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Trading up - dos and don'ts

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  • 20-12-2018 1:35pm
    #1
    newventure
    Registered Users Posts: 9 ✭


    Hi

    We are looking to trade up soon.
    We would be getting a mortgage for the new house as a 2nd time mortgage applicant as my wife bought the first place. Thus we would need a 20% deposit. It seems an unfair rule but at least the mortgage will be less.

    We will need to sell our own place first I would presume. What is the best way of going about this? Should you move out (and rent elsewhere) and get the place in top nick or just let viewings happen while we live there. With young kids that would be an issue.

    If we did sell we probably would have a small window to buy the new house. Is going for a new build the best option in this case as a deposit could secure and it might take a year for the house to be built. This would give us time to sell our own.

    Has anybody been through this before?

    Thank you


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  • Options
    #2
    Cuddlesworth
    Registered Users Posts: 13,980 ✭✭✭✭Cuddlesworth


    You can both sell and buy a house at the same time, its called a chain. But they tend to fall through a lot, meaning FTB or cash purchasers are usually preferred by sellers.

    If you deposit is tied up in the equity of your wife's home, you can get a bridging loan off a bank, which you would use for the deposit on the house you intend to purchase.

    For viewings, makes no sense to double up on expenses and rent. You clean the house, remove clutter(hide usually), take out any really personal or small expensive stuff and leave for a few hours.

    For a new house, not sure but it would seem damm messy to do.


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    #3
    machalla
    Registered Users Posts: 1,523 ✭✭✭machalla


    You could seek an exemption so that you only require 10% deposit. Most banks will consider this, the worst they can say to you is no.

    If applying for a mortgage the earlier in the year you do this the better as banks are only allowed a certain amount of exemptions per year.


  • Options
    #4
    newventure
    Registered Users Posts: 9 ✭newventure


    Hi again

    We have about 10 grand saved up now. By this time next year we may have double that.

    So we want to buy a new home. Let us say it is worth 300,000.

    Our current place might fetch 200,000.

    I would prefer to buy the new place, move in and then sell our old place after it has been painted and decluttered.

    Is the above possible? Would the bank give us a mortgage for the 2nd place before we sell the first?

    We have about 170,000 left on the mortgage.

    What should we do with the 10 grand? Pay down the mortgage? It is getting no interest in the bank and our variable rate is 3% plus.

    Also could holding onto the first place and renting it out long term be an option? It is in a good rental location.

    Thank you


  • Options
    #5
    newventure
    Registered Users Posts: 9 ✭newventure


    Just wanted to ask for info here again.

    We have about 20,000 saved now.

    We are wondering whether we are better off holding onto our first home or selling it off?

    What have others done?

    We both have jobs in the public service - combined salary about 73,000. We are both in our early 40s. Are we looking at a max mortgage term of 20 years or 25 years?

    Thanks


  • Options
    #6
    Darc19
    Registered Users Posts: 3,817 ✭✭✭Darc19


    Current home might be worth a little more than 200k now and mortgage balance may be closer to 160k

    Add in 20k savings and you have your 20% of the 300k house.


    Avoid at all costs being a single dwelling landlord. Between bad tenants, tax, upkeep and it being a general pain in the ass, it's not worth it.


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    #7
    Addle
    Registered Users Posts: 4,812 ✭✭✭Addle


    Your mortgage provider may want you to sell the house, or prove you can let it long term before they approve your new application:


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    #8
    Samuel T. Cogley
    Registered Users Posts: 10,684 ✭✭✭✭Samuel T. Cogley


    Don't become a Landlord unless you're willing to deal with constantly changing legislation, potential non-payment of rent for two years and a wrecked property.


  • Options
    #9
    Dolbhad
    Registered Users Posts: 782 ✭✭✭Dolbhad


    Also worth bearing in mind your current home is currently your principal private residence so you can sell it now and there is no capital gains tax applicable. But say you move into your new home and rent it out for a few years, you could pay capital gains tax on any profit. It’s also a great time to sell.

    But as others posters have said, it will be up to your bank. They may decide they want you to sell it.


