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How to be mortgage-free, prosper and increase

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  • Mrs Optimist - your strategy is tax efficient as you can offset the interest (not the capital repayment) part of a mortgage against income tax on the rental income.

    You need to be confident that the banks would lend you enough money to have mortgages on the two properties. I don't mean to presume anything, but on reading your post, it seems like you are surviving on one part time income at the moment, so this may be a problem.

    Also, there are two or three other things to consider:

    1) How easy would it be to let out your current property (the demand in your area for that type of accommodation) and would the rental income cover the increased mortgage payments?
    2) How would you cope paying the 2 mortgages during any tenantless periods?
    3) The capital gains tax associated with renting out a property and selling it later at a profit (there are things that you can do to mitigate this.

    On top of this, you should be aware of the legal requirements of landlords, e.g. gas safety certificates, repair costs etc.

    Don't mean to put a damper on your plans as, if it all works out, then you get the larger house you need and another house paid for by your tenants, which would be very nice indeed! Best of luck.
  • seven-day-weekend
    seven-day-weekend Posts: 36,755 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    clairehi wrote:
    Arent these two pieces of advice contradicting each other - dont overstretch yourself so consider a smaller property - but get somewhere so big you will never need to move???

    I

    No....we bought a mid-terrrace house near the city centre instead of a semi further out.....but because of its location and being a terrrace instead of a semi we could afford three bedrooms instead of one or two.
    (AKA HRH_MUngo)
    Member #10 of £2 savers club
    Imagine someone holding forth on biology whose only knowledge of the subject is the Book of British Birds, and you have a rough idea of what it feels like to read Richard Dawkins on theology: Terry Eagleton
  • sashacat
    sashacat Posts: 821 Forumite
    Part of the Furniture 500 Posts Combo Breaker
    I agree with seven here...I also bought some time ago and am now mortgage free....I still have most of the second hand furniture, and any new stuff is of the "cheap and cheerful" variety. In the maen time I have bought and sold several BTLs and a lovely apartment in Portugal...which is also mortgage free. I drive oldish cars and few clothes. I don't think it is simply about increasing salary and reducing outgoings. It is an attitude of mind as well as making choices about what to do with disposable income. I still grow my own veg and fruit and cook proper meals at home.
    I think it is about shunning instant gratification for delayed gratification..saving up for something you can't afford, or simply accepting that you can't have it and don't need it anyway. I still have to try to point out to my well paid grown up kids that there is a big difference between "need" and "want"
    Wombling £457.41
  • Mrs_Optimist
    Mrs_Optimist Posts: 1,107 Forumite
    moneysavingobsessive - thanks for your reply. Sorry for the delay - damn network has been out of action. I have noted your comments and will take them on board. I agree that we will not be able to get two mortgages at present, we are planning on letting our home out once my husband starts working (which should be quite soon). Had already figured out the interest and tax imlpications. Any advice on Capital Gains Tax willl be gratefully received! Have already investigated the rental position and we have been told that there will be no problem letting our home out , there is a great demand for 3 bed houses down in Sunny Devon, mainly because so many poeple relocate here. The rentals would cover the increased mortgage payments (have already checked that out too!) Am not fully aware on the Landlord responsibilites so any advise on where I can go to asertain my obligations would be appreciated. And finally, we would base our budget on covering both mortgages if we had to, whilst the houlse is being let the moey saved on that mortgage payments would go on overpaying the mortgage on our second home. This Website is GREAT!!
  • jonnydoe
    jonnydoe Posts: 253 Forumite
    sashacat wrote:
    I agree with seven here...I also bought some time ago and am now mortgage free....I still have most of the second hand furniture, and any new stuff is of the "cheap and cheerful" variety. In the maen time I have bought and sold several BTLs and a lovely apartment in Portugal...which is also mortgage free. I drive oldish cars and few clothes. I don't think it is simply about increasing salary and reducing outgoings. It is an attitude of mind as well as making choices about what to do with disposable income. I still grow my own veg and fruit and cook proper meals at home.
    I think it is about shunning instant gratification for delayed gratification..saving up for something you can't afford, or simply accepting that you can't have it and don't need it anyway. I still have to try to point out to my well paid grown up kids that there is a big difference between "need" and "want"


    Increase income (get a better job, do overtime, do online surveys etc..) or reduce outgoings (ie growing own veg instead of buying it, shunning instant gratification). It is simply about increasing salary and reducing outgoings..
  • seven-day-weekend
    seven-day-weekend Posts: 36,755 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    sashacat wrote:
    I agree with seven here...I also bought some time ago and am now mortgage free....I still have most of the second hand furniture, and any new stuff is of the "cheap and cheerful" variety. In the maen time I have bought and sold several BTLs and a lovely apartment in Portugal...which is also mortgage free. I drive oldish cars and few clothes. I don't think it is simply about increasing salary and reducing outgoings. It is an attitude of mind as well as making choices about what to do with disposable income. I still grow my own veg and fruit and cook proper meals at home.
    I think it is about shunning instant gratification for delayed gratification..saving up for something you can't afford, or simply accepting that you can't have it and don't need it anyway. I still have to try to point out to my well paid grown up kids that there is a big difference between "need" and "want"

    Agree absolutely.

    e.g I have ONE pair of sandals, ONE pair of boots and ONE pair of 'posh' shoes.

    Our car is eight years old.

    Although we have two mortgage free houses , the English one is a mid-terrace near a city centre woth about £150k and the other one is a mid-terrace house in an INLAND village in Spain (coastal properties are much more expensive) worth about £75k. We did not over-reach ourselves.

    The English house is furnished mainly second-hand (after 30 years!); the Spanish house is furnished by IKEA (because it was cheap, flatpack and easy to drive across France and Spain).

    We do not have a dishwasher or tumble dryer in the English house, and we don't have a dishwasher, tumble dryer, microwave, hairdryer or iron in the Spanish one.

    We have a freeview box that cost 90 euros in the Spanish house (it only gets about four or five English-speaking channels!) but we have been able to watch Wimbledon and the World Cup in German and Formula One in Spanish. The complete set-up cost 90 euros (about £75) from Lidl.

    In the English house we have Telewest basic package but the lodgers pay for it.

    We have basic pay as you go mobile phones (in case we get stuck in the middle of nowhere in Spain).

    We also use fresh veg (can't grow them here in Spain as we have no land), and freeze loads of stuff.

    A chicken will last the two of us for four meals (roast, fry-up, curry, carcase stew).

    We do however, sample the local plonk at 1.75 euros a litre!
    (AKA HRH_MUngo)
    Member #10 of £2 savers club
    Imagine someone holding forth on biology whose only knowledge of the subject is the Book of British Birds, and you have a rough idea of what it feels like to read Richard Dawkins on theology: Terry Eagleton
  • seven-day-weekend
    seven-day-weekend Posts: 36,755 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Photogenic
    To be fair, must point out what we DO have!

    We have two digital cameras (a Fuji and a Nikon SLR). As well as the eight-year-old car we have a 180cc touring scooter, registered brand new last year in Spain. We have a top-of-the-range computerised telescope and tripod. We have a computer and peripherals. We have every power tool that a DIY person must have. We have a Spanish guitar and a semi-acoustic.

    So, we DO have luxuries.....
    (AKA HRH_MUngo)
    Member #10 of £2 savers club
    Imagine someone holding forth on biology whose only knowledge of the subject is the Book of British Birds, and you have a rough idea of what it feels like to read Richard Dawkins on theology: Terry Eagleton
  • MORPH3US
    MORPH3US Posts: 4,906 Forumite
    1,000 Posts Combo Breaker
    sashacat wrote:
    I agree with seven here...I also bought some time ago and am now mortgage free....I still have most of the second hand furniture, and any new stuff is of the "cheap and cheerful" variety. In the maen time I have bought and sold several BTLs and a lovely apartment in Portugal...which is also mortgage free. I drive oldish cars and few clothes. I don't think it is simply about increasing salary and reducing outgoings. It is an attitude of mind as well as making choices about what to do with disposable income. I still grow my own veg and fruit and cook proper meals at home.
    I think it is about shunning instant gratification for delayed gratification..saving up for something you can't afford, or simply accepting that you can't have it and don't need it anyway. I still have to try to point out to my well paid grown up kids that there is a big difference between "need" and "want"

    Great post and I agree with it totally.

    If only I could get the girlfriend on here and we'd be rich instead of constantly wanting new kitchens and new this and that but poor!!!

    M
  • summerday
    summerday Posts: 1,351 Forumite
    Mrs Optimist (or anyone who knows about this), when you say about taking the £100k equity out of yuor house to leave a small mortgage to be paid back by tenants, please can you explain to me to you would access the equity? I think your plan sounds like a good one and I started thinking about if it could work for us, but got confused when I started thinking about how to access the equity in our house to be able to get a bigger mortgage on another house without selling up? Would the mortgage company just agree both mortgage and take teh equity into account?

    Thanks, Sarah
    Yesterday is today's memories, tomorrow is today's dreams :)
  • gallygirl
    gallygirl Posts: 17,238 Forumite
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    I assume Mrs O means remortgage on original up to maximum she can then use this as a deposit on second house. Advantage as other posters have said is that for IR purposes tax relief is granted on interest element of mortgage on BTL property, so best to have as high a mortgage as poss on BTL and lower on own (assuming rates comparable).

    You need to ensure you can service void periods etc and mortgage companies usually say rent should be 130%ish of monthly mortgage payment. This can affect how much you borrow (it can apply to interest only mortgages which many BTL's investors recommend, for myself I like to know mortgage is going down each year).

    Hope this helps.
    A positive attitude may not solve all your problems, but it will annoy enough people to make it worth the effort
    :) Mortgage Balance = £0 :)
    "Do what others won't early in life so you can do what others can't later in life"
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