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)

Iscreamkone

You need to talk to a mortgage broker. They will do the maths for you. A good broker will bust a gut to get you a 2nd mortgage and thus get his fee.

There is good money to be had in renting property that comes to market with no RTB restrictions (like your first property).

You might have to delay your move until your earnings increase plus you have a bigger deposit for property 2. Being a landlord isn’t for everyone - make sure you know about the pitfalls.

I like your ambition and entrepreneurial spirit.

FrankC21

What will be the best investment options for us. Who want to invest. Now that we are still in our early 30s. That we can harvest by the time we reach 50s.

Business? Maybe? Holiday home abroad like the one mentioned.

shimadzu

OP I think you need to make more progress in paying off your current mortgage as the max borrowings you can have on your income at the minute is ~315K, you can revisit the idea of owning a rental property in the future when you are in a better financial position.

For you to purchase a second property with a value of ~350K you would need a ~70K deposit, a 25 year mortgage for the remaining amount will have monthly payments of approx. 1.6K. Keeping in mind that you will have repairs, maintenance, property taxes, insurance on two properties and 52% of the rent will be heading in the direction of the tax man, you also have to consider that you will be paying ~210K in interest on that mortgage over 25 years. It would probably take 45-60 years of rental income from your current property to cover the cost of the new property not including your deposit.

o1s1n

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

One thing to remember though is that 500,000 in 2008 would be worth more than 500,000 in 2024. So yes, the figures might nearly look similar but we'd need to exceed the 2008 prices to actually achieve parity.

Some online inflation calculators I'm looking at are saying about 17-18% beyond 2008 prices.

XsApollo

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

You can’t tell the bank that, whether the bank takes Rental income into consideration is up to them.

PTSB did take a % of rental income into consideration for me back then.

sportsfan90

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

What investment books suggested this if you don't mind me asking?

holliehobbie

Why do you have debts with savings of 1400 per month? And a lodger paying €500 a month? You shouldn’t have any debts surely? Also a few pointers about buying a house in Spain. The Spanish government do not like foreigners buying property there. If you think tax is bad in Ireland you’ll be in for a shock when you sell a property in Spain!

Buddy Bubs

https://www.boards.ie/discussion/comment/121898099#Comment_121898099

Ladybird must have published those books. Property isnt diversified at all.

I've no problem with people buying property as part of a portfolio but there's plenty who have been burnt badly

Jim2007

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

Are you really tell us that you are oblivious to all the people that were wiped out during the last crash?

Jim2007

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

But that is only half the storey.... most balanced portfolios recovered within about 18 months of the crash and have been growing for the past 16+ years while many property owners are just about getting back to square one. Everything that happened in the last Irish property crash has happened before and will happen again and the Irish market is overheating right now. So something like a major war in Europe or else where could send the world economy into a spin and heaven knows where it could end up.

FrankC21

Debt was from home improvement loan we took out when we got the property to furnish it. It will finish next year.

Soon as the loan finish, will free up about €600+ and will go on top of our monthly savings. I think at the moment we're not in a position to apply for 2nd mortgage.

However, i am glad that i put this out here, i have got very good points which will help me make decisions for the future. Thanks very much.

Jim2007

https://www.boards.ie/discussion/comment/121897098#Comment_121897098

You need to start by recognising your limitations, because if you don't all you will find yourself doing in your 50s is struggling to pay down massive debts.

• You talk about doing research, but from your posts it seems in reality it is all directed at confirming an existing view. If you were doing objective research into investing and financial risk, then of course you'd have come a cross lots of reputable articles highlighting the risks of failing to diversify etc...
• You have a very limited view of property investing and management in Ireland, let alone to start investing in a foreign property market
• What skills or knowledge to you have that might be used in setting up a business? And here again on average about 90% of businesses fail for one reason or another.

Nobody can tell you what the right investment will turn out to be in 30 years time. But what I can tell you right now is that you need to put an awful lot more effort into learning about investing and finance risk before making a move. And based on what you have posted, you are most likely close to being over extended in the event of a financial crisis.

sammye333

my 2 cents. Just keep saving all the extra cash. your payment will increase in 2025 , so it wont be 850 anymore.

I paid off my mortgage early buy going on a variable and throwing extra cash at it.

you mentioned a few times that the house cost 260k. that will be nearly 400k by the time you have paid the bank off. people tend to forget this part.

SupaCat95

I echo what everyone else is saying, thread carefully. Also wonder why all the other landlords are running out of the business. Be aware of what future government amendments to the constitution are on the cards.

Jim2007

https://www.boards.ie/discussion/comment/121902138#Comment_121902138

I think there is a distinction to be made between landlords who are in the business of letting property and accidental landlords who bought a property thinking it would be easy money. I don't know any professionals, if you want to call them that, who have left the market in recent times but then these people have a different perspective and objective.

I would not be terrible worried about amendments to the constitution etc... as there will be time to act and they are a single events. It is the sudden sharp sock of something like a war which impacts market value, the borrower's income and the financial institution at the same time that is of most concern as there will be little warning and very little that can be done to mitigate the risk.

SupaCat95

Well before the last recession, I had a "buddy" and Mrs, cock sure of themselves, power couple, 5 years into their first mortgage, took on a second house as an in vestment. Given it was a lot of work and tenants were a pain in the hole. They made it work. They doubled their money. With no idea that the recession was on the way (I lacked financial literacy at the time), I suggested they sell both houses and rent a month before the financial collapse. They were so sure of themselves they bought in again to a town house converted to flats. Within 2 years everything had failed, his career was on the rocks, she couldnt pass professional exams. I think they were bipolar (hi highs and lo lows type).

I couldnt understand why they were flipping out over 0.75% rate increase. I do now.

Tenants are a pain in the hole, late rent, rows, rows with neighbours, maintenance, insurance, tax, bins, mould, the list goes on and on. A Landlords lot is not a pleasant one especially if ye in mortgage.

Find out about the next proposed ammendment to the constitution. Dont blame me I didnt propse it or write it but its on the way.

SupaCat95

@holliehobbie Deal with the Spanish government or local government? Absolutely NO way they make Irish tax laws pallitable and planning permission reasonable.

First there is 30% tax at either end when you buy/sell a house in Spain. There is no planing protection , if the goverment want to route a road in your direction, unless you pay them to redirect. You wouldnt get it from mafia.