Is this financially sound

Alan2020

I am currently renting and wanted to buy my own place, my ideal place costs about 260K which I cannot simply afford, the next best option is around £200K at that location.

I asked a few questions about buying etc, now I have this "plan", but the question is would it make sense or even work, so MSEs would love your advice :j

I earn about £32K before tax etc and have £35K in savings. I spend £8300 renting PA. To buy the £200K property will take ages while the 260K is out of reach :eek:

My plan is to buy a bedsit for £75K with a £30K deposit. I think when I check the mortgage for £45K it works out to a total payment of £50K if interest remains there about so I would out I should be able to pay it off in 5 years or less.

This would mean I have in 5 years a property worth about 60 -80K and hopefully earning a bit more than 32K.

Assuming if it is 60K can I re-mortgage it to get 60K and use it as a deposit for my 200K property, while renting it out to pay the re-mortgage while the main house I pay from my salary. Does this make sense:A

Is this actually feasible (remortgaging etc) and what are the pitfalls that I may miss?
Thanks MSEs

jenny_13

If it is worth £60k you won't be able to remortagage for £60k as that would be a 100% mortgage. At present I think BTL mortgages are normally upto 75% or 80% LTV but I may be wrong. Would you not be better just to sell it in 5 years time to save any issues that being a LL may bring.

Damaged

Personally no I dont think it does, you're appearing to rush into buying for the sake of it.
One option you could take is to use some of your savings and buy the bed sit, but leave the rest as savings. Essentially put down the 25% you need to get a good rate for the bed sit deposit and hang on to the rest. I have not done the numbers but try and balance your new mortgage to be the same that you pay in rent now or a less if possible.
Then continue to save, to buy a place that you really want. At least with this option, if you replaying the capital you'll have an asset at the end of the term.

Running_Horse

Why not keep saving or work your way up the ladder like everyone else?

Alan2020

jenny_13 wrote: »

If it is worth £60k you won't be able to remortagage for £60k as that would be a 100% mortgage. At present I think BTL mortgages are normally upto 75% or 80% LTV but I may be wrong. Would you not be better just to sell it in 5 years time to save any issues that being a LL may bring.

Thanks I thought this might be the case, why I want to keep hold of it is, that say it is 50K for arguments sake, it will give some rental income when the mortgage is paid off, but you are correct, better to sell it I suppose

Alan2020

Damaged wrote: »

Personally no I dont think it does, you're appearing to rush into buying for the sake of it.
One option you could take is to use some of your savings and buy the bed sit, but leave the rest as savings. Essentially put down the 25% you need to get a good rate for the bed sit deposit and hang on to the rest. I have not done the numbers but try and balance your new mortgage to be the same that you pay in rent now or a less if possible.
Then continue to save, to buy a place that you really want. At least with this option, if you replaying the capital you'll have an asset at the end of the term.

Great advice, so I should repay the capital but instead of 5 years take a 10 year or more mortgage and pay small amounts while saving, is that correct?

Alan2020

Running_Horse wrote: »

Why not keep saving or work your way up the ladder like everyone else?

I am saving but it is not fast enough and I am becoming an old git :rotfl:

How do other people go up the ladder, am I missing something obvious

Strings

Alan2020 wrote: »

Great advice, so I should repay the capital but instead of 5 years take a 10 year or more mortgage and pay small amounts while saving, is that correct?

That is what I would do, if you are paying £8.5k in rent, then get a mortgage that is about £7.5k per year. Better still get an offset account so that the interest you pay on the mortgage is reduced due to your savings.

Running_Horse

Alan2020 wrote: »

I am saving but it is not fast enough and I am becoming an old git :rotfl:

How do other people go up the ladder, am I missing something obvious

Apparently.

jipp05

Running_Horse wrote: »

Apparently.

The arrogance and unhelpful nature of some people is astounding

poppysarah

Your bedsit idea sounds insane.

Why not just save whilst you continue to look for houses - look above your price bracket but offer low.