of rental. The money not spent on the mortgage can be saved

FrankC21

Thank you, i completely understand now. But we really do not want to sell the property it is such a good location. Accessible to a lot of major amenities. What other investment we can go for that will give us guaranteed returns. We were wlthinking that if manage to pay 2 mortgages and pay both of them in the future will be able to retire and not worry our future expenses.

XsApollo

I did this a few years ago.

albeit with a monthly mortgage of 300 euro on the first house.

PTSB got me over the line, also got an exemption in the 20% deposit, dunno about deposits and stuff now , I had to clear a few loans and stuff.

but they took some of the perceived rental income from the first house into consideration for capability to repay, which is what helped me get the mortgage.

the total of both house borrowing were around 210k.

all the bank cares about is the ability to repay, that’s why you are failing the affordability.

also your first house will have to change to a buy to let mortgage and insurance also, which increases the repayments dramatically.

FrankC21

Hi,

10% is the required deposit for 2nd mortgage current central bank rules and that is exactly what i want to tell the bank that the rental income will repay the first property. Current property is 3 bedrooms 3 bathrooms

Room Ensuite, double bedroom and single room.

Before I give up i really want to maximise my options because what I went so far are all over the phone. No physical numbers from payslip, salary cert was shown to the banks.

L1011

https://www.boards.ie/discussion/comment/121896595#Comment_121896595

You can tell the bank that all you want; it won't change the fact that you will be over-borrowing.

Also, have you taken the ~50% tax you will have to pay on the rental income in to account in your concept of it covering the mortgage?

timmyntc

https://www.boards.ie/discussion/comment/121896549#Comment_121896549

Rental returns are not guaranteed. There is a significant element of risk involved with being a landlord in this country.

Also have you actually sat down and done the maths on this? How much rent would you get for the house per month? Is it more (after 50% tax) than you would save if you just sold the 1st house and had a smaller mortgage on your new purchase?

Calculator123

https://www.boards.ie/discussion/comment/121896595#Comment_121896595

10% deposit typically applies only to First Time Buyers. You are not a first time buyer.

If you were selling house A and buying house B, banks will typically need you to have 20% desposit/equity from House A sale.

However you are proposing keeping house A and buying an additional House B. This means you will be looking at a Buy To Let mortgage. BTL mortgages typically require desposit of at least 30%. Also Buy To Let mortgages rates are between 5.5% and 8.5% at the moment. Given you're looking at renting House A, that's the one which will need switching to a BTL mortgage. The bank would have to decide how all that switching will work. For Buy To Let mortgages in addition to your own legal fees, you usually have to pay the Bank's legal fees too.

While I appreciate what you are trying to do, the various figures you have provided suggest you cannot afford to do this right now. If one bank has already turned you down, the rest probably will, too. However it's best to meet with them in person.

It is possible where your circumstances change, to have a discussion with a bank about renting a house out for up to one year without impacting your existing mortgage rates. Any formal rental arrangement requires the approval of your mortgage lender as it may be a breach of your mortgage terms.

Renting and BTL mortgages are high risk and banks decide accordingly.

Jim2007

https://www.boards.ie/discussion/comment/121896549#Comment_121896549

Here is the downside:

Property is a high risk asset class, so much so that portfolios holding more than about 6% - 7% are considered very high risk and are discouraged.

In your case:

• You are way north of 7%
• You are borrowing to invest
• You are failing to diversity by asset class
• You are failing to diversify within the asset class
• You are investing in an illiquid asset
• You are exception a low return for a high risk exposure

In other words you are breaking every rule of investing that has been proved over and over. People got badly burned last time around because they ignored all the rules. It is easier to blame the government, the banks, the bond holders or who ever, but the the bottom line is had they follow best investing rules they would never had stuck their fingers in that pie to start with.

So no this is not a guaranteed returns opportunity nor a guaranteed future. There is nothing in your strategy from preventing you from being wiped out other than conviction. Hopefully it will work out for you but if it does not you could end up in the same boat as people did in the past.

homingbird

If you are looking to get into the rental market why dont you look at a hoilday home spain you also get the use of it & good value to be had.

FrankC21

We are also looking into that 😀 but we don't know the process. We need to do more research.

But so far i am getting very excellent response. And granny flat is looking much better.

FrankC21

Hi,

Thank you, I have read lots of investment books and articles and talked to other people they always suggest safest investment is property. Because it appreciate in value that is proven. By the time we almost reached 50s the value of the property will go up. I am confused now. Yes you are borrowing but the property value goes up and it will eventually pay for itself. Isn't?

I don't understand that investing in property can easily wiped out because property is physically there it is not like stocks or bonds. And it is proven property value goes up. Current house From 260k to around 360k in a span of almost 4 years.

Yes, monthly returns might be low now and it is not liquid but long term when you finish the payments it is there i can pass it down to my kids or sell it.

Furze99

As per above - If you are tight on space why are you renting out a room? And talking about a granny flat. Doesn't really add up.

You're proposition sounds like a bad lending risk. Save more, pay off more and then come back to it.

Furze99

https://www.boards.ie/discussion/comment/121896920#Comment_121896920

"Yes you are borrowing but the property value goes up and it will eventually pay for itself. Isn't?"

Kinda big assumption that brought a lot of hardship on people like you a few years ago. Difference then was that lenders were gung ho to lend, then they and we all got stung so more cautious now, hopefully.

There have to be practical affordable limits on residential property that reflect the realities of the economy, wages and costs of living etc. It's not like a balloon that you can keep on blowing up, without letting a bit of air out of it now & then...

HeidiHeidi

https://www.boards.ie/discussion/comment/121896920#Comment_121896920

Eh, I bought a house at the height of the boom in 2006 which still has not got back to anywhere near the money I paid for it, 18 years later! I sold a house at the same time for an equally ludicrous amount, relatively speaking, so I was never in negative equity - but I still feel to this day for the first-time buyer who bought my house, and it is absolutely not true that property always increases in value. If that's what you've been reading, you need to find a different library.

You're also completely glossing over the interim period where you're renting to tenants who have massive rights in a mega-regulated industry, and that's only going one way (and not in favour of the landlord).

As one or more posters have pointed out already, all it takes is one set of tenants, or even just one tenant, to decide to act the goat (trash the place, piss off the neighbours for e.g.) - you want them out - they dig in and you're tied up in legal knots for potentially years with no rental income, trying to pay two mortgages on your combined domestic income.

Or indeed, one of your domestic incomes goes up in smoke due to unemployment, injury, illness, family circumstances, etc etc.

There's a long road in between now and 20 years time when yes, the property will probably be worth a lot more than it is now - but you have to consider the potential potholes along that road.

AndyBoBandy

https://www.boards.ie/discussion/comment/121896920#Comment_121896920

Because it appreciate in value that is proven. By the time we almost reached 50s the value of the property will go up

You should ask people who bought a house before 2008 what their opinion of the above statement is. And right now prices aren't too far off pre-2008 prices...

HeidiHeidi

https://www.boards.ie/discussion/comment/121897009#Comment_121897009

Exhibit No. 1 right here!! (see my post above)