Ask the expert: What’s the best way to reinvest now that I’m selling my buy-to-let property

Ask the expert: What’s the best way to reinvest now that I’m selling my buy-to-let property

Posted on 19Jul

Our property finance expert answers your questions

I have been involved in property investment for years by way of a buy-to-let which I purchased in 2004. It has done quite well despite everything, but at this stage it’s almost impossible for me to make any return on it with the restrictions on rental income and rent pressure zones, which it is in. I’ve decided to sell up before the market flattens, but my question is what to do with the gain.
 

I anticipate around €186,000 and would very much like to look for property-related investment, possibly commercial but I’m not really sure. What is available for me?  

This is indeed a thorny topic. First things first, I assume your gain is net of Capital Gains Tax which will be payable on the uplift since 2004 and any sale price you achieve.

You also have obligations under the RTB toward tenants, and indeed, longer notice periods are being agreed through the agency at the moment, which will have to be cemented by the Oireachtas, but you should keep yourself abreast of these as they develop.

I know you remain interested in property as an investment vehicle, but wonder whether this is for sentimental or ‘gut instinct’ reasons, which can be an Irish nuance, or whether in fact you ought to be seeking the highest return across all asset classes, or a mix.
I asked Brendan Costello, of Galway-based Talk Financial about his recommendations for property investment. “Very few people still like property who don’t want to physically buy property,” he says. “Most just want out at this stage. The challenge for someone who wants to remain in the market but not in its current mix, is to access property funds on an insured basis. It’s a very slow market in recovery, with downward pressure on retail and commercial buildings as Covid put the market under serious pressure.”

He cites me the example of a pub which fetched €12.5m just before the pandemic hit, while the entire frontage of a nearby shopping centre with nearly 20 units, is currently pricing at €9.7m.

“If you don’t want to buy direct, and I would strongly dissuade from it at the moment given the heat in the market, what you’re buying into is a property fund in the likes of Irish Life or Zurich [insurance company] or buying into retail wholesale over the next four to six years as a passive investor, and there’s not much yield at all”.

Mr Costello adds that if ESG factors (environment, social and governance) are important to you, funding social housing, largely in the UK is also available through investment funds.
“A lack of government support has closed a number that were here such as Arena Capital partners which were identifying and financing secure long-term tenancies”.
As ever, this is an area where specific expert advice is strongly recommended from an independent financial broker, preferably.
 

First-time buyer here. I just want to ask if there’s a possibility of getting an approved joint mortgage for me and my husband if one of us has just been accepted to a job? Or do we need to wait six months to be approved?

I’m going to say it depends, because there’s no hard and fast rule laid down by lenders, or the Central Bank for this, however, good financial management along with the ‘prospects’ of applicants are all taken into account. I’ve seen people get over the line when they’re not yet permanent, because their qualifications and CV are such, that they’re bound to be a good risk.

Think of professionals like a doctor, or pharmacist, for instance. In addition, if they’re not looking for the full 90pc, and the property on which the loan is based is worth far more than the loan being requested, lenders aren’t so hard and fast on certain rules.
I don’t know your precise circumstances, but I’m going to assume that as first-time buyers you’re looking for the maximum loan available. Joey Sheehan, author of The Mortgage Coach agrees there is a ‘possibility and maybe a probability’ you won’t need to wait six months.

“If there is no probationary period then some banks would have no issue approving you once you can provide one payslip from the new employer on the basis that your husband has moved straight from a similar role with similar wages. If a probationary period applies, they may want him to complete it before they will advance funds, unless your husband is a higher earner and works as a professional or is state employed. Depending on your income it may determine if [the] bank would waive probation also, as if you are close enough to qualifying for the full loan on your own, they may waive completion of [the] probationary period.”

 

Source: https://www.independent.ie/life/home-garden/ask-the-expert-whats-the-best-way-to-reinvest-now-that-im-selling-my-buy-to-let-property-41840038.html

 


Can an inheritance be used for a deposit as we have no savings?

Posted on 09Jul

Q My wife has inherited a home with her two siblings. They have made the decision to sell it. We expect to have €200,000 in cash in six to nine months’ time. We have not been saving. She is self-employed and her salary fluctuates, but she has made a minimum of €50,000 in the last three years. I work as an engineer in a global software company and my salary is €90,000. I also take home €30,000 a year in bonus payments and shares. Can we use the €200,000 as our deposit, and still get a mortgage, even though we haven’t been saving?

