Are we doing the right thing?

Hello to all,

First of all let me congratulate the admisitrators on a fantastic site. This is my first post but I’ve been reading the pin for the last 12 months and it has been a source of valuable information.
My situation is as follows. Last year my wife and I sold a house which we had bought in 2006 and managed to make some money on the sale. We didn’t intend to sell up as quick but saw the signs (even before reading the pin!!) and got out while we could. Originally we thought we’d live there for 3 or 4 years. Anyway, we banked the proceeds and have been earning interest for the last 9 months. We are currently in the process of buying another house - before everyone says we’re crazy here are the facts and figures!! A purchase price has been agreed which is almost 30% less than what the asking price was in mid 2007. When I originally saw this house advertised my thoughts were “nice house, but it’s not worth that”, hence we didn’t even view it. The price was reduced a few months ago by just over 20%. When that happened and after a couple of viewings we underbid by another 14% and finally settled on a price which is about 10% lower than the reduced asking price. This house is near family and friends. It is also near work - about a 30 min drive so we’re happy with that. It is a place where myself and my significant other and kids would be happy to live for a very long time.
Our monthly mortgage repayments will be 30% of our combined nett earnings. Do you folks think thats too high? To be honest I would like it to be less but this house would be perfect for us. It is also significantly cheaper than any other similar type house in the area.
I’d be very grateful for your thoughts.

Thank you all.

I would worry about 30% of combined earnings (unless both of you are public servants!). Given the downturn that’s coming, you need to work out in a worst case whether you could survive on one income.

The usual checks of ‘value’ also apply - what would you pay in rent for a similar place? (But since you have children, I understand the urge to be sure you are settled).

My wife is I suppose what you could call a public servant! Her job is 100% secure with the option of working more hours if needs be. My job wouldn’t be as secure but at the same time I don’t feel that there is a chance of me being laid off. The business I am in is well established (in operation about 60 years), therefore has seen hard times. Its viability was never threatened though. If there are lay-offs in the future I won’t be top of the list for a P45!! I don’t want to go into the specifics but I reckon I’m safe enough.
However I completely take your point about the 30% - its something thats on my mind. What do you feel is a more acceptable percentage? I know every case is different but…

We frequently deride those who place a “value” on their houses based on what it is worth to them, so I’d be inclined to look at turn that around.

What is this house worth to you, factoring in the financial, emotional, and practical issues? If this house is worth the price TO YOU, then I think you’ve already made up your mind.

At the end of the day, you are not an investor, you are someone choosing to buy (some do RD :slight_smile: ) so the emotional and practical issues may outweigh more abstract arguments (mortgage vs rent, yields etc). At the end of the day, not every life choice has to be solely based on the almighty $$$.

Oh I paid 70odd percent of my after tax income to pay a mortgage at one stage and at another stage paid the mortgage out of savings due to being unemployed, so I’m probably not the best person to ask.

I suppose the thing to do is to do the sums. Ruthlessly figure out your after tax income less all non-discretionary expenditures (presents are not discretionary!). Then work out your mortgage payment and add 2 or three percent onto the mortgage cost. If you can still afford this, you can at least rest easy with the idea that you can afford the mortgage even if interest rates go up! Try and live on your salaries less that amount for a few month or two (while you go through conveyancing) to see how bad it could be. Make sure you are comfortable before you sign the contract.

Hi Ozzy,

This house is definitely not being bought as an investment. Not to be morbid but this is a place we see ourvelves living in til we die!!!
At the moment I’m looking about putting in place a serious illness/loss of job type policy so that if something bad happened we would have some sort of cover.
We’ve been renting since we sold our last house. There is no doubt that the rent for a similar type property would be less but unfortunately as we all know there is very little security when renting. I’ve seen houses locally where people are trying to sell/rent it at the same time. If a person decides to rent somewhere like this and then a buyer comes on board they’re out of there. Having said that there’s no shortage of properties out there for rent! To be honest I’m thinking of the future and some stability for my kids. On the other hand I don’t want to jeopardise their future by putting our home at risk because we can’t pay our mortgage.
As an aside we are looking at a 10 year fixed rate mortgage of 5.4%. One person told me last week that I was “mental” to be considering such a thing. I know its a very long time to fix for but the way I see it this country is going to be in trouble for a long time. I wouldn’t even think about taking a variable rate.

