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If I buy a new property will i lose my tracker mortgage in the house i am.renting out

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  • 17-05-2015 8:22am
    #1
    detoxkid
    Registered Users Posts: 621 ✭✭✭


    Advice appreciated. Im a reluctant landlord, i moved to take a better job. We have been renting near my new job for the past 4 years. For 2.5 years we have rented out our property (at a loss) and i have been fully upfront with revenue and the pntb about this. Bought the property at the height of the boom.and it is worth around 50k less than what is left on the mortgage so it is not worth our while selling. The payments are pretty affordable and i have a tracker mortgage so our plan is to write it off as a bad investment but hang onto it until the mortgage is paid (another 21 years :() since then our circumstances have changed, we got married and have a baby and another one on the way. I would love a house now. We are busy saving for the huge deposit which will take ages i know. My question is re my existing mortgage. As far as the bank are concerned i still live there. My origional contract doesnt seem to mention anything about conditions changing if it becomes an 'investment' property. Can the bank take my tracker mortgage from me when i get a new mortgage from them?


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    #2
    handlemaster
    Registered Users Posts: 6,003 ✭✭✭handlemaster


    i think the consensus is say nothing


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    #3
    galljga1
    Closed Accounts Posts: 2,938 ✭✭✭galljga1


    It will come down to what the contract states.
    It is essentially a domestic mortgage.
    If you are renting it out, this may breech the terms of the original mortgage.
    If you go with the same bank, they may change the terms of the existing mortgage to reflect that it is an investment property.
    If you go with a different bank, the original bank may never find out.


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    #4
    murphaph
    Registered Users Posts: 19,018 ✭✭✭✭murphaph


    If you are absolutely sure the loan agreement does not address the issue of renting out the property then there's nothing the bank can do. If you're in any doubt then just take your new mortgage out with any other lender.


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    #5
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,279 Mod ✭✭✭✭The_Conductor


    A far bigger concern that loosing the tracker mortgage to be honest- is how do you propose to finance the new house purchase?

    A pre-existing mortgage, loan or credit card debt- will reduce your borrowing capacity by a commensurate amount.

    For example-

    I have a mortgage outstanding on a property of 250,000- which I am meeting without difficulty (despite the property being in negative equity).

    I want to buy a new house and hold onto property 1- because its not worth my while selling it as its in negative equity.

    My salary is 60k, my rental income is 18k and my wife has a second income of 25k (no social welfare payments etc are taken into account).

    Our net position (and this is being generous- normally rental income is not factored in) is that we can borrow 3.5 times the higher income (which for arguments sake we will say is 80k * 3.5) plus twice the secondary income (another 50k) = 310k

    The mortgage outstanding on property 1 is 250k, and there is 50k worth of negative equity associated with it.

    I have one young child, and another imminently on its way.

    Straight off- max borrowing potential = 310-250 (the o/s mortgage) - 5% per child........

    Get where I'm coming from? Your borrowing capacity (presuming your income is as generous as I've allowed)- is only 50 or 60k (and I have used rosy scenarios).

    In addition- as you're not a first time buyer- you need to fund a 20% deposit upfront............ If the property you're now looking at is valued @ 250k- the max mortgage you can get on it is 200k- and you need a 50k lumpsum for the deposit (this is totally ignoring mortgage no. 1 which is a millstone around your neck).

    What the vast majority of people do in your situation is one of two things:

    1. Move into the pre-existing property 1 and fix it up to best suit your needs

    or

    2. Sell Property 1, either negotiating carrying the negative equity to property 2 or agreeing a mutually agreeable manner for dealing with the debt. PTSB were doing NE mortgage lending (not sure if they still are- but I suspect they are)- and they would be my first port of call.


    Imagining you can hold onto Property 1 and buy a second property- really is a bit of a dream (unless there is an inheritance or something in the background that you haven't told us about). You simply don't have the borrowing capacity to finance a second mortgage, with the best of will in the world.


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    #6
    galljga1
    Closed Accounts Posts: 2,938 ✭✭✭galljga1


    The_Conductor wrote: »
    A far bigger concern that loosing the tracker mortgage to be honest- is how do you propose to finance the new house purchase?

    A pre-existing mortgage, loan or credit card debt- will reduce your borrowing capacity by a commensurate amount.

    For example-

    I have a mortgage outstanding on a property of 250,000- which I am meeting without difficulty (despite the property being in negative equity).

    I want to buy a new house and hold onto property 1- because its not worth my while selling it as its in negative equity.

    My salary is 60k, my rental income is 18k and my wife has a second income of 25k (no social welfare payments etc are taken into account).