Yes, absolutely, you can use the €200,000 you are about to inherit as a deposit, is the answer from Joey Sheahan, head of credit at online broker MyMortgages.ie. If you have been paying rent, then the monthly rental payments will serve as proof to the lender of your ability to meet monthly mortgage repayments, he said. If you are not paying rent, then you have ample time, between now and when you receive the inheritance funds, to start saving now to be able to show the necessary savings record of six months to the mortgage provider, Mr Sheahan said.

Q My wife and I are currently insured under Vhi One Plan Extra. This plan has an annual cost of €1,646.78 each. She is aged 71 and I am 75. We are both relatively healthy and have full medical cards. Vhi Healthcare recently sent me an email saying that my plan is being replaced by a plan called Enhanced Care Complete 75. No details of this plan, or its cost, were provided by the health insurer. Could you recommend an alternative plan, or an alternative provider if necessary? We have been with Vhi Healthcare for almost 50 years now.

The One Plan Extra scheme is one of the many plans that have now been retired by Vhi Healthcare. It covers up to semi-private in private hospitals with some refunds on eligible out-patient expenses, according to Dermot Goode of TotalHealthCover.ie. Before considering the alternative plan proposed by Vhi, which is the same cost as your existing plan at €1,641 per adult, Mr Goode said you should consider an alternative Vhi corporate plan called PMI 3613. This costs €1,340 per adult. He said this is an excellent scheme covering the same hospitals, subject to a small excess for each private hospital admission (€75 per claim). It includes excellent high-tech cardiac cover and higher refunds on eligible out-patient expenses with no excess to pay first, the broker said. If you are open to switching insurer, you could also consider the 4D Health 2 scheme from Irish Life Health at €1,351 each, or the Simply Connect scheme from Laya Healthcare at €1,361 each, Mr Goode said.

Q I contribute 25pc of my income towards my pension, which is with Irish Life. I’m fully conscious of how markets can fluctuate, particularly this year. That said, I am losing money at the moment, which is hard to accept. I wonder should I stop my contributions altogether or should I keep going? Any advice would be appreciated.

Stock markets are volatile and will fluctuate up and down over time. They are particularly volatile at the moment given what is happening in the world. A long-term view is best, according to Joey Sheahan, director of MyLifeCover.ie. He said he would not worry about a loss like this in the short term, as it is inevitable that you will see losses for some of the years over, say, a 30 or 40-year period. When values fall in the market, that is the best time to buy as there is an opportunity to buy units at a lower level, which will hopefully recover to previous levels over time, the financial adviser said. Mr Sheahan said you should continue your contributions to your pension, on the basis that you are buying at a lower level than previous values. It is also important to review your risk profile and ensure that you are invested in the appropriate funds. For example, somebody with a high-risk appetite could invest in funds which could show much higher movements. This might include, say, a 20pc increase or decrease in values in a short period. Someone with a low-risk appetite could invest in lower-risk funds, which would have much smaller movements, maybe moving 3pc or 5pc up or down in a short period. Mr Sheahan recommends that you seek advice from a financial adviser before making any decision about your pension.

Source: https://www.independent.ie/business/personal-finance/can-an-inheritance-be-used-for-a-deposit-as-we-have-no-savings-41825924.html

 


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Call on banks to grant 12 month mortgage approval

Posted on 30Jun

A leading mortgage broker is calling on the country’s eight main lenders to increase the mortgage approval timeframe from 6 to 12 months.

Experts at online brokers MyMortgages.ie are reporting swathes of borrowers getting on average two or three mortgage approvals from lenders because of the time lag between their initial approval and finding a property.

Joey Sheahan, Head of Credit at MyMortgages.ie and author of The Mortgage Coach explained the situation.

“The most recent BPFI statistics showed that there were 5,355 approvals in May 2022 alone – 2,640 of which were for first time buyers,” he said. “From what we’re seeing on the ground, there’s a probability that up to 40% of these applicants were also approved for a mortgage in the last 12-24 months, but have not been able to find a suitable property in the intervening period.

“These volume of these reapplications could be reduced and could significantly lessen the workload of both borrowers and lenders alike, and could, in many cases, result in quicker turnaround times for mortgage approval in the market overall.”

MyMortgages.ie contend that only around two-thirds of the €1.45bn approved in May is likely to be drawn down, based on the current approval process and due to the lack of housing supply.

“The dearth of supply of housing in this country is likely to be with us for many years to come unfortunately. In the meantime, we have to look at other ways of alleviating the stresses of potential purchasers, and expediting the process, where possible, for those who are fortunate enough to be in a position to buy,” Mr Sheahan said. “If banks were to introduce a 12-month approval as standard, which some banks previously offered, it would have a significant impact on the marketplace. Some estate agents won’t allow borrowers to even view properties if they do not have a current approval, meaning that borrowers are forced to keep renewing their approval.

