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Remortgaging and increasing debt

edited 30 November -1 at 1:00AM in Savings & Investments
3 replies 614 views
HumusloverHumuslover Forumite
1 Post
edited 30 November -1 at 1:00AM in Savings & Investments
I currently own a property in the UK and have £123,000 left on the mortgage. The property is worth £285,000 or so. My interest rate is 1.42 (.95 above the base rate) and I plan to pay it off in 20 years or so. I receive a rental income of about 930pcm.

I'm thinking of remortgaging and raising it to £165,000 to help fund a second property abroad. This will raise the interest rate to around 1.99 which is fixed for two years.

The second property I plan to buy is in Tel Aviv and the mortgage will be around £180,000. I earn around £35,000 a year. My plan is either to rent the property out or move in with my partner. I've checked out rental rates and the rent will more than cover the mortgage should I choose to rent it out.

This will obviously increase my debt and interest payments, BUT will be worth it in the long run as I will land up with 2 properties.

Any advice would be greatly appreciated!

Replies

  • kidmugsykidmugsy Forumite
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    Tenth Anniversary 10,000 Posts Name Dropper Combo Breaker
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    Geared, undiversified investment in an illiquid asset: what could possibly go wrong?
    Free the dunston one next time too.
  • ThrugelmirThrugelmir Forumite
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    Humuslover wrote: »
    Any advice would be greatly appreciated!

    Carry on dreaming.........
    It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." — George Soros
  • bowlhead99bowlhead99 Forumite
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    Humuslover wrote: »
    This will obviously increase my debt and interest payments, BUT will be worth it in the long run as I will land up with 2 properties.

    Any advice would be greatly appreciated!
    If you follow your plan you will owe £345k on the properties. I am not sure if you are earning your £35k in this country or Tel Aviv or elsewhere or what currency it's actually contracted to be paid in. If in this country, you would be on about £26,600 net, and so the total borrowings would be thirteen times your net salary.

    The interest rate on one of them is only fixed for two years and you haven't said anything about the interest rate, term, LTV or currency of the new one. I can tell you that if you did not get the principal of the mortgages down from the 345k and the interest rate were increased to say, 7.7% in a few years, you would be paying every last penny of your net take home salary to pay the mortgage interest, let alone any required mortgage principal, maintenance, insurance, food, utilities, travel, clothes, blah blah blah. Sure, hopefully rental income will cover mortgage payments, but it may not if the rate changes substantially (the only way interest rates can move from here is upwards) and you will have void periods in the properties.

    Also, you say you might or might not move into the Tel Aviv place. If you do not, presumably you are paying rent somewhere else. That is another thing that your net salary needs to cover aside from being spent on the mortgage commitments in times of voids or the mortgage shortfall created by interest rate changes, rental market changes, or adverse currency movements.

    If you get both places rented out with 100% occupancy, zero maintenance, free insurance, no tenants trashing the place and doing a runner, no charges from a managing agent for finding tenants and looking after them in your absence, no uninsured losses due to 'act of god' and no issues with property valuations or currency movements over time, and the interest rate does not quadruple without the contracted rental income being able to quadruple - then the business plan works.

    So yes, under this scheme, you will indeed 'land up with 2 properties', as long as you can convince someone to lend you both mortgages on a 'to let' basis in multiple countries at the same time at a combined ten times your annual gross income or 13 times your net, and you can continue to remortgage on the same basis for the 20 year life of the project.

    Presumably you have thought out all elements of your business plan, encompassing all the above and more, so you should be fine. Enjoy your happy and wealthy retirement :)
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