Getting a mortgage more than 3.5 x joint salary

positivenote · 21-01-2020 1:56am #1

Hi all,
We’re looking to move house. We owe 220k (16years left, tracker 1.5% never missed a payment in 14 years) On a house that’s current value is 310k and we have viewed a house that we could get that’s 490k.
We have a joint income of approx 90k. No outstanding loans and about 6-7k saved in credit union. I’m pub sector permanent pensionable, wife is an employee. Is it possible for us to get a mortgage that would allow us to put an offer on the house? We’ve been told that the usual max is 3.5 x annual income... that equates to 315k approx.
Cheers

Black_Knight · 21-01-2020 5:23am

You could ask the bank for an exemption, but they're on an individual basis. Savings are pretty small for being, what I assume is, a long way into a mortgage IMO. And even moreso when you're on that interest rate. Have you looked at what repayments would be? Can you afford them? Have you stress tested that (add 2% to your interest rate and can you afford that)? How long until retirement (that'll limit your mortgage length, and thus mean higher monthly payments)?
You're looking at bringing just the 20% deposit too. Means higher repayments too.

Would paying off the mortgage on the first house mean losing the tracker? That's the cheapest money you'll ever get.

pwurple · 21-01-2020 8:35am

I assume with the dates, this is a story getting out of negative equity. Well done for that.

With those numbers I would hold off a years or two until you have a larger equity built up in your current house. Overpay if possible, for a year, the amount of the mortgage repayment you think you can get. This will also demonstrate repayment affordability.

GingerLily · 21-01-2020 9:05am

What is your mortgage plus savings each month? That will need to be higher than a stressed mortgage payment on the new amount.
(you can calculate this on excel easily using the PMT formula, you'll have to add 2% to the variable interest rate to "stress" it and adjust your term appropriately, e.g,
PMT (0.06,20,410000)/-12 )

RiseToMe · 21-01-2020 9:12am

With regards to the tracker, we bought an apartment 12 years ago and just sold it for a small profit, bank happy to allow us to transfer that entire amount onto our new mortgage at the tracker rate and the remaining 100k is at 2%.

Diceicle · 21-01-2020 9:26am

The bank will allow you to breach one of the central bank rules - 20% deposit or 3.5 times income.
I would advise talking to a good broker. I can put you in touch with one that I used if you want to PM me. He's in Dublin.

positivenote · 21-01-2020 9:36am

Black_Knight wrote: »

You could ask the bank for an exemption, but they're on an individual basis. Savings are pretty small for being, what I assume is, a long way into a mortgage IMO. And even moreso when you're on that interest rate. Have you looked at what repayments would be? Can you afford them? Have you stress tested that (add 2% to your interest rate and can you afford that)? How long until retirement (that'll limit your mortgage length, and thus mean higher monthly payments)?
You're looking at bringing just the 20% deposit too. Means higher repayments too.

Would paying off the mortgage on the first house mean losing the tracker? That's the cheapest money you'll ever get.

Moving the mortgage to a new property will mean pushing the interest up an extra 1% to 2.5 whilst still being a tracker...

My salary is benchmarked and I am 5 years off the top of my scale which is approx 85k ... this added to the 25k my partner is on will bring the total earned to 110k per annum in 5 years time.

Does any of this count for anything?

positivenote · 21-01-2020 9:41am

Diceicle wrote: »

The bank will allow you to breach one of the central bank rules - 20% deposit or 3.5 times income.
I would advise talking to a good broker. I can put you in touch with one that I used if you want to PM me. He's in Dublin.

Thanks. We used a brillant broker previously and still use them for our life insurance payments. I’ll give them a call

SozBbz · 21-01-2020 10:12am

Your savings are still really low. That amount of money would get swallowed up in fees alone.

cruizer101 · 21-01-2020 10:40am

SozBbz wrote: »

Your savings are still really low. That amount of money would get swallowed up in fees alone.

They are pretty low but you have to take the equity in house into account too.

RiseToMe wrote: »

With regards to the tracker, we bought an apartment 12 years ago and just sold it for a small profit, bank happy to allow us to transfer that entire amount onto our new mortgage at the tracker rate and the remaining 100k is at 2%.

