Poor house purchase decision

blizeH

Bit of background: I'm 25 and just purchased my first house. Whilst I feel very fortunate to have been in a position to have done this, I've basically got a 4 bed detached family home in a quiet area, which is maybe not the kind of house someone in my position should be living in.

For various reasons I'm thinking an apartment/flat in London (or maybe Bristol) could be the best option for me right now, but I'm wondering what I'd do with my house:

a) Sell my house, use the money to buy a similarly priced property in a city.
b) Sell my house, use the interest I'd get (~£6,000 @ 2.8%) towards renting another place.
c) Keep my house, use the rent (£1,000+) to pay rent on another place (similar £)
d) Keep my house, use the rent (£1,000+) towards a mortgage on another property.

I have to say that d) seems the most appealing. I'd hopefully be aiming at the higher end of the market in my area, but I'd hope to get £1,000 or so per month - allowing for estate agent fees, tax, maintenance etc I'd maybe looking at keeping £800 of that, or is that a very naive guess and it's actually far lower?

Assuming I then bought a place for £150k or so, at 5% interest (far higher than my current mortgage interest rate) I'd need to pay off £890 a month, which would *almost* be covered exclusively by the money I'd be getting for letting my property. Almost seems too good to be true... I know there are potential issues such as having terrible tenants, interest rates increasing, the house being unoccupied for a long period etc, but it almost seems like I'm in a position where adding just another £100 or so a month and I could have another property (and more importantly, one in an area more suited to where I want to be)

Or have I got it all horribly, horribly wrong? (this is very likely)

Also, in my position am I better off trying to overpay my current mortgage, or tuck the money away into a savings account? Thank you MSE!

poppysarah

Do you not like the house? Is it not near work?

blizeH

I do like the house; it's in a nice area, a good size, a 3 minute drive from work (the main reason I bought it) and since I've really put my own stamp on it it's kinda hard to not feel attached to it.

But on the flipside there's a lot of uncertainty about my job, and the area is just too quiet for someone of my age to be living there I think. My girlfriend lives in London, and I have a few friends in Bristol, so either of those just seem more attractive places to live when you look at the bigger pictures I guess.

GillsMan7

Definitely C or D for me. Personally, I'd think about C if moving to London on the basis that buying a house is expensive with all the additional fees you have to pay, and you can live in a much nicer location in London when renting as compared to buying on the same budgets. That's unless you have a decent deposit you can put down. If you have a good deposit, then I'd definitely recommend option D.

blizeH

Many thanks Gills - so does that also mean you'd recommend I start saving money (towards a deposit, potentially) rather than overpaying on my mortgage? Would probably (definitely) make sense I think, especially since my mortgage is about 3.5% and my current account gets 4% interest!

Just wondering though, assuming I did get £1k per month rent, how much of that could I expect to lose in fees, maintenance, tax and whatever else? Sorry to ask but I've Google'd it quite extensively and can't find anything useful

hazyjo

Which area are you in now? If it's a good area where the property prices might go through the roof when they next go up, it might be worth hanging onto. If it's somewhere not so good where it meant you got more for your money, it might not do so well and you might do better in the long run buying in a City.

Bristol and London are pretty far apart! Are you working from home or something? If you're relying on getting a new job in one area or the other, I'd sort this out first.

In reply to your a-d questions, I'd go with:

a) my choice - depending on how long you've been where you are. You say 'just purchased' - are we talking weeks/months? I'd stay put at least 12-18 months. Give it time to see if it works. Commuting's pretty easy and you can still go out in town, surely? Definite pros to leaving the City behind at the end of the day. Really depends on timescale and location.

b) won't last long if renting, plus you'll be eating away at your deposit for when you do want to buy.

c) can't really say how much it all adds up to, but £200 a month seems low to me. Not sure what you'd legally be responsible for as a LL so might be worth checking - plus, can't see £1000pm rent going far in any nice parts of London - not if you're wanting space - or are you talking about renting a small flat? Small Victorian house next door to me was up for £950pm - and the area's pretty average in East London. Not central. Can't speak for Bristol.