    Our net position (and this is being generous- normally rental income is not factored in) is that we can borrow 3.5 times the higher income (which for arguments sake we will say is 80k * 3.5) plus twice the secondary income (another 50k) = 310k

    The mortgage outstanding on property 1 is 250k, and there is 50k worth of negative equity associated with it.

    I have one young child, and another imminently on its way.

    Straight off- max borrowing potential = 310-250 (the o/s mortgage) - 5% per child........

    Get where I'm coming from? Your borrowing capacity (presuming your income is as generous as I've allowed)- is only 50 or 60k (and I have used rosy scenarios).

    In addition- as you're not a first time buyer- you need to fund a 20% deposit upfront............ If the property you're now looking at is valued @ 250k- the max mortgage you can get on it is 200k- and you need a 50k lumpsum for the deposit (this is totally ignoring mortgage no. 1 which is a millstone around your neck).

    What the vast majority of people do in your situation is one of two things:

    1. Move into the pre-existing property 1 and fix it up to best suit your needs

    or

    2. Sell Property 1, either negotiating carrying the negative equity to property 2 or agreeing a mutually agreeable manner for dealing with the debt. PTSB were doing NE mortgage lending (not sure if they still are- but I suspect they are)- and they would be my first port of call.


    Imagining you can hold onto Property 1 and buy a second property- really is a bit of a dream (unless there is an inheritance or something in the background that you haven't told us about). You simply don't have the borrowing capacity to finance a second mortgage, with the best of will in the world.

    I am not sure about the current situation as the landscape has changed considerably since I last purchased, which was 9 years ago. At that time I was offered a sum based on ability to repay (well not really at they offered me a ridiculous amount which I would never have been able to repay). They took into account my existing house, which I was not selling at the time, potential rental income, my income, bonus etc. They have gotten more strict on what they are handing out but I would still say they are using 'ability to repay' rather than the blunt instrument of an income multiplier less borrowings.


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    #7
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,279 Mod ✭✭✭✭The_Conductor


    9 years ago was an eternity ago.
    The entire landscape has changed since then.
    I was offered the opportunity to leverage up to an multiple of 14 times my annual salary at that time (2006) and had an offer on a house on that basis. I made my offer conditional on a number of issues being rectified- which never were- and I walked. Its the luckiest escape I ever had..........

    OP- talk to an independent broker- and/or a few of the lenders yourself. Get an idea of the lie of the land and what your options are.


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    #8
    cerastes
    Closed Accounts Posts: 3,601 ✭✭✭cerastes


    I'd keep even the mention of the tracker quiet or they might find a way to put it in or realise they forgot it, they will do anything to get these back, my bank applied a bit of pressure to to change mine making it sound like I had to do it not that im even moving, just Another issue, it was a sly kind of strongarming tactics with me, just dont even mention it, its their job to see these things, check any paperwork and probably dont even deal directly with a bank or the same one you are with.
    You could also potentially not rent the house if the intended new place is not near and use a room for your own use rather than stay in a b and b if you need to b there for work or to limit a commute.

    Would love to move from where I am, but the place has other potential, I'd consider moving to a much smaller place further out for quality of life as too many rented houses here with not a great community spirit or family oriented. Alas its not to be while not finding work, good luck with it and dont say anything you dont need to to the bank.
    I wish I took the 50k from bank of America or whoever it was sending me those offer and moved when it was possible!


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    #9
    detoxkid
    Registered Users Posts: 621 ✭✭✭detoxkid


    Oh i know it will be incredibly tight actually getting the second mortgage. Particularly since im pregnant with second child and will have to factor in second childcare costs. I did speak with the bank-hypothetically of course. Living in my house is not an option it is a four hour round trip to anf from my newer job. My circumstances are fairly similar- im on 70k, he is on 30k. We currently have savings of 30k. We want to buy a house for 250k- so we do need a deposit of 50k and bank would look for a savings record of 1250 per month, not including rental income. Between us we do save this amount per month- we do nothing Now we have a baby- no holidays, no eating out and very rarely go out. Or we could if we put our minds to it. Our current rent in our new place is 750per month which would count towards the 1250 making it more doable but not if we looked at getting a mortgage with my current bank of course because i could well be breaking the terms of my contract by renting it out in the first place. Also i know it is prob a longer term dream and we wont be able to buy for 2 years min. Anyway it is good advice to talk to a good broker and i appreciate all of your responses. Buying that house was my one true regret in life but im fairly certain im not on my own making that mistake


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    #10
    Paulw
    Moderators, Society & Culture Moderators Posts: 13,381 Mod ✭✭✭✭Paulw


    cerastes wrote: »
    I'd keep even the mention of the tracker quiet or they might find a way to put it in or realise they forgot it, they will do anything to get these back

    Most contracts have a clause for full disclosure. So, by failing to tell them you may be liable for penalties if they do find out later. Never a wise things to do.