Just to clarify this, your current house is worth about 310k on which you have 220k of mortgage. You also have just sold a property worth 120k? so if you were to take that from mortgage it would leave you with 100k mortgage?

That puts you in a lot better position than your OP.

If you have 210k equity (not counting the 6-7k savings, as sozbbz says that will get sucked up in fees) than you only need total mortgage of 280k on new property which is under the 3.5 limit.
So once you can meet the repayment requirements you should be alright.

Woshy · 21-01-2020 10:43am

You need to be concerned with the deposit required too. If the new house is 490K you need a 20% deposit which will be 98K. If you get 90K from the sale of your house your short of this amount even with your savings, and you need money for stamp duty and other fees. The banks will only give an exemption of the 20% deposit or the 3.5 rule - not both. You might be best to save for another year or two. It is worth seeing what your broker says too though I'd say.

Geuze · 21-01-2020 10:46am

positivenote wrote: »

Hi all,
We’re looking to move house. We owe 220k (16years left, tracker 1.5% never missed a payment in 14 years) On a house that’s current value is 310k and we have viewed a house that we could get that’s 490k.
We have a joint income of approx 90k. No outstanding loans and about 6-7k saved in credit union. I’m pub sector permanent pensionable, wife is an employee. Is it possible for us to get a mortgage that would allow us to put an offer on the house? We’ve been told that the usual max is 3.5 x annual income... that equates to 315k approx.
Cheers

Your savings are unbelievably low.

I used to earn 56k approx, family of four to maintain, and I saved 600-700 pm.

Maybe do an overall analysis of yuor spending.

Diceicle · 21-01-2020 10:47am

SozBbz wrote: »

Your savings are still really low. That amount of money would get swallowed up in fees alone.

True. I moved recently. Sale and purchase solicitor fees, Stamp duty, land registry fees etc and other sundries were about €7500. €4600 on the EA. ~€500 to the management company for statement of accounts....
it all adds up.

Black_Knight · 21-01-2020 10:50am

cruizer101 wrote: »

They are pretty low but you have to take the equity in house into account too.

Just to clarify this, your current house is worth about 310k on which you have 220k of mortgage. You also have just sold a property worth 120k? so if you were to take that from mortgage it would leave you with 100k mortgage?

That puts you in a lot better position than your OP.

That aint the OP

Diceicle · 21-01-2020 10:50am

cruizer101 wrote: »

They are pretty low but you have to take the equity in house into account too.

Just to clarify this, your current house is worth about 310k on which you have 220k of mortgage. You also have just sold a property worth 120k? so if you were to take that from mortgage it would leave you with 100k mortgage?

That puts you in a lot better position than your OP.

If you have 210k equity (not counting the 6-7k savings, as sozbbz says that will get sucked up in fees) than you only need total mortgage of 280k on new property which is under the 3.5 limit.
So once you can meet the repayment requirements you should be alright.

They still need a ball of money though. The equity in the house can't or wont be factored in unless they liquidate the asset of the current property, get that money in the bank and then purchase the new home.
That's how it was for my purchase. We had equity in the house but still had to have the cash on hand

Glenbhoy · 21-01-2020 10:52am

positivenote wrote: »

Moving the mortgage to a new property will mean pushing the interest up an extra 1% to 2.5 whilst still being a tracker...

My salary is benchmarked and I am 5 years off the top of my scale which is approx 85k ... this added to the 25k my partner is on will bring the total earned to 110k per annum in 5 years time.

Does any of this count for anything?

It will help your chances of getting an exemption, which I think you should qualify for.
How realistic is your 310k valuation?
How old are ye, boi give mortgages up to 70, some others 68, it's likely longer helps your chances. To maximise exception potential it helps to take as long a fixed rate as possible, but rates are more like 3.3 for 10 Yr fixed. That said, it's unlikely they'll offer you what's needed to fund the 490k purchase, they'll offer 4 times possibly, but anything above that may need higher salary levels etc.
As others have alluded to, you should look at the affordability of a prospective mortgage of 400k, it woukd be a pretty large step up on current savings levels and current mortgage repayments by the looks of it.