d) so you'd end up with 2 mortgages, the 2nd one you'd have no deposit for. At your age, not sure they'd lend you enough for the two, even if you were renting one out. Depends on your salary, I guess. Unless there was a guaranteed rent, I'm not sure how it'd work, plus you'd have two lots of everything to pay for. Would you be able to qualify for what the 2 mortgages would add up with your salary, or are you presuming they're taking the rent income into account? What if you didn't get paid rent for 3 months if it was empty? £150k won't go far in central anywhere, I wouldn't expect. What sort of areas were you thinking about? That's the key here. You don't want to end up in some dive or you'll be craving where you are/were.

When you say about overpaying, do you mean now if you stay where you are? Bit confused. Do you have lots spare at the end of each month, you mean?

Jx

sooz

Is it just that you know no-one where you currently live?
How long have you been living there?
If you move to either Bristol or London, do you plan to commute to your current place of work?

RenovationMan

If my calculations are correct, you stand to make £214,285 on the sale of your house. This represents a good deposit even in London, especially for a 25 year old. You've stated that you've no real ties to Bristol apart from a few friends and a job that you may lose/give up, so I dont understand why you would want to retain a house there.

I would sell the house in Bristol and make a completely fresh start in London. I would rent for at least 12 months though so that you have time to settle into a new job and new lifestyle and get a feel for where you would like to live.

Doozergirl

Can you give us figures? Current House value, mortgage amount etc - whether BTL is feasible as well as another purchase?

I know d looks attractive but perhaps c is better if you have a habit of picking the wrong place! A small flat in a city is not going to be the long term move for you, so a bit of flexibility might be good alongside your house which is your more steady investment...

Depending on where you are you will pay a letting agent somewhere between 7-12% to let your house. Personally, I would never choose a fully managed option, but 'Let Only' as the fully managed option just means the tenant phones them with their issues, they phone you to tell you they've found someone to charge you four times the going rate for the fix. Every bit of maintenance costs you as much as organising it yourself, likely more as my experience of us helping a friend who has a fully managed let involves paying the agent every month for simply being at the end of the phone. And then when something goes wrong, they phone with a ridiculous quote (ie. £4000 to paint a 2 bed flat in magnolia again). So then we phone round our people (all of us 120 miles away) and get a better price even when they've put in the extra petrol, time and accommodation!

You're better off getting yourself a super duper homeserve type insurance policy or the way that most of us do it - deal with it when it happens.

tawse57

Get a new girlfriend before she gets a new boyfriend.

Sorry to be so blunt but long-distance relationships just do not work. Two people living on opposite sides of London but working in the same office often find it impossible to keep a relationship going due to distance. Bristol and London - nah.

pjcox2005

To be harsh but I think your only option is to sell and then rent or buy in the new place if you really are that desperate to move.

Perhaps I'm miss judging the situation, but I would suggest someone who has recently purchased a house and now already wants to move, and is therefore looking at becoming a landlord is not the best preparation for taking on such a business.

Yes the upside looks rosey with the rent paying of the mortgage, but how about if things don't quite work out as planned, i.e. you purchase a new place, then the person renting drops out/leaves and you have a void period.

Could you afford to pay both the £890 mortgage and presumably a similar mortgage of that amount on your first property. So £1,600 per month plus all the other maintenance, council tax bills etc. What if interest rates go up as they are currently fairly low in historical terms?

You are planning to move to a new area (two very different locations) and therefore presumably get a new job. First year of employment you have minimal rights so job security won't be high. What happens if you lose your job...you won't be able to evict your tennant instantly so you are trying to pay mortgages on two properties with only one rental income.

Should either of the above happen and you are forced to sell one property as you can't afford repayments then are you exposing yourself to negative equity/loss on investment. Prices have dropped last 3 months and many expect this to continue (although obviously that's just opinion).

As I say, that's some of the downside, if they don't happen and it all works out then great gamble. Question I guess is whether you want to take that risk?