Go for it MikeyM. Just don’t expect capital appreciation for a very very long time. Don’t kid yourself that this is a bargain. It isn’t.
You’re not mad to look at a 10 year fixed, Ireland is one of the few countries to remain “fixated” on variable rate mortgages (probably just the result of aping our British cousins) - long-dated fixed-rate mortgages are the norm in the US and Continental Europe - 30 year fixed has been the standard for many years in the US. Nothing to do with whether Ireland will be in trouble - just good practice.

But here’s the rub. What are the penalties if you want to refinance the loan sometime down the road if long-term interest rates decline? Check the small print and shop around - even pay a little more - for refinance flexibility. This is one of the advantages US mortgage holders enjoy: low-refi charges allow them to take such opportunities over the life of the mortgage.

I’ve done the maths. The mortgage repayment would be about 300 less per month than the combined total of our current monthly savings and rent.
I’m just nervous about the 30% of net income figure. I thought I read somewhere before that 35% was the maximum recommended repayment a person should consider. However, maybe that was based on one person’s earnings - I can’t recall.
Another positive thing about this house is that it is big enough for our needs - and will be into the future. We won’t have to consider building an extension. It’s the kind of house that we wanted to eventually settle in - it’s in a country location which appeals to us and the site is quite large which is something else that we want.
I know it sounds like I’ve already decided on this but I do appreciate everyones comments and will take all advice on board.

Cheers Septic Crank,
I’ll be checking that out when I see the bank’s documentation.

I’m in a similar position right now myself Mikey. Sold our house Jan 07, good wad sitting in the bank. Renting since then, lucky to get a really nice place in a fanastic location for us, at decent rent and very relaxed landlord (smoke, cats and our own furniture). We’re holding out for a while longer, but having said that, we don’t & won’t have kids so we’re more flexible, and there are now loads of properties for rent in our area if we need to move in the short term before we find a permenant home.

If this is the house for you and the numbers stack up, then for what it’s worth I’d be inclined to say go for it, you sound like you are not going into this blind but are well aware of the current situation in the market. If it’s along term prospect, and jobs are reasonably safe, then NE ain’t a problem.

Best of luck whatever you decide.

Ozzy, are you saying that negative equity won’t be a problem because MikeyM is not going to care (as much as one can ignore these things) or because he won’t get into it? (I presume you are saying the former!).

I’m saying if this is the house he plans on spending the rest of his life in then no NE is not a problem (unpleaseant as it may be psychologically). NE is not a problem unless you want to/plan to/have to sell. As Mikey seems happy to live very long term in the house then barring major onforseen circumstances, short or even meduim term NE should not be a deciding factor.

I’m getting into negative equity right now wth my lousy PRSA :frowning: , but I still got at least 25 years to go so it’s not a major concern right now.

Boy do I know that feeling. I was hoping not to have to work for another 25 years. Ho hum.

There’s always the rollover on Saturday :smiling_imp:

Hey, I saw it first!

OK fair enough, I’ll just have to settle for Euromillions then :frowning:

Thanks Ozzy,

If you take what we are willing to pay, the price of this house would have to fall by 17% for us to be in a negative equity situation. But as I said this does not concern me. We will not be looking to sell this house. It could be argued how long it would take for a house like this to fall by another 17% - another few years I would imagine taking previous reductions on it into account. I’ve been looking around for quite a while and their are maybe two or three other houses in a 10 mile radius which would be suitable for our needs. However, the cheapest of these is on the market for 42% more than the one we’re considering! Its really incredible.
My feeling on the housing market is that houses in estates will have the sharpest falls (I’m probably stating the obvious here :laughing: ). There are so many of them around - a lot of which are in towns/villages where potential sellers have no chance of getting what they paid for them in the short to medium term. I feel that houses in the countryside in the price bracket we’re looking at will be slower to fall as they’re more individualistic, for want of better wording. Apologies if I’m not explaining my thoughts very well. :blush: