The Mortgage Free House At 'The End Of The Rainbow'

the_end_of_the_rainbow

Well, the time has come to finally stop lurking and put 'pen to paper'.

Five years ago, I was driving home from work and was actually lucky enough to see the end of a rainbow in a field at the side of the road. Whilst there was no pot of gold at the end of this rainbow, the sight of it gave me an idea for a MSE user name and prompted me to join the previous 'Mortgage Free In Three' challenge.

The MFIT challenge was the encouragement I needed to 'take the bull by the horns' and hammer down the mortgage on my current home. I became mortgage free in 2012 (just a couple of months before the end of the challenge).

However, I was only mortgage free for a couple of weeks .

Today, I have 3 mortgages totalling £405,000 (:eek:) as follows:

BTL 1 - £47,500 mortgage
BTL 2 - £242,000 mortgage
Residential - £115,000 mortgage

I also own another BTL property (BTL3)which is mortgage free.

The aim over the next 3 years is to:

1. Sell the mortgage free BTL property (BTL3) in tax year 2015/16
2. Remortgage BTL1 this year when the current deal ends and then sell in tax year 2016/17
3. Reduce mortgage on BTL2 with the proceeds of the above
4. In 2017/18, either move into BTL2 and rent / sell current residential home or sell BTL2 and find a bigger property in our current village and purchase without needing a mortgage.

I know that selling the BTL's may seem strange as so many current MFW's are looking to purchase BTL's but after 15 years of being a landlord, it's time for us to simplify our lives.

So, onwards and downwards….

the_end_of_the_rainbow

Current Mortgage Free in Three challenge was to save £45000 over the 3 year period (and not pay down any of the existing mortgages). However, our train of thought has now changed.

We will have reached £25,000 in savings in the next couple of weeks and this will be 'ring fenced' as our Emergency Fund which would cover us for 12 months should the worse happen (as dh and I work for the same employer, any reduction in workforce may affect us both at the same time).

Any future surplus income will now be used to reduce either BTL1 or BTL2 mortgage. Initially, this will be BTL1 mortgage as this is currently the higher interest rate and I also want to reduce this to under 60% LTV to get a better rate when remortgaging.

Alchemilla

So wow. Sounds like you are in a good financial place. Good luck on this journey.

Secret_Saving_Squirrel

Sounds like an excellent plan. What will you do when you have achieved it all? Do you have some exciting plans?

Good luck,
Squirrel x

the_end_of_the_rainbow

Alchemilla wrote: »

So wow. Sounds like you are in a good financial place. Good luck on this journey.

Thank you

Secret_Saving_Squirrel wrote: »

Sounds like an excellent plan. What will you do when you have achieved it all? Do you have some exciting plans?

Good luck,
Squirrel x

Nothing