  • Options
    #10
    MilaM
    Registered Users Posts: 27 ✭MilaM


    You can chat to a bank and see what they say but keep in mind costs associated with selling

    Legal fees - buy and sell 4 to 6 000
    Estate agent fees 1.25% to 1.75% and another 400 to 700 marketing costs
    Stamp duty 1% of purchase costs
    BER Cert - 170euro
    Movers, surveryors etc

    I think even with lower cost of purchase, over 10k fees are involved in selling and buying property. Ours were nearly double that


  • Options
    #11
    Who2
    Registered Users Posts: 2,047 ✭✭✭Who2


    Dolbhad wrote: »
    Also worth bearing in mind your current home is currently your principal private residence so you can sell it now and there is no capital gains tax applicable. But say you move into your new home and rent it out for a few years, you could pay capital gains tax on any profit. It’s also a great time to sell.

    But as others posters have said, it will be up to your bank. They may decide they want you to sell it.

    The capital gains is only calculated on the percentage of time that the house is rented. A lot of the time it’s negligible, if it’s only for a year or two.


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    #12
    Q&A
    Registered Users Posts: 554 ✭✭✭Q&A


    Who2 wrote: »
    The capital gains is only calculated on the percentage of time that the house is rented. A lot of the time it’s negligible, if it’s only for a year or two.

    On this point I believe the first year of unoccupancy is generally excluded from CGT calculations. In effect revenue realise it can take a while to move properties so give you a years grace.


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    #13
    Dolbhad
    Registered Users Posts: 782 ✭✭✭Dolbhad


    As I said if OP was renting for a few years, CGT could be an issue. Not that CGT would be an issue straight away. However it’s a lot of effort renting the house for a few months unless you had a family member to rent to cause the landlord and tenant laws are so onerous.

    Also OP if you were attempting to buy and sell and same time, once you find a house to buy, use that auctioneer to sell your house. Auctioneer will have two sales out of this and would be in their interest to balance the sale and ensue it keeps going. Also would be able to inform everyone involved of timelines and I’d hope that would make it easier for you.

    Also I think some builders would be more wary of selling to someone who is buying and selling. I’d check with your solicitor and see if they have any experience with the builder on it. Again same auctioneer would be helpful. I viewed a new build last year and it was sale agreed with a couple who had to sell first. The auctioneer said builder preferred FTB’s and if we were interested, would give us the house instead. I wasn’t impressed with that and didn’t go for the house.


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    #14
    shesty
    Moderators, Recreation & Hobbies Moderators, Social & Fun Moderators, Society & Culture Moderators Posts: 6,893 Mod ✭✭✭✭shesty


    newventure wrote: »
    Just wanted to ask for info here again.

    We have about 20,000 saved now.

    We are wondering whether we are better off holding onto our first home or selling it off?

    What have others done?

    We both have jobs in the public service - combined salary about 73,000. We are both in our early 40s. Are we looking at a max mortgage term of 20 years or 25 years?

    Thanks

    We had this question a few years ago, we were looking to sell and a couple of financial people asked would we not just rent our existing place, because we have a tracker mortage, and buy a new place.(rather than sell and buy).

    I can't give you information on the financials as others have done but I can tell you what my thinking was.We have young kids, our combined salaries were more than yours.Tracker mortgage or not, we were paying high enough childcare costs(and will be for the foreseeable future).A second house means a second set of furniture and costs associated with setting up as a landlord at the very least.On an ongoing basis, (from observing this with a number of friends), it means having money to pay tax on the rented house every year, covering the monthly payments if the house is not rented, and then having a small available 'fund' to cover replacement of washing machines, cookers, any need for electricians, plumbers etc.

    My conclusion was that if we haven't got all that much spare cash for ourselves (our lifestyle is not lavish) then no.We could not afford to maintain our home as a rental and live in a new house.I think it's fine if you have a good bit of spare cash on a monthly basis, but if you don't, don't do it.

    It may not be the most scientific way to analyse it, but it is reality.


