Inherited a mortgage free house - what to do with it?

lynsco

Hi, my mum passed away 2 weeks ago and I am the benificiery of her 3 bedroom mid terraced house (worth around 125k) and probably around 60k in money once all the bills etc have been paid. My partner and I bought a 3 bed semi only a few streets away from mums last year worth £100k which has an 80k mortgage on it. The home I have inherited was my childhood home and as such I really don't want to have to sell it, and feel the property we live in is a good buy and would make money in the future if we held onto it. My favourite idea is to move into mums and redecorate to our taste, and rent out the one we live in, mostly because I feel the market is not the right time to sell either properties. Does anyone have any advice? Mum died suddenly at 63 from a severe heart attack so this is not something I have had a chance to think about prior to her death! I know we would need to change the mortgage to a buy to let on this property, but I have been told this may work out more expensive on a monthly basis? Is this difficult to do? Any advice greatly appreciated!

DVardysShadow

Don't go mad and you will do well.

You can now use the 60k to pay down the mortgage on the current house and take out say 40k on the inherited house. Use 20k to clear the mortgage on the current house and the rest to refurbish the inherited house. So now you have shuffled a residential mortgage and you own the future rental property in full and will have no BTL mortgage. And i think you can offset your mortgage on the residential property against the rent from the other property for tax.

CloudCuckooLand

After such a tragic loss, I would not rush into any decisions.

If the family home needs work to redecorate etc, then take some time to do that -without moving into it. Easier to live in your own place, and not amongst the smell of paint, dust etc, anyway, I'd have thought.

Then, in the time it takes to do that, you may be a little closer to coming to terms with your grief and be able to make a decision without sentiment affecting what should be a business decision.

Becoming a landlord is not always straightforward, there's plenty to read up on, and a bit of time to weigh up the pros and cons of that wouldn't hurt.

BTL is generally more expensive than an ordinary mortgage. But then, if its a viable business, the tenant will pay enough to cover the mortgage. If rents in your location will not reach to that, then that could lean towards you needing a plan B.

As for when the time is right to sell, either property, there are distinct regional differences. Some areas holding up well, others dropping further. You need to understand your local market, for sales and renting, before coming to a decision - time, again, being useful to mull these things over.

lynsco

Thanks for your replies! I will not rush into a decision, I am aware everything is still raw and will be for sometime. Mums house doesnt need upgrading its more just a matter of taste. I wish we still lived in our old 1 bed flat in a way as then the decision would be easier! I will take the time to try and make the right decision. I am reluctant to pay a huge chunk off this mortgage as I feel I prefer the money invested and hopefully making money - I know that doesnt always happen though. I am a sensible person but attached to both properties which is the difficulty!

poppysarah

Interest rates are awful at the moment... How much does your mortgage cost you in interest?

DVardysShadow

lynsco wrote: »

... I am reluctant to pay a huge chunk off this mortgage as I feel I prefer the money invested and hopefully making money - I know that doesnt always happen though.

Unless you are minded to take on an investment with risk of losing your capital, paying off your mortgage is the best investment you could make. It is pointless keeping money in capital safe savings at 3% interest while paying off a mortgage at 5% interest. You are paying 2% just to keep money in the bank.

mufi

lynsco wrote: »

I am reluctant to pay a huge chunk off this mortgage as I feel I prefer the money invested and hopefully making money

I'm with DVardys - pay off the mortgage before thinking about investing.

Having said that, I can understand your wish to have some money tucked away as a safety blanket.

flora48

My sympathy for your loss.
I inherited my parent's house 3 years ago, as the market went belly up in 2008 I decided to rent it. The kick start for me was when the house became liable for full council tax after the 6 months exemption. So far this has been successful, I have good tenants who appear to want to stay for ever. I am usung a LA with full management. I feel that I have reatined my options without losing out.

lynsco

I understand the advice to clear off the mortgage but I am really worried about ending up with properties I cant sell, or a major repair arising that we cant afford to repair - we only earn 31k as a couple so do not have the capacity to save a huge amount to replace the inheritance. I hope that makes sense?

DVardysShadow

lynsco wrote: »

I understand the advice to clear off the mortgage but I am really worried about ending up with properties I cant sell, or a major repair arising that we cant afford to repair - we only earn 31k as a couple so do not have the capacity to save a huge amount to replace the inheritance. I hope that makes sense?

No, it does not make sense. You will have 2 properties worth £225k, work income of £31k and a mortgage of £40k if you spend £20k on a refurb of the house where you want to live, plus a rental income of another £450 or something. You will be exceedingly comfortably off compared to where you were.

And what do you want to do? If I understand you, you want to keep the inheritance in some kind of capital safe savings account and pay a net 2 or 3% interest to have 'savings'. If you put the money into paying down your mortgage, it will be working for you at 5% - more if interest rates rise. I doubt you will find a place where it could do any more for you without risking losing the lot. At least if you put it against the mortgage , it might lose some value, but it will always represent about 25% of your property value.

lr1277

lynsco wrote: »

I understand the advice to clear off the mortgage but I am really worried about ending up with properties I cant sell, or a major repair arising that we cant afford to repair - we only earn 31k as a couple so do not have the capacity to save a huge amount to replace the inheritance. I hope that makes sense?

I would suggest a property only becomes a problem if you can't afford the mortgage and the sale value of the house is less than the amount owed for the mortgage.
So if you paid off a chunk of the mortgage, not only would you have a lower monthly payment, but you would have a lower value to achieve when selling the house.

I know some people want to achieve a certain price for their property, but if you are in a bind, then as long as the mortgage is paid when you sell, then you will be ok.

I hope that answers your issue.