To sell or not to sell??

humphrer

I would be interested to hear what other money savers/makers would do in my position.

Feb 2003 bought a house when I got married with my wife. My parents remortgaged £45K to create a deposit for us, and we got a mortgage for £94.5K.
We pay of £200 per month for the £45K on the interest free mortgage on my parents house, and £530 per month on our £94.5K mortgage.
After 6 months my wife and I move into rent free accomodation (no rent, bills, council tax etc..). and we rent our house out to friends for £550 per month (not covering total cost of mortgage). We decided this was better than nothing because we get good tenants, and no agency to deal with.

Our mortgage payment is about to go up to £750 per month which is then a bit more than we can afford to pay or want to pay.
Also I have watched to many property development programs and have a buzz to develop properties that we own in an effort to reduce our mortgage costs, especially as we now live in rent free accomodation.

I am reluctant to throw the tenants out because they are keen to stay for a few more years until they can afford to buy. They are good trouble free tenants. I also am not sure the house will have increased much in value, and a similar house on my street recently took 6 months to sell. The market is slow! However I really want to buy a new house to develop as a project / small money earner, especially as I thik it is currently a buyers market.

My initial thought is to keep the house and convert the mortgage to an interest only BTL. Increase the size of the mortgage and release some of the 45K capital for a deposit on another house. How does this work with credit ratings etc? Does this sound a sensible suggestion?


Rob

BobProperty

I don't think this adds up. Re-mortgage the house on a BTL - value of house now is what £150k-£170k? Equity OK. But, BTL mortgage will be limited to rent being about 130% of mortgage payment. Rent is £550 so your BTL mortgage will be in the order of £425 (130%) to £440 (125%). But your mortgage is already £530 going up to £550 (or £750, depending on how I interpret your post) so no mortgage company will give you an increase over what you already have.
Also, I am concerned that you are living rent, CT, etc. free but are worried about paying £750 a month mortgage - £550 rent. If you can't afford to fund £200 a month to buy the house then I don't think you should be property developing. Further, you say it's a buyers' market. If it is, then you need to be very cautious as to what you think you can sell your developed property for.

meanmachine_2

The market's slow because there aren't many buyers around at today's inflated prices.

Also, Property Ladder has had an odd impact on the market. Now, "fixer uppers", which were previously to be avoided, except by builders, are being gobbled up because punters think there is easy money to be made.

A question to ask yourself re: Property Ladder. How many of the numpties on there ACTUALLY sell their property at the end of the programme? This series I've counted exactly zero.

lush_walrus

Agree with Meanmachine, as with most tv programmes, the whole process has been very much simplified and really is not something to go into on a whim, despite that is the way it is portrayed and I think you will find it very difficult to break into for anywhere near a good deal.

Firstly, EAs generally have a few reliable developers that they have dealt with in the past on their books who will pay a decent price, cash and exchange and complete quickly. Just what most people selling houses which are in need of work are generally looking for. When a property comes up, first thing the EAs do is call around these contacts, before anyone else gets sniff. The vendors are generally aware that this is what the EAs are doing and are more than happy, as it ensures a quick sale, and pretty much guarantees that the sale will go through.

Your next obsticle will be the fact that you are not a cash buyer, most properties which will offer a good potential for profit will be those with structural problems. Forget all of the nonsense about a lick of paint will make you thousands, because in the real world it wont. If you don't beleive me, look around and you will soon find that after working through a cost plan, including in your case mortgage repayments made during the period etc you will be lucky to get back what you have paid out for the work.Anyway, the point I was going to actually make was that 99.9% of mortgage providers will not provide funding for anything which is structurally unsound. This is where the cash developers/buyers become the only buyer an EA will recommend to a vendor in these circumstances, as anyone borrowing will come across many problems.

The fact that you are spreading yourself so thin, in what is a relatively difficult area, with what can be a very low return for the stress and worry, personally I would say dont do it.

rozeepozee

That sounds very expensive for a £94.5K mortgage. Could you not get a new mortgage deal and keep the arrangments as they are? Alternatively, what is the market rental rate? If it's significantly higher than what your friends pay you, maybe you should consider whether you can continue to subsidise your friends' cheap housing costs and instead get in tenants who will pay the full whack which in turn will go nearer to meeting the mortgage payments?

humphrer

In respone to BobProperty, my current mortgage is repayment mortgage at £530 per month, to get it to £425 it would have to got to interest only. But are you saying that you don't think a mortgage company would do that?
Regarding money per month my original post wasn't explained very well. The £550 rent we get is not used in our monthly incomes. It either pays of debt or is saved. We put it elsewhere so that if the house had no tenants we were not relying upon the income. So poentialy paying another £200 per month would eat into our monthly budget.
Thanks
Rob

meanmachine_2

Humph, listen to Lush, she's an EA.

BobProperty

humphrer wrote:

In respone to BobProperty, my current mortgage is repayment mortgage at £530 per month, to get it to £425 it would have to got to interest only. But are you saying that you don't think a mortgage company would do that?

Rob

A mortgage company may do it but what's the point? What I'm saying is you wont be able to raise any more money. All you achieve is a lower payment and you will still have to repay the capital at some point.

And the points made about property development, I generally agree with.

humphrer

Thanks for the info. Points heard on property development. I think I am swayed to just keep existing set up as is and possibly look to remortgage. Will think about selling this property once current tenants leave.
Thanks

Pal

So at the moment your house ownership is costing you £200 a month, and the housing market is relatively flat so the price of the house may not increase.

Surely selling now would enable you to save £200 a month and you get to bank the equity and earn interest on it? What is the point of holding onto an investment that is losing you money each month?