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    #15
    Q&A
    Registered Users Posts: 554 ✭✭✭Q&A


    In an ideal world it would be great to keep both houses. Maybe to rent or simply to give yourself time to move your stuff at a leisurely pace. Problem is banks no longer offer bridging finance so you have to prove you can handle both mortgages. There are a couple of options

    1. Meet mortgage rules with income alone. For this you would need the combined mortgages to be 3.5 times income or less and have 20% deposit for me place. As it stands both parts of this are looking challenging for you. You've a deposit of only 6%. That's low even before taking into account legal fees and taxes. Income multiple wise you would be looking at about €255k. Given your existing mortgage (let's say €160k) that only leaves €95k to play with. Based on both criteria this option isn't a runner

    2. As above but week exceptions. Banks can lend more than 3.5 times income in limited circumstances and likewise require less than the 20% in some cases. In reality the banks are likely to go to 4.5 times you're income. That gives you a total pot of about €328k. Unfortunately the LTI ratio is still binding. Half of this is already spoken for by your existing mortgage. So you would have a max of €168k to put towards a new place. Given your existing funds you are likely to still be short of €300k asking price.

    3. Convert first mortgage to an buy-to-let. A bank may be willing to disregard your existing mortgage for LTI purposes if rental opportunities are good. This gets a bit tricky as banks will consider current rents, your current repayments, interest rates and taxes. They will stress test all this to see how self-sufficient the rental property will be. Any shortfall will be deemed an unavoidable expense that will reduce your new LTI. There may be ways of improving how the current home might look to an underwriter. For example, If you're on a long term fixed rate some banks may forgo the stress testing. Basically you want to be able to show that the same house next door is currently rented out for so much money that it will handsomely cover your mortgage even after taxes are paid and even if interest rates were to rise and the buy-to-let were unoccupied for a chunk of the year. This is a high bar to meet. If you walked in and looked for a buy-to-let mortgage you would be expected to have a 30% deposit. It's not necessarily the same for you as this is your main residence but the more like a buy-to-let you can make it the easier it is for the bank to consider. Your current LTV is about (160ish/200k) i.e., 80% would be above the LTV threshold (70%).
    However, let's assume you the bank is willing to consider this option. Your existing mortgage of €160k is now considered off books. Rerun option 1 - your income multiple will give you €255k with your current funds you are still short. Rerun option 2 - a modest increase in the LTI to a little over 3.8 times would give you enough to be able to meet the new aging price. However, you deposit will require an exemption as well. Unfortunately banks tend not to give out both LTI and LTV exemptions together. Yes it does happen but it is very rare.

    Looking at the above you need a great many things to go in your favour and for the banks to give you all flexibility that they have. I think the reality is you'll find it difficult to own 2 properties given your current circumstances. The LTI is a stretch and ultimately your deposit will be a sticking point. Selling will free up money that would make a new purchase all the easier.

    In saying all that it can't hurt to go talk to your bank or mortgage broker.


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    #16
    redzerdrog
    Registered Users Posts: 7,750 ✭✭✭redzerdrog


    Looking for advice on our best options for trading up.

    Some very rough figures below

    Bought house 11years ago worth 280k mortgage of 250k. This is on a tracker mortgage and the repayments are not much in the grand sceme of things. We would like to hold on to this tracker mortgage if at all possible.

    A house that we like has come on the market for 370k however I think we could possibly even get it for 350k

    Our savings at approximately 70k and our yearly income about 110k. One car is currently on finance.

    What is our best options and will it be possible to keep tracker mortgage?


  • Options
    #17
    Dolbhad
    Registered Users Posts: 782 ✭✭✭Dolbhad


    redzerdrog wrote: »
    Looking for advice on our best options for trading up.

    Some very rough figures below

    Bought house 11years ago worth 280k mortgage of 250k. This is on a tracker mortgage and the repayments are not much in the grand sceme of things. We would like to hold on to this tracker mortgage if at all possible.

    A house that we like has come on the market for 370k however I think we could possibly even get it for 350k

    Our savings at approximately 70k and our yearly income about 110k. One car is currently on finance.

    What is our best options and will it be possible to keep tracker mortgage?

    Most banks will allow you to carry over your tracker rate if you use them for the mortgage of the other house and sell the current house. The tracker rate will only be on the balance outstanding of the current mortgage. For example say you have 250k mortgage on the tracker rate, you could potentially pay the same on that, use your 70k savings borrow an extra 30k which is then paid on the rates today. You would have to go to to your current mortgage bank and have a chat with them.


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