Can any of you advise whether I should buy to rent

beach_3

Hi

Is there anyone out there who could give me some advise. I currently work full time in London. I am 39 years old and live in my partners flat which he owns. The flat is in his name because we could not get a mortgage together because of my poor credit so he went ahead and got it just in his name. This was 4 years ago I have gone some way towards improving my credit however I do still have debts which I pay on time and have done for the past couple of years. I still contribute to the household costs . I am concerned that at my age I do not have a mortgage or investment of any kind. I would like some advise as to whether I should put my name on my patners mortgage or should I buy a small house in Yorkshire as a first time buyer where I am from and rent it out. My salary is good at £46,000 pa so I feel I should have something more than debt to show for this. I could wait until I have paid off my current loans which will be in 5 years time but the rate houses are going up I could make money on any prpperty I buy now. I have done some checking and could I think get a mortgage for about £120,000.

What should I do?

Thanks

I live in London

lynzpower

Niether do I al mac

Personally, Id pay off the debt and then start on some decent savings plans

beach_3

Thanks for the advise, you are not always sure what to do for the best and you can be more honest on here than you can with people who know you so thanks for taking the time to reply

Mrs_pbradley936

Well if it helps I can give you a bit of history and figures on letting from my own experience. In the early 90s the return was in the region of 9%. Based on a two bed flat which cost £60k and brought in £450 per month. 450 x12 =5400.

Now that same flat returns 5.7% because the rent is £650 per month and it is valued at
£135k. 650 x 12 = 7800.

Now if you do the figures at an interest rate of say 7% to borrow 60k over 25 years would cost you £424 per month. To borrow 135k at the same rate would cost £954 per month.
In the latter example the rent does not cover your expenses in fact you have a shortfall of about £300 or 50%

BUT interest rates have not been stable over that period in October 1990 the rate was 14% whereas in August 2006 it was 4.75%. Someone that is far more expert than me will be able to tell you what all this means in terms of your own circumstances. I just know that I could not afford to get into Buy to let now.

Jim_B_3

There are two ways to make money from a buy to let.

The first method is for the monthly rent to be greater than the monthly cost of mortgage/maintenance/fees(given that you live in London, I expect you'll have to use a local letting agent)/taxes/voids(empty periods) etc. In this method, the initial capital outlay of your deposit means you are in the red for a while (BTL mortgages often (always?) demand a deposit), but eventually you make a net profit. The key with this method is to check that you will actually make this profit. There is by no means any guarantee that you will be able to generate enough rental income to cover the costs.

The second method is to buy it cheaply and sell it in the future for more than you paid for it (including any loss you might have made on it). This relies on continuing increases in house price which, again, is by no means guaranteed although your OP indicates that it is actually a sure thing.

Ideally, both methods combine to bring you a profit; that is, the rent covers all costs and gives you an income, and you sell it for a profit in the future.

The interest on your 120000 mortgage would be 500 per month if we assume 5%; this might be a bit better than you can get, given your dodgy credit history. If you get 6%, this becomes 600 per month. Also, be aware that interest rates could well rise over the next couple of years, pushing that up higher. What kind of house can you buy in Yorks for 120000? Is it a house that people will pay 700+ per month to live in? Of course, if you had a couple of months of voids, you'd very rapidly be in the red. Even if the house did rise in value faster than you make a loss on it, could you afford to service the additional debt of the mortgage/maintenace/fees/etc. until you sold it for profit?

Sounds to me like you're worried about your future and you've got the idea "property can be my pension" from somewhere. A decade ago, it certainly could be. Now, I'm not so sure.

tomstickland

With the OP's income and desire to invest I'd suggest the following:
-pay off the debts before saving/investing. Paying off debts at low monthly rates prolongs the debt and increases the costs. No point in saving if there are debts to clear first.
-buying a house as an investment is risky and now is not the time to do it IMO.
-start a savings strategy. ie: use annaual cash ISA allowance, build up savings in a 5% savings account, start a stocks&shares ISA.

beach_3

Thanks for the advise on this. You can buy houses in Dewsbury in West Yorkshire for about 80,000-90,000 but you guys are right the rents in that area are 350-400 per month which would not cover my monthly costs.

Any more comments appreciated but I think I have got the message.

Beach