mortgage as investment

gogostar

Hello, sorry if this sound stupid to someone,but im new in this.

I have been paying rent for 5 years, avarage £550 every month.
That is over 30k paid on rent.(wasted money)

Now i'd like to buy a 2 bedroom flat for about £120k and rent it out.

Is there any kind of mortgage witch has decreasing monthly repayments/ flexible repayment period?

I dont have big deposit, but i want to do this as soon as possible.

With my current job i have accomodation provided by employer, so i would like to use my salary to pump as much money towards mortgage as possible in first few years and after that just gain the profit from difference between rent income and mortgage repayment.

rent in area witch i'm interested in is about £700pm
I can save about £1000-1500per month
Would deposit of £30k be enough if this is possible?

Thanks for any advice.

kingstreet

Most lenders offering BTL deals don't offer them to First Time Buyers, those who have no existing residential mortgage and property.

Is there any kind of mortgage witch has decreasing monthly repayments/ flexible repayment period?

Can you explain what you mean by this? What are you trying to achieve?

gogostar

I want mortgage repayment as low as possible. I dont mind to keep paying it for long term, but if i will decide to move in property i want to pay as little as possible.And if i will decide to move away i want to have some sort of income from property.


Im just tired of paying thousands every year to someone else. This way i will have my own place available if i need it and if i will move in i'll be paying off my own place. Does it make any sense?

Annisele

I'm not sure the figures stack up.

Assuming you can rent the place out continuously (i.e. no void periods), and assuming no costs whatsoever, £700 pcm on a property worth £120k gives you a yield of 7%.

My two assumptions are of course hopelessly unrealistic, and you could well be looking at a yield of 5% or so once you're done. The gearing (borrowing in order to invest) increases your losses if house prices fall, but of course on the flip side you'll do well if prices go up.

So - are the potential risks and benefits worth it to you?

gogostar

Would a higher deposit give me better chance?

im not worried about occupancy as property is very well located near university and city centre, i would take tannants in 6 months contracts and take one month rent as deposit.

Thing is i think i could put down extra £10k every year (at least i want to try, im still young so if i'll burn i'll get back to my feet)

I have 2 properties abroad witch i could use to borrow some more money and boost my deposit (i can repay them quite quickly)

kingstreet

Most professional landlords take their mortgages on an interest-only basis as any capital repayments they make are not deductible from the rental income for tax purposes; unlike interest, maintenance costs, agent fees etc.

So, if you're buying for £120,000 you'll probably need a deposit of around £25,000 to get a decent rate on an 80% mortgage. On interest-only, you're talking about paying £435 a month in interest on a deal at 5.5%pa.

If your rent is £700 per month, £265 a month is the excess, which less your expenses, is going to be taxable.

You'll have the option of paying back capital in lump sums, if you choose, but each time you reduce the mortgage, you reduce the interest and increase the tax you'll pay on the excess rent.

If you do plan to move into the property, you're perhaps better keeping your capital in reserve, moving back in, then remortgaging to a normal residential product with a big capital reduction on completion day. Making it your main residence will also help with capital gains tax.

Still, you've not addressed the issue of not having another property and will have a reduced number of potential mortgage lenders open to you as a result.

antrobus

gogostar wrote: »

With my current job i have accomodation provided by employer .... .

It's not unsusual for people who live in tied accomodation to also seek to buy a property, so that they do (at the very least) end up with somewhere they can live when their retire, and (obviously) in the meantime rent it out. So I don't think your plan is that unusual, or indeed 'stupid' for that matter. If you happened to be a vicar in the Church of England for example, then you'd find that the Church run specific schemes to help you do just that.

You'll probably have to some running around to find a lender that operates in this market. Obviously try your own bank first, find a decent mortgage broker that understands what you're trying to do, or indeed ask your fellow employees, trade union - I don't know what line of business you're in.

Whether the figures 'stack up' in your case would be something else, but if you "can save about £1000-1500 per month" then you're probably earning more than a bog standard CofE vicar, so I don't see why not.