“As far as I can see, there’s really no impediment to banks offering a 12-month approval. There would be no risk to lenders because prior to issuing a loan offer, which is the formal contract between the lender and the borrower, the bank can always request an update from borrowers on any change of employment or other circumstances in the interim that would have a negative implication on their financial status. A mortgage approval is always subject to change prior to draw down.”

Source: https://www.independent.ie/life/home-garden/ask-the-expert-whats-the-best-way-to-reinvest-now-that-im-selling-my-buy-to-let-property-41840038.html

 


450,000 homeowners facing higher mortgage rates as early as July

Posted on 25Apr

MORTGAGE holders have been warned that interest rates could rise as early as July, adding to the cost of servicing variable and tracker mortgages.

Some 450,000 of homeowners are still on a combination of variable and tracker rates.

Source: https://www.independent.ie/business/personal-finance/property-mortgages/450000-homeowners-facing-higher-mortgage-rates-as-early-as-july-41585487.html


Mortgage approvals hit 10-year high – but figures fail to the tell full story of the property market

Posted on 27Aug

New figures from the Banking and Payments Federation Ireland (BPFI) show that a total of 5,033 mortgages, worth almost €1.3 billion, were approved in July – the most in any month since BPFI began collecting data in 2011.

On an annualised basis, 53,511 mortgage were approved in the twelve months ending July 2021, valued at €13.1 billion. This is up 3.15 per cent compared with the twelve months ending June 2021 and an increase in value terms by 3.72 per cent over the same period.

While the figures suggest an impressive recovery from the Covid-19 pandemic for the housing sector, if we dig deeper into the numbers, the bounce back may not be as strong as it initially seems.

Breaking down the numbers

Of the 5,033 mortgages which were approved last month, first-time buyers (FTBs) were approved for 2,766 mortgages (55 per cent of total volume) while mover purchasers accounted for 1,272 (25.3 per cent).

It represented a 3.3 per cent decrease in approval volumes compared to June, but when compared to last July, approval volumes were up by 48.2 per cent.

In total, mortgages approved in July 2021 were valued at €1.2 billion – of which FTBs accounted for €707 million (55.1 per cent) and mover purchasers for €382 million (29.7 per cent). The value of mortgage approvals rose by 0.6 per cent month-on-month and by 58.3 per cent year-on-year.

What is a mortgage approval?

A mortgage approval is defined as a “firm offer” to a customer of a credit facility secured on a specific residential property.

A mortgage approval arises when the lender issues a formal offer of mortgage finance to the customer (whether it be in print or some other durable form) for a specific residential property which contains the Notice of important information to be included in a housing loan agreement specified in the Consumer Credit Act 1995.

All mortgage loans must be secured on residential property in Ireland.

What has been said

Speaking on the latest figures, Brian Hayes, Chief Executive, BPFI said: “The latest mortgage approvals for July show continued growth, especially for FTB mortgages. In total almost €1.3 billion in mortgages were approved, the most in any month since BPFI began collecting this data in 2011.”

“Looking at the annualised figures which allows us to more accurately assess emerging key trends, there were 53,511 mortgage approvals in the twelve months ending July 2021, valued at almost €13.2 billion – again, the highest level since the data series began.

“The value of approvals more than doubled since the twelve months ending October 2016, driven by growth in lending to FTBs and re-mortgages or switching.”

“These are significant figures and very much signal a robust pipeline for drawdown activity later in the year.”

Figures may not paint an full picture of the property market

While Hayes claims these figures show continued growth in the housing market, there are a number of factors we must consider while analysing them in order to get a complete picture.

As pointed out by Joey Sheahan, Head of Credit with MyMortgages.ie, 2020 was a tumultuous year for the housing sector, as activity in the market was very low as a result of the initial lockdown.

“Year on year comparisons on mortgage approval figures aren’t currently the most telling as the market has been an absolute roller-coaster during Covid,” Sheahan said.

“While the overall market is booming, we are seeing a lot of borrowers renewing their mortgage approvals as their previous approvals didn’t give them sufficient time to view and enter into an agreement on a house.

“Others were unable to progress previous approval due to being on the Employment Wage Subsidy Scheme (EWSS).

“These issues were particularly challenging during lockdown in the first four months of the year so the mortgage drawdown figures could be artificially high.”

The figures in context

While the figures suggest things are improving significantly in the housing sector, it is important to remember that the mortgage market was still relatively depressed in July of last year owing to uncertainty around the trajectory of the pandemic which impacted the property market generally.

Figures released by the Central Statistics Office earlier this month show the property market continues to be stoked by pandemic-related factors, such as increased savings and lower-than-anticipated supply.