    Mod Note: Please don't advise fraud.


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    #11
    castle2012
    Registered Users Posts: 1,014 ✭✭✭castle2012


    I don't know if this helps . I found myself in circumstances where I let out my house and rented closer to Dublin . Did everything above board . Contacted the bank and told them . While I held onto my tracker I lost my mortgage relief. I struggled for 2 years as it was costing money letting out while I rented . I contacted the bank last October and agreed a negative equity mortgage. Went sale agreed in November and moved into our new home at the start of this month. It is such a great weight off my shoulder s . Best of luck whatever ever you decide


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    #12
    MarkAnthony
    Closed Accounts Posts: 6,934 ✭✭✭MarkAnthony


    We've found KBC to be very helpful even though we have an apartment in neg equity. Bear in mind the income in rent is counted towards your income for the mortgage (or some division there of 50% IIRC).

    As for losing the tracker, I'll let the rest of the thread speak for itself but there is talk of 100% interest relief kicking in - assuming you get enough rent you may find it doesn't matter if you're paying 1.5% or 5%.


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    #13
    marathonic
    Registered Users Posts: 1,664 ✭✭✭marathonic


    MarkAnthony wrote: »
    As for losing the tracker, I'll let the rest of the thread speak for itself but there is talk of 100% interest relief kicking in - assuming you get enough rent you may find it doesn't matter if you're paying 1.5% or 5%.

    This is totally incorrect. Of course it matters what you're paying. For someone paying 40% tax, the 1.5% or 5% would cost them an effective rate of approximately half of that if 100% mortgage interest relief comes in - I'd much rather pay 0.75% than 2.5%


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    #14
    murphaph
    Registered Users Posts: 19,018 ✭✭✭✭murphaph


    MarkAnthony wrote: »
    As for losing the tracker, I'll let the rest of the thread speak for itself but there is talk of 100% interest relief kicking in - assuming you get enough rent you may find it doesn't matter if you're paying 1.5% or 5%.
    It is still better to pay less interest.

    Let's say you pay 10k a year interest and your gross rent is 10k. You would have zero profit (I'm leaving the other deductibles out for clarity) and no tax liability, but no money in your pocket either.

    Now, let's assume that you only paid 1k in interest. You'd have 9k taxable income and assuming you are on top rate due to PAYE or other income, half of it is gone, leaving you with around 4.5k in your pocket (well it's probably being used to pay off capital on the mortgage but you get the idea).

    Edit: Beaten to it....that's what I get for starting my post before putting the young fella down for the night lol.


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    #15
    MarkAnthony
    Closed Accounts Posts: 6,934 ✭✭✭MarkAnthony


    marathonic wrote: »
    This is totally incorrect. Of course it matters what you're paying. For someone paying 40% tax, the 1.5% or 5% would cost them an effective rate of approximately half of that if 100% mortgage interest relief comes in - I'd much rather pay 0.75% than 2.5%

    I'm not sure it works like that though?

    If you've 12K Rental income, less interest - so if that's 10K you're only paying tax on 2K - that's 100% relief of the interest, with only profits taxable.
    murphaph wrote: »
    It is still better to pay less interest.

    Let's say you pay 10k a year interest and your gross rent is 10k. You would have zero profit (I'm leaving the other deductibles out for clarity) and no tax liability, but no money in your pocket either.

    Now, let's assume that you only paid 1k in interest. You'd have 9k taxable income and assuming you are on top rate due to PAYE or other income, half of it is gone, leaving you with around 4.5k in your pocket (well it's probably being used to pay off capital on the mortgage but you get the idea).

    Edit: Beaten to it....that's what I get for starting my post before putting the young fella down for the night lol.

    Point taken though if you're at a lower interest payment.


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    #16
    marathonic
    Registered Users Posts: 1,664 ✭✭✭marathonic


    MarkAnthony wrote: »
    I'm not sure it works like that though?

    If you've 12K Rental income, less interest - so if that's 10K you're only paying tax on 2K - that's 100% relief of the interest, with only profits taxable.

    And if you've only got €5,000 interest you pay tax on €7,000.

    Now assume the person is paying 40% tax, 7% USC and 4% PRSI.

    On €2,000 profit, total payable is €1,020.

    On €7,000 profit, total payable is €3,570.

    Therefore, although interest is allowable at 100% (in the above example), the additional €5,000 interest paid only reduced your tax bill by €2,550.

    As you can see, the interest paid on your mortgage makes a significant difference - regardless of whether the tax write-off is calculated at 75%, as per the current rules, or whether it's increased back up to 100%


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