21-01-2020 10:52am

Diceicle wrote: »

They still need a ball of money though. The equity in the house can't or wont be factored in unless they liquidate the asset of the current property, get that money in the bank and then purchase the new home.
That's how it was for my purchase. We had equity in the house but still had to have the cash on hand

The equity will of course be factored in, if it wasn't then very few people would be in a position to trade up.

Woshy · 21-01-2020 10:57am

Diceicle wrote: »

True. I moved recently. Sale and purchase solicitor fees, Stamp duty, land registry fees etc and other sundries were about €7500. €4600 on the EA. ~€500 to the management company for statement of accounts....
it all adds up.

Yep, it adds up fast. we just sold and the EA was around 4000 plus 2000 for the solicitor. We had to pay the LPT and claim it back and other assorted costs. Plus then if you're buying another property you need to do it again with solicitors and stamp duty.

Diceicle · 21-01-2020 12:55pm

Nash Blue Staple wrote: »

The equity will of course be factored in, if it wasn't then very few people would be in a position to trade up.

You still need cash on hand to write the cheques for any deposits. If you're trading up on the strength of the equity in your home you effectively need a bridging-loan from somewhere to do it. Thats how it was for us and we moved in November 2019.
The only exception I can think there would be if you were selling and then buying at some undefined point down the line.

Jurgen The German · 21-01-2020 1:20pm

How has the savings being accumulated ie is it say €1000 a month for the last 7 months or €300 a month for 3 years?

It will come down to your capacity to make repayments. Things like childcare costs (if you have them) will be a factor.

We have just gotten approved for €550k. We have €55k savings, combined salaries of approx €160k. Approval is with PTSB, current mortgage is on a tracker with them, about €200k remaining and around €35k equity in existing property. Have been saving €2000 a month for last 5 months and existing mortgage is around €900 a month. Childcare we are paying €1600 a month which is the real killer. Its normally 6 months savings that's required but as we are existing customers with a clean repayment they accepted us.

positivenote · 21-01-2020 2:41pm

thanks for all the advice guys.
Our savings are accumulated over the past year or two in the Credit Union. They may be low, but we have always been of the mindset that once we have all our bills covered and a month or two safety net in the joint account the mortgage comes out of then we can afford our holidays and weekends away with the kids etc..
I have an additional account with approx 10k in it. But as i say we never miss a bill or payment, we have no outstanding loans. The value of our home is approx 310 (we owe 220k on it) and the house that has taken our fancy is 490k.
We could start to save for another year - year and a half before making a move, but what would be better: Saving more or chipping away at the mortgage by over paying a few hundred a month?

Thanks again for the advice

Jurgen The German · 21-01-2020 4:15pm

Saving. Your house may be worth 310 now but it could be worth less in 18 months and you will still have everything you saved in hand.

21-01-2020 5:26pm

Jurgen The German wrote: »

Saving. Your house may be worth 310 now but it could be worth less in 18 months and you will still have everything you saved in hand.

If his house is worth less and the new house is worth less it doesn't really change things. Ok he may have more savings but on the other hand getting a mortgage may be much more difficult if things take a turn for the worst. The op is public sector so doesn't need to worry about job loss etc in the case of the economy taking a dip.

So there are advantages and disadvantages to both ways. Lots of people who were being savvy not buying in the boom are now stuck paying monster rent where as even if they had overpaid at the time they may be in a better position now owning their home. The opposite is true also of course for many.

cruizer101 · 21-01-2020 5:56pm

Jurgen The German wrote: »

Saving. Your house may be worth 310 now but it could be worth less in 18 months and you will still have everything you saved in hand.

The value of house doesn't make a difference to where to put savings from a total equity point of view.
Currently house is 310k with mortgage of 220k so there is 90k equity.
Lets say in year they will have paid 10k of mortgage, and another 10k either into savings or off mortgage.