Transaction prices in June 2021 were 6.9 per cent higher -than they were in the same month last year and the spread of price increases was countrywide.

Source: https://www.buzz.ie/news/irish-news/mortgage-approvals-hit-10-year-24854957


Finance Ireland first to offer 20-year fixed rate mortgages

Posted on 13May

Rates range from 2.40% to 2.99% and will be available for up to 90% loan to value mortgages.

Non-bank lender Finance Ireland is launching a range of long-term fixed rate mortgages for home owners in Ireland, with options up to 20 years available.

The company, which entered the residential mortgage market in 2018, will also offer 10 and 15-year fixed rate mortgages, with rates ranging from 2.40 per cent to 2.99 per cent, depending on the loan to value and the period.

The maximum term of 20 years is twice as long as currently available to Irish mortgage customers. Even then, the 10 year fixed rates are typically offered on loans with a loan to value of typically around 60 per cent, although some will offer on as much as 80 per cent loan to value.

Finance Ireland’s new products are targeting owner-occupiers, rather than buy to let investors, and could appeal to customers finishing fixed rates with existing lenders, including Ulster Bank and KBC Ireland who are set to leave the Irish market. The company distributes its mortgages through brokers. The State’s Ireland Strategic Investment Fund (ISIF) and US investment giant Pimco each hold 31 per cent stakes in the Billy Kane founded company.

The rates will be available for up to 90 per cent loan to value mortgages, and customers will be able to move their mortgages to new properties during the term without incurring penalties, Finance Ireland said.

The fixed rate can also be decreased as the loan is paid down versus the property value, and customers will be able to overpay up to 10 per cent of the outstanding mortgage balance as a lump sum in each year of the fixed term, should their financial circumstances allow.

Managing director Donal Doran said those details were essential to the product. “It’s very clear that you cannot put out a 20 year fixed rate without the flexibilities,” he said. “We’ve developed this based on feedback and what brokers believe their customers have been asking them.”

The loans will also allow for changes in personal circumstances, with the penalty for repaying the loan early capped at 5 per cent of the loan balance in the first five years of the loan term for 15 and 20 year loans, and 2.5 per cent for the following five years. In the final five years of the 20 year loans, no early redemption charge will apply.

‘Booster shot’

The move was welcomed by Brokers Ireland, who said it gives a “booster shot” to competition and brings security to Irish mortgage holders.

“We have always maintained that mortgages are long-term products for which lenders can readily source long-term funding. That makes them very secure – for consumers and for lenders,” said Rachel McGovern, director of financial services at Brokers Ireland. “That they are only now entering the Irish market indicates just how staid, unimaginative and above all non-consumer-friendly the Irish mortgage market has been. In fact 10 year mortgages have only been introduced in recent years.”

However, she noted the rates were still higher than in other European countries, where long-term fixed rates have been the norm for years.

The announcement was a “good news day for new and existing mortgage holders”, said chairperson of the Association of Irish Mortgage Advisors Trevor Grant.

The country had become “accustomed to accepting uncertainty around the cost of financing our home purchases”. “If a developer told us the price of a house could be €300,000 or maybe €350,000 or possibly even €400,000 and that they could only confirm the price after we bought the house, we’d run a mile, yet we seem to accept uncertainty when it comes to the cost of mortgages.”

Managing director of mortgage advice company doddl.ie, Martina Hennessy, said the news was “a boost to the broker market”. “Crucially, if you stay with Finance Ireland and you move house, you can transfer the rate on your current mortgage to your new home without incurring a penalty.”

The move is likely to put pressure on other lenders to see them follow suit, said

Joey Sheahan, head of credit at MyMortgages.ie.

“This news from Finance Ireland is really likely to shake things up – both in terms of how mortgage holders approach their choice of term and rates, and in the fact that if the demand for these products are strong, other lenders will make moves to bring similar offerings on stream.”

‘Significant innovation’

Mr Kane, chief executive of Finance Ireland, said, “I’ve been involved with the Irish mortgage market for over 30 years and I believe that this is one of the most significant innovations made here in that time,” said.

Finance Ireland entered the home loans market in late 2018 after it bought Pepper Money’s €200 million home loans portfolio and mortgages platform, with UK asset manager M&G Investments providing the funding.

It was forced to abandon plans for a €100 million-plus initial public offering in May 2020 as the rapid spread of Covid-19 globally threw equity markets into turmoil. Mr Kane, a former chief executive of Irish Permanent said last month it would look at floating on the stock market in the second half of next year at the earliest.

Source: https://www.irishtimes.com/business/financial-services/finance-ireland-first-to-offer-20-year-fixed-rate-mortgages-1.4563959

 


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