Can letting current home allow us to buy a new home & be mortgage free in 12 years?

landroverboy

The dliemma is do we sell our existing three bedroom house and use the money towards buying a new four bedroomed house or let it out, get an interest only mortgage for the new house and use the appreciating value of the Let house to make us mortgage free in twelve years???

My wife and I are looking to buy a new four bedroomed house around December 2006 that will be around £295,000 as we need the space. We are in a position whereby we own our current three bedroom semi-detached house outright and have no additional deby, our current house is only 8 years old and was valued at around £155,000 back in February of this year.

So the question is should we sell our current house and add £25,000 of savings to use as a total deposit of £170,000, after Stamp Duty (£8,850) making our new 25 year repayment mortgage for around £135,000?

Or should we let our current home for around £600-£625 per month, re-mortgage our current house with a Buy to Let mortgage for £130,000 which is 85% of its value (to remove/reduce tax liability) and then get an interest only mortgage for £150,000 and use both amounts plus the £25,000 savings to buy the new house and pay the stamp duty?

The main purpose of this is to use the income from letting to cover the mortgage on the Let property while waiting for the price of this property to appreciate enough to pay the outstanding £150,000 interest only debt on the new home before selling the Let house to completely pay off the new mortgage?

I have calculated that even if house prices rise by only 4.75%pa in 12 years the current house would be worth around £285,000. To put this into perspective I have calculated that since the early 1980’s, taking into account the boom bust years of the 1990’s, house prices seem to have increased on average 12%pa.

Obviously the letting option carries a certain amount of risk like relying on a constant flow of good tenants for which I am planning to make use of a reputable letting agency, ensuring a guaranteed income, ongoing maintenance costs as well as waiting on property prices to increase but in theory it would allow us to own the new home outright in around 12 years instead of the 25 years by going for the 25 year repayment mortgage.

I do intend to talk to an advisor but I am keen for other peoples thoughts and feedback, all of which is gratefully received.

Regards,

Landroverboy