1. House same value money into savings
House value 310k, mortgage 210k, 10k savings -> Equity 110k

2. House same value money into mortgage
House value 310k, mortgage 200k -> Equity 110k

3. House lass value money into savings
House value 290k, mortgage 210k, 10k savings -> Equity 90k

4. House lass value money into mortgage
House value 290k, mortgage 200k -> Equity 90k

deisedevil · 21-01-2020 8:53pm

Could I just ask. Seeing as interest rates on savings are so low and leaving money in a savings account long term just reduces the value of your money. Isn't it better to put the vast majority of what you would have put into savings towards clearing mortgage quicker. I'm wondering why everyone is so insistent that the savings are far too low. For example I've been paying off twice my mortgage repayments to clear mortgage much quicker rather than put that money in a savings account. It works out better overall. What's the point in saving these days when you have a debt. Shouldn't the debt be cleared first before leaving money sit in an account losing value? Genuine question.

Heres Johnny · 21-01-2020 9:01pm

deisedevil wrote: »

Could I just ask. Seeing as interest rates on savings are so low and leaving money in a savings account long term just reduces the value of your money. Isn't it better to put the vast majority of what you would have put into savings towards clearing mortgage quicker. I'm wondering why everyone is so insistent that the savings are far too low. For example I've been paying off twice my mortgage repayments to clear mortgage much quicker rather than put that money in a savings account. It works out better overall. What's the point in saving these days when you have a debt. Shouldn't the debt be cleared first before leaving money sit in an account losing value? Genuine question.

Technically yes. After establishing a short term emergency fund then people's money should either be invested to grow or else used to clear debt. But that's if all you want is to maximise return on your money, which seems the logical thing to do but in reality people like having the cash on hand. Financially unsound but not everyone behaves rationally with money

cruizer101 · 21-01-2020 10:23pm

Overpaying is better than putting into a savings account. Better than investing is more debatable and no right answer, you might get better return might not.

If you have been consistently overpaying the bank should view that as just as good as saving.

I would say people were mentioning saving more from a repayment capacity.
So the bank will look to see can you afford the repayment on bigger mortgage. One way to show that is to consistently pay your existing mortgage plus put extra into savings that you don't touch, that shows repayment ability.
But consistent overpaying shows the same, and I would be of the same opinion that it is better in long run.

SozBbz · 22-01-2020 1:05pm

positivenote wrote: »

thanks for all the advice guys.
Our savings are accumulated over the past year or two in the Credit Union. They may be low, but we have always been of the mindset that once we have all our bills covered and a month or two safety net in the joint account the mortgage comes out of then we can afford our holidays and weekends away with the kids etc..

Sure, thats all fine but not in the case where you want to ask a lending institution to give you lots of money.

As things stand, the buying and selling costs alone would easily eat up all of your savings. They probably wouldnt even be enough.

A bank will want to stress test any applicant. You've no further nest egg to act as an emergency fund.

I think you need to save more before buying again.

You could pay down your existing mortgage faster if you wanted but IMO if you're on a tracker and are lacking in the upfront funds area then strategically it might be better to save for now.

Generally, when you're not looking to move (ie not needing to present your finances in a certain way) the advise is to pay down debt ahead of saving at current rates, however for this scenario, I think you need more cash at hand.

Sunrise_Sunset · 23-01-2020 11:10pm

deisedevil wrote: »

Could I just ask. Seeing as interest rates on savings are so low and leaving money in a savings account long term just reduces the value of your money. Isn't it better to put the vast majority of what you would have put into savings towards clearing mortgage quicker. I'm wondering why everyone is so insistent that the savings are far too low. For example I've been paying off twice my mortgage repayments to clear mortgage much quicker rather than put that money in a savings account. It works out better overall. What's the point in saving these days when you have a debt. Shouldn't the debt be cleared first before leaving money sit in an account losing value? Genuine question.

I think overpaying is a great idea if you can afford it, and once you have an emergency fund of 3-6 months expenses saved up.

OP do you know what your repayments would be if you got this mortgage? Some financial advisor advice I read was that your housing costs should be no more than 25% of your household net pay, in order to live a comfortable life. This 25% includes mortgage repayments, insurance, property tax, management company fees etc.

pwurple · 24-01-2020 8:22am

Overpaying is better than saving in current climate. Paying down debt as fast as possible when savings and mortgage interest rates are so low is the most financially prudent thing to do. It’s all off the capital.

Getting a mortgage more than 3.5 x joint salary

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