Buy to let or pay off mortgage

Confused_Jo

Between my OH and I we have c £10k. He has inherited his £5k and I have had a bond that has matured for mine.

We have two options
1 To overpay on our mortgage enable us to snowball the overpayments to be mortgage free sooner or:
2. Use teh £10 k as a deposit ,buy a small flat on the cheaper end of the market with a view to renting out and getting the tennant to pay off the mortgage.On a buy to let mortgage (though this has yet to be investigated as financially viable).
I have seen a flat for £67k, so £57k mortgage, which would fetch £320 pcm.

The easier thing is to pay off the mortgage but are we putting all our eggs in one basket?
We do not have any children yet and are in our late twenties. We own half the collateral in our home, so feel that this may be a worthwhile investment.

If it doesn't go according to plan, we can always sell the rental flat, overpay on the mortgage and not be out of pocket.

Would the rental from this be classed as income and would we be taxed on it? This may out us in the positiomn of making a net loss on it.

Sorry if thisis a bit confusing
Hence ,the name!
Jo

dunstonh

2. Use teh £10 k as a deposit ,buy a small flat on the cheaper end of the market with a view to renting out and getting the tennant to pay off the mortgage.On a buy to let mortgage (though this has yet to be investigated as financially viable).
I have seen a flat for £67k, so £57k mortgage, which would fetch £320 pcm.

flats are generally poor for BTLs. Whilst the mortgage my cost £320pm, what would the rental income be? Then deduct costs of letting agent etc and you will probably find that you will be lucky if you break even.

If it doesn't go according to plan, we can always sell the rental flat, overpay on the mortgage and not be out of pocket.

You are highly confident that you would be able to sell and not be out of pocket. I guess that is down to your age. You havent seen a price drop yet. Its not all one way. 15 years ago property lost loads in value and people lost their houses because they over extended.

Would the rental from this be classed as income and would we be taxed on it?

The profit would be taxable.

Other considerations is that having a mortgaged BTL would likely reduce the amount you could borrow on your own mortgage if you wanted to move house and move up a level.

Doozergirl

Confused_Jo wrote:

The easier thing is to pay off the mortgage but are we putting all our eggs in one basket?

You have one egg in one basket. Buy another property and you have two eggs in the same basket.

You won't be making much, if any profit on the BTL and relying on house prices to continue any sustained rise after the last 7-8 years of growth is optimistic, to say the least.

Confused_Jo wrote:

If it doesn't go according to plan, we can always sell the rental flat, overpay on the mortgage and not be out of pocket.

I don't mean to offend you, but this is a very naive view and probably the main reason that you shouldn't BTL.

Put it towards paying off your mortgage.