Move up the ladder or pay off mortgage?

smfdurham

We currently own a 2 bed flat in East London which we paid £190k for last year and is now worth around £230k due to the work we’ve had done and the property price madness here.

We may be in a fortunate position to have some early inheritance in 12-18 months time in which case, with our savings we’d be able to pay off £70k of the mortgage, leaving us with around £100k on the mortgage and repayments of around £400-450 p/m

The long term dream (in 3-10 years) is to move back to the North East. We’d ideally like to save up for a sizable deposit in the North East and keep a property in London to rent out. This will essentially be part of our pension and compensate for reduction in salary by moving North.

We have 2 options:

1 – Move to the North east in around 3-5 years and buy up there, keeping the flat and renting out at around £1k per month (before all fees etc etc)
2 – Sell the flat, buy a 3-4 bed house in East London / Essex in 12-18 months time with our savings of £70k plus the £65k we’ll have in cash from the sale of the flat. That would cost around £400k and with our £120k or so deposit our mortgage repayments would be £1,000-£1,100 per month

If we go with option 2 we’ll need to wait, so more like 7-10 years before we can move up north, but we’d be able to rent out the house for £2,000 per month at today’s rate (minus all fees etc etc) plus you would expect the £400k property to appreciate more than a 2 bed flat

Which option do you think is best? I’d really like to move sooner, but we’ll never be in a position to buy a bigger house in London again. I feel like if we do that now it could really help us in later life

Appreciate any input

smfdurham

oh should have mentioned...would be good to know if it's recommended to get a smaller place in East London (e.g. 3 bed in Leytonstone where we are now) or bigger place in Essex, Chigwell or near - in terms of likely property increases in the future

Thanks again

hazyjo

I doubt a house/flat in Leytonstone would ever be worth more than a 3 bed house in Chigwell, so would definitely choose the latter.

When East London prices increase, it tends to be when the market goes up generally. Chigwell, Loughton, parts of Woodford, Buckhurst Hill, North Chingford, Brentwood, etc etc tend to go up loads too.

I would choose option 2 - but that's just my preference. Others may think differently.

I wouldn't be keeping a property down here though. Too much hassle being a LL. Would rather put the money towards a property 'up north' - or buy mortgage free.

Jx

AdrianC

smfdurham wrote: »

The long term dream (in 3-10 years) is to move back to the North East. We’d ideally like to save up for a sizable deposit in the North East and keep a property in London to rent out. This will essentially be part of our pension and compensate for reduction in salary by moving North.

Do the sums carefully. I strongly suspect the yields on that value of property in the NE would far outweigh those in London. Remember, it'd not be a choice of "rent out one flat in London" vs "rent out one flat in NE", it'd be a choice between "rent out one flat in London" and "rent out 2-3 flats in NE".

As far as Chigwell vs Leytonstone goes, considering Leytonstone has "further to rise", and the fact you already own that flat, I'd keep your money where it is - but it's always going to be a guessing game.

smfdurham

Thanks for the input!

I think we're pretty flexible in terms of area as long as it's East London and the West part of Essex so we can do some research into the areas which are rising the most closer to the time (crossrail may be a consideration)

I'm not sure if we're ready for the hassle of being landlords but we should definitely consider it, I hadn't thought of buying a house plus rental property in the north east but one thing that makes me prefer to hang on to something in London is the potential for property price growth - it's far higher than in the north east.

For that reason I'm slightly favouring buying a bigger house somewhere near(ish) by now and then looking to rent out with the potential to sell one day. I can't imagine what a 3-4 bed property will be worth in London in 20 years but a lot more than an equivalent in the north east

hazyjo

AdrianC wrote: »

As far as Chigwell vs Leytonstone goes, considering Leytonstone has "further to rise", and the fact you already own that flat, I'd keep your money where it is - but it's always going to be a guessing game.

But then the pricey parts of Essex tend to rise as fast - and Leytonstone won't outshine places like Wanstead next door (which, although expensive, isn't as bad as some of the pricey Essex suburbs).

Jx

AdrianC

hazyjo wrote: »

But then the pricey parts of Essex tend to rise as fast

As a percentage of value?

hazyjo

AdrianC wrote: »

As a percentage of value?

Not necessarily, IMO. Desirable areas in Essex always seem to become even more desirable when prices increase. It's not usually just a case of things going up X% and them all going up the same. The areas mentioned above have a habit of going crazy.

I bought in North Chingford cos I felt it was far nicer than Leytonstone, Walthamstow and the like. It's already being added to the list of nice areas like Buckhurst Hill, Loughton, Epping, Brentwood, etc, and I think I'll see a far bigger increase there than in areas which might shoot up quickly, but will never overtake the 'nicer' areas (IMO!).

Would love a value on my house. I'm usually pretty good at knowing their worth, but mine has me totally stumped now! Worth at least £50k more than I paid 10 months ago, possibly a lot more.

Jx

MrRee_2

The old maxim applies today as it has done so many times in history.

"Borrow the maximum and move every few years - UPWARDS"

Then when you are retiring you will have laid a golden egg without you even realising it!

Go for it ......... the market is just at the start of the boom ..... milk it!

smfdurham

Thanks again, I've just thought of another option that might work too...keeping our flat in leytonstone and buying another flat. That way the rental yield will be good and fingers crossed we could keep both when we move up north

Good idea? Or better off selling the flat and buying a bigger house?

hazyjo

Things used to double in value in 10 years or so (average/generalising). I suppose you need to factor in area growth in Leytonstone against say buying a £450k house in Chigwell.

Also check the lease to make sure you can rent it out, and that you'd get consent and a one off fee (probably not if a long term/permanent plan) or if you'd have to switch to a BTL mortgage.

I think you need around 25% equity in a BTL - you'll have to do the sums. What sort of dosh would that leave you (along with increased mortgage payments on it, and LL's expenses) to buy another flat?

Jx