Buying a repossession for letting

ishereuk

Guys, as the title says i need some advice please.

I own (no mortgage) my house with around £120,000 equity :j .


I know the market is unsettled at the moment but a house has come on the market that my partner and myself feel we cant miss. Its 35% below the value houses had been selling for at the start of the year in the same area.


I have a healthy deposit to put down and I'm looking to either
a, Buy to let
b, Buy then let out till a market re bounce (18-24 months)and sell for a profit
c, let out till my kids are old enough to move in.


So with the above idea's i was seeking advice around ,which mortgage would be best...
a, interest only
b, repayment
c, interest only but pay more into it (when i have extra cash but with the option to revert back to lower payments if i find it difficult at any point in the future)


Then .....(i know sorry for the long post but I'm new to this and just want to get it straight in my head)
If i do let the home, what should i make sure i cover


a, tenants agreement (i will be letting to a long term friend so can i get away with a basic or should i get it done professionally)
b, house insurance ( should i get this or let the tenant do this)
c, do i need to pay taxes on any money i get from letting (this will be used to pay of the above mortgage) if so do i need an accountant?
d, if i do go on to sell within 24 months will this make me liable for capital gains tax?


And finally if anyone can see any thing that i might have over looked......

any advised-idea's-suggestions most welcomed.:T

Bf109

ishereuk wrote: »

b, Buy then let out till a market re bounce (18-24 months)and sell for a profit

What makes you think the markets are going to bounce at all, let alone in two years time.

In case you failed to notice, the trillions of £s of taxpayer bailouts and co-ordinated interest rate cuts that have been thrown at the markets in the last two weeks have failed.

Friday was the day of reckoning. Everything has changed now. This is the worst economic crisis since the great depression.

Anyone taking on debt at this time is asking for trouble. Big trouble. If you go ahead with this, dont come around here asking me for a dime.

Stuball_2

Bf109 wrote: »

What makes you think the markets are going to bounce at all,

They will eventually, peaks and troughs !!

Bf109

Stuball wrote: »

They will eventually, peaks and troughs !!

Like in Japan where house prices have not returned to their peaks since the 1980s crash. Their economy still hasnt recovered fully.

And they make stuff. That other people want to buy. Toyota, Honda, Mitubishi etc etc..

We dont. We are a nation of bankers, civil servants, and Tescos. The City accounts for around 20% of our GDP.

Be afraid. Be very afraid.

dopester

ishereuk wrote: »

Guys, as the title says i need some advice please.

I own (no mortgage) my house with around £120,000 equity :j

Sounds to me like you are in a great position in owning your house outright.

How secure is your job? My quantity surveyor friend lost his job this week just gone and it looks grim for others too.

What if your new place can't rent, with so many repossessed properties that may be coming to market, or rent values fall and fall again?

Can you afford to keep up repayments on the mortgage of your existing home (that you take equity out of) and your repossession venture?

Worst case scenario, you go from such comfort and security of owning your own home outright, to losing both homes because you can't pay the mortgages. That doesn't appeal to me.

Some people are just so ready to risk their futures, even when house prices have barely fallen yet, in what looks set to be a new great depression.

Stuball_2

Bf109 wrote: »

Be afraid. Be very afraid.

My own personal view is that it has happened before and it will happen again. I am sure there are 100's of thousands of people out there watching the housing market ready to jump in and buy when they think it has bottomed out in order to make their fortune out of the next boom cycle. The housing market is the british peoples favourite past time. It's all I heard people talking about on the way up and the same now when it's on the way down.

In my view this is what will happen, we will reach a point where house prices will stagnate, at what point I won't even guess as it is impossible to say no matter what people think. People with cash on the hip will think the market has bottomed out and start to buy the next generation of buy to lets / their dream homes they have been waiting for. Newspaper headlines will state "Housing Market starting to recover, sales up x% on 2008". Other people biding their time looking for an investment / living in rented accom will think !!!! I need to get back in the game before prices start to accelerate and the whole cycle will start all over again.

