Save or repay?

dexter-boy

Hi all,

I bought my first house 3 years ago with a mortgage. I then moved to London with work and now rent the house out. My mortgage company charged me a one off admin fee so that I could let the property and I now rent a flat in London.

Before the move to London I had been making overpayments on my mortgage and, with current house prices, I estimate my mortgage to be approx. 40% of the value of the house.

As I struggle to come to terms with the amount of money I am paying a landlord in London (!!) I would like to purchase a flat in London in the near future.

Without selling my original house (as I think it has excellent potential) I think I've got 2 options:

1. Continue to save cash to act as a deposit on my flat purchase in London; or

2. Use my spare cash to reduce the mortgage on my first house.

Which do you think is the better option? I'd probably get my second mortgage with the same mortgage provider so not sure if they'd prefer me to go to them with a 40% mortgage on property one and cash towards property two or a smaller % mortgage on property one and no cash for property two.

Any thoughts welcomed whilst I try and sort an appointment to see a mortgage advisor.

Thanks,

Dex

G_M

If you reduce the mortgage on your own property you will lose the tax benefit and end up paying more tax.

You are paying tax on it yes?

Saving also means you have a contingency fund in case you meet the tenant from hell.....

More here.

dexter-boy

Ah yes, I hadn't thought about it from that angle. By reducing my mortgage I'd have a higher level of taxable rental income.

I guess saving the cash and keeping the morgage as it is, is probably the best approach.

BitterAndTwisted

That consent-to-let from your mortgage-lender isn't open-ended. You could find that once you start applying for a second residential mortgage you may be compelled to change to a Buy-To-Let mortage on the first. These usually require that you have 25% equity in the property and that the monthly rent is 125% of the mortgage-payments.