Sandstone VS Mortgage!

Sandstone

I've asked HSBC for consent to let. I might as well try to make some rental income while I'm out here, right?

Although it does bug me somewhat to let strangers live in my new house.
This must be what the MSE spirit is all about!
:money:

buttyb

Hey Sandstone,
Just thought Id comment Im in a similar situation to you. Still a newbie on here but love reading everyone's accounts its inspiring me to get cracking! In January I started a new job that sends me to India every other month so like you I have rented my house out, once I got over the emotional ties its not so bad its still my house after all and I will be back there one day. And yes Im thinking about the overpayments I can make to the mortgage at the same time!
Enjoy!

Sandstone

Thanks buttyb, hello and good luck!
Did you have to get consent to let too?

I've been reading online and it seems that HSBC tends to give consent only after the first 6 months of the mortgage, which doesn't bode well for me.

You're lucky you get to go back every month. Things that used to be easy are sometimes difficult out here, and it can be frustrating. Luckily I have great friends who are always happy to help out when possible. Do you live with your tenant as flatmates/housemates when you go back?

misscousinitt

Just found your diary and wanted to say hello and good luck...

MCI

Sandstone

Thank you, MCI, hello and good luck to you too!

Sandstone

Another £10,000 has now been OP'd since my last post, this time coming from other savings, so it still doesn't really count in the same way as the way many of you have been finding smart ways of saving money.
Probably should have done this sooner actually, but had to reorganise some savings.

First actual mortgage payment should have happened yesterday, will check later today! So this is how it begins..

Sandstone

It's been four months since my last update! Quite a lot has happened. I was called up by HSBC, and after a brief chat, was told that I would hear back from them by post. A week later, it seems that they made an exception for me and issued the Consent to Let! HSBC gets all my customer satisfaction points for being so helpful on this occasion.

Seeing as I was abroad, I hired letting agents to rent out the property. I've been getting rental income, which is nice, but the letting agents have been pretty pathetic. And their fees! I'm paying them for nothing, it seems! I thought they would take care of everything, but the reality seems to be that they are taking rather large cut for doing very little, other than the initial viewings.
And I know they're ripping off my tenants with all kinds of fees too, in addition. I think I may have to let them go.

I'm now back in the UK, so I think I'll try managing it myself. I've moved back into the house I was living in before I bought the property (very low rent) and I think it would really help my overpayments once I stop paying these agents. I don't fully regret it, since it would have been difficult to find tenants while I was abroad, but they aren't earning their keep anymore.

I've put a few more overpayments in, which are more from previous savings rather than from monthly income, but the result is that the balance is down to £214,794. I can't wait until I'm under the £200K mark. However, I know I have to keep a nice strong safety net (I'm aiming for 6 months of costs) so my next few overpayments will probably be much smaller. Still, here's to crossing that milestone by Christmas*, hopefully!
:beer:
*I haven't done the sums, so not sure if that's achievable actually.

Sandstone

One of the tenants has given notice to leave, sadly. Still, I think her replacement will be far better, now that I get to pick my tenants myself.

I have decided to sack the agents and handle this myself from now onwards. That will mean almost a fifth more rental income, and more control over the situation. Hopefully my tenants will feel less ripped off too, by things such as 'renewal fees'.

My mortgage is currently 2.69%, which means that I get better returns on a regular saver account and ISA than I would paying off the mortgage. I think I'll set those up and earmark them as OPs too, in order to become MF asap.

It will be nice to have that extra buffer too, since my bank won't give me any payment holidays if I were to have difficulty making my monthly payments, despite my massive overpayments so far.

Sandstone

Having realised that I can get more interest from a "Regular Saver" account than the interest I would save by overpaying, I opened one with HSBC today. This commits a lump sum per month (£25-£250), which can't be withdrawn until the end of the term (12 months). Actually you can, but all interest would be wiped out. Still, at least there's no 'risk' - I can still access it if I had an emergency.
At the end of the term, it all flows back into my personal account with the interest.
It pays a fixed 6% gross, (8% for HSBC Advance customers).
My mortgage, for comparison, is currently 2.59%.

I know that First Direct have an even better one at 8% gross, but this was nice and simple since I already bank with HSBC. I might look into getting the FD one too, but don't want to transfer my personal account across yet, even despite the £100 incentive. Maybe in a few months. I need to tread carefully with my finances and not spread myself too thin.

HSBC Advance
This was an interesting discussion. The bank advisor pushed hard to sell this to me. It comes with a whole bunch of benefits, some of which look more useful than others but the downside is £12.50 per month (first 3 months half price). Ignoring the 3 month introductory period, this comes to £150 per year.

Let's see if the extra 2% of interest is worth it. I opted for the maximum of £250 per month. This comes to £3000 over the course of the year. 2% of this is £60. BUT as Martin has explained before (I don't have the link handy but I'm sure you can find it), interest is accrued over the course of the term, not just at the end. That means, I would only get this if if I had £3000 sitting in the account for the whole year. Instead, I pay £250 per month, and only reach £3000 at the end of the term. The average balance across the year is about half of this amount: £1500, earning interest of £30.

Conclusion

The conclusion is that HSBC Advance would cost me £150 per year, and get me £30 (gross) per year in extra interest. After tax, it would be even less. Therefore, I would only buy it if the 'added benefits' were worth more to me than the difference of £120p.a.. You can decide for yourself: the key benefits are below (copied from HSBC website - updated 6 July 2012):

• 8% AER/gross preferential rate on our Regular Saver -
• Worldwide Travel Insurance
• Roadside Breakdown Assistance
• Life Cover/Accidental Death benefit
• 24/7 Identity Theft Assistance with red24
• Preferential mortgage terms
• Preferential overdraft rate
• Convenient 24/7 Telephone and Internet Banking
• HSBC Advance Visa Debit Card - cash withdrawals abroad free of HSBC ATM transaction fees.**
• Travel and leisure discounts.
• Text and Mobile Banking on the move.

Full list can be found here:
http://www.hsbc.co.uk/1/2/hsbc-advance-benefits

I have to say, some of those things I thought I would get as a regular customer, such as identity theft assistance, 24/7 mobile and internet banking, and "text and mobile banking on the move".

HSBC Regular Saver - YES
If you can live without £250 per month, I would recommend this (or the First Direct one, or even both!). The fixed guaranteed interest is great. Set up a standing order so that the transfer is made automatically each month, to make things even easier.

HSBC Advance - Maybe
I thought about it, and decided that while it might be useful to some people, I personally wouldn't make much use of it. Maybe it would be different if I wanted travel insurance, or if I drove a car, or if I was interested in getting life insurance or any of those other things.

Hope this is useful to someone. Have a great weekend!

Gosh this is a very Martin Lewis style post. Hope no one minds. It's also just so that I have a record of my own thought processes. If I have made any errors, or if you have any comments, please let me know.
:money:

Sepa74

Hi Sandstone, thanks for the great analysis! I think you did it absolutely correctly and I'm sure other people will find it helpful.