Just my view anyway and while other people may disagree with this view no one can tell me it's wrong

Strapped

I think it depends on the exact situation - I agree with the posters above who said that house prices may not recover for a looong time and it sounds as though you don't have a definite plan of what you intend to do with the property. You need to draw up a business plan looking at all the scenarios - what's the rental market like in the area? WHO would be your target renters? What's the likely rental amount? How could this change over the time you hold the property (including worst case scenarios eg hold property for next 20 years and rental market falls through floor). If the property is empty, how will you pay the mortgage? What if you get "professional problem tenants" who can spot a green landlord a mile off? Are you really interested/have the time to research becoming a landlord and to then do it properly (a - c in your OP suggest you have a lot of work to do!), complying with and staying up to date with all the legalities?

HOWEVER - it may be that, having considered all this downside risk, you still think the possible rewards are worth it. I'd say that it was very unlikely in the current climate, but only you can judge

Bf109

Stuball wrote: »

My own personal view is that it has happened before

Sure its happened before. In 1929.

I think people still dont realise how serious this is. They think the government still has some magic wand to make everything right again. They dont. Just like they didnt in 1929.

There is going to be mass unemployment and the worst recession in a century. The entire economic paradigm that has held sway since the end of the war collapsed on friday.

Now I'm not one of these stockpiling-baked-beans, erecting an Anderson shelter tin-foil-hat types but I am afraid. I am very afraid.

howler_2

ishereuk wrote: »

Guys, as the title says i need some advice please.

I own (no mortgage) my house with around £120,000 equity :j .


I know the market is unsettled at the moment but a house has come on the market that my partner and myself feel we cant miss. Its 35% below the value houses had been selling for at the start of the year in the same area.


I have a healthy deposit to put down and I'm looking to either
a, Buy to let
b, Buy then let out till a market re bounce (18-24 months)and sell for a profit
c, let out till my kids are old enough to move in.


So with the above idea's i was seeking advice around ,which mortgage would be best...
a, interest only
b, repayment
c, interest only but pay more into it (when i have extra cash but with the option to revert back to lower payments if i find it difficult at any point in the future)


Then .....(i know sorry for the long post but I'm new to this and just want to get it straight in my head)
If i do let the home, what should i make sure i cover


a, tenants agreement (i will be letting to a long term friend so can i get away with a basic or should i get it done professionally)
b, house insurance ( should i get this or let the tenant do this)
c, do i need to pay taxes on any money i get from letting (this will be used to pay of the above mortgage) if so do i need an accountant?
d, if i do go on to sell within 24 months will this make me liable for capital gains tax?


And finally if anyone can see any thing that i might have over looked......

any advised-idea's-suggestions most welcomed.:T

Is this serious?

RecoveringAlcoholic

Given the current climate I have decided not to get out of bed for gross yields of less than 15%.

Premier_2

Hi ishereuk and welcome to MSE!

Whist everyone argues about whether what you are doing is right or wrong, perhaps I can address the questions you actually asked

Mortgage type:
An interest only mortgage means you will still owe the amount borrowed, (you are only paying the interest on the amount borrowed) whereas a repayment mortgage will pay off the original capital too, and so reduce the amount of interest you pay over time.

If letting there is an argument to that says an interest only product may be better as all interest is tax deductible, but I would make sure you have an alternative investment vehicle in place to pay off the capital at the end of the term. The idea to pay off more than just the interest sounds good in practise, but there is a danger you just pay the minimum and so still end up owing the original amount borrowed at the end of the term.
As you are thinking about giving the property to your kids, surely you don't want to see it re-possessed in 25 years time if you haven't/can't pay off the capital. If you are planning on regularly paying more than the interest so that the capital is paid off at the end, then get a repayment mortgage - that's exactly what it does!

Tenancy agreement - of course you need a proper one. The tenant may be your friend now, but that can quickly change if someone tells them the cracks in your TA. The mortgage company will probably want to see your TA anyway and approve it before allowing you to let the property.

Insurance - you will need to insure the building itself; the mortgage company will insist on it. You may want to insure your contents too. The tenant will have to arrange their contents insurance for their own contents (if they want it)

Tax liability. Yes you will be required to declare the income received and pay the applicable tax on that. You can offset some of your costs against income before coming to a final figure on which the tax is calculated. You don't need an accountant, but if you don't know what you are doing, having one will more than pay for itself. (the cost of the accountant will also be tax deductible )

capital gains tax - another reason to have a good accountant! He'll be able to explain how best to avoid or minimise any tax liability including CGT.