Downsize to upsize? Mortgage questions

apositivethinkingcat

You make a very good point about renting. One I have in fact made to other people! In a lot of ways that makes the most sense and moves the plan along the quickest.

I could be seen as being optimistic about getting the additional borrowing added to the mortgage next year - if something changes in the global economy getting an extended or new mortgage might be very different, so I guess these other options are an attempt to further future proof. Right now I can port mine about easily, so if I buy a flat it will cost 1% stamp duty, legal fees, cost of van rental and I think that't it.

I did a bit of research today and it looks like buying a one bed studio flat away from where we are in zone 3 and moving away from all tube stations out in zone 6 is quite cheap - but still easy transport to London - some studios are as little as 120K if they need a bit of love and attention.

So if for some reason I can't get the sparkly mortgage extention I would like next year - I wouldn't be far off living mortgage free in a flat if I got one that small, whereas if I am renting the rent continues at the same cost for as long as I live there.

However I would have put all my equity/deposit into the flat. The mortgage would be less than renting or I could overpay to make it the same. The trick would be is it safer to rent and keep equity as deposit but risk renting long term OR is it better to plan for a longer journey where I need to re-save up deposit but end up with a flat I can rent out as a second income (or flog for a fortune if they discover a untapped oil deposit underneith)?

As a project manager I could do this for someone else, funny how much harder it is when it comes to your own projects

I think the old trick I used to do for clients of writing down the pro's and con's of each venture and comparing ROI on the budgets will need to be done today! The hamsters are looking at me like it ought to be them running in circles and not me

Fire_Fox

Survey/ valuation, disbursements including costs of getting information out of the freeholder, ground rent/ service charges/ buildings insurance, estate agent for selling your place.

I wouldn't live in a studio with another person, you have no place to escape if you have a row, are ill or hungover, want to do different activities, watch TV the other one hates, want to go to sleep at different times, bring a mate over, gossip on the telephone for an hour .... If you are willing to live in one room you may as well get a lodger.

The thread is getting confusing, in the OP you were talking about keeping a flat for a year, then a few years, now long term as a BTL. You really need to decide which, buying a home for you should be a completely different decision making process to buying a BTL.

apositivethinkingcat

Hmm yes service charges, insurance and leaseholds will add to the complexity, good point Fire Fox! That might alter the maths a lot.

Studio Vs lodger wise: Magic 8 ball time there. I will think on it. It is looking like flat ownership is very complex. I will do a search online and try to figure out how much it costs.

Thanks!

apositivethinkingcat

Hi - I was thinking of buying then selling a flat - but looking at how much they cost - I could live in it until I had paid it off then rent it out and buy the house as planned before. It is a bit of a plan upscale.

So it would be a buy to live in then let out... rather than a straigh BTL as while I was paying it off I would be living in it... I could sell it after I lived in it (if for some reason it was worth more mysteriously) but if I own it outright I see no reason why not to let it out and have a second income? Seems like the best of both worlds if it could be pulled off!

Thanks!

Fire_Fox

I feel like I am being the voice of doom. Leaving the capital sat in a studio flat does indeed provide a second income but minus income tax, capital gains tax, vacancies, letting agents fees, service charges/ ground rent/ buildings insurance/ major works, landlords insurance. The profit may well be less than the extra you will spend on interest by having a larger mortgage on your main home. Professional landlords get around this by selecting their properties based on how lettable it is and the yield, little to do with personal taste or convenience.

apositivethinkingcat

I asked someone I know who rents out his 2 bed flat and he says he only pays £1000 a year on all the rent, insurance services and so forth. Income and capital gains isn't that much unless you earn over a threshold as well I thought? Needs more research.

I was thinking buying somewhere near a station that needs some work. I think it is worth looking into still - if I stay here or rent I am giving away money with no hope of return - so a potential return even if it might be minimal at times could still be better? It definately needs planning and lots of calculating to get right though. Does also rely on my saving up new deposit with extra cash that is saved by having much smaller mortgage... lots of if's going on there.

Fire_Fox

I pay £1500 a year in ground rent, buildings insurance and service charges and that is in the north for an ordinary building. Other people pay very little, depends on the size of the building and what services are provided (eg. lift). It would probably be £200 a month if I had all the other costs of letting, including having an agency find one tenant a year. Don't forget to include the cost of a vacant month or two.

Annisele

apositivethinkingcat wrote: »

Income and capital gains isn't that much unless you earn over a threshold as well I thought? Needs more research.

So far as income tax is concerned, yes there is a threshold. But for most people the threshold is about £8k a year, so if you don't hit it your plan has serious problems!

That £8k is for income from all sources - so any salary/dividends you take out of a limited company, any interest you get from a bank, and any taxable profit from your BTL will all count.

If you're earning enough that you could buy a flat outright within a few years, couldn't you just seriously overpay on your current mortgage?

I think there's extra risk with studio flats compared with two bedroom houses. Often when prices drop, they drop more for studio flats than for two bedrooms - because the people buying at the bottom of the market can suddenly afford more, and nobody wants the studio flats at all. I don't know whether the market will drop - and even if it does the studio flat risk might not play out - but it's something to think about.

apositivethinkingcat

8k is the threshold for paying any tax at all. I meant avoiding paying a lot which is over 50 something k threshold.

I could overpay on this mortgage, but I would still have to sell this place as I can't pay it off in full! Whereas a small one bed or studio flat could possibly be kept.

I would find tenements & manage myself so no fees for that, anything near a station is likely to rent out in the city.

It's a case of keep putting money into something I cant keep or try to put it into something I could possibly keep... I guess it's a risk calculation.

apositivethinkingcat

Ok, capital gains tax is complex... But would be lower as the flat would have been my home first... Need a scientific calculator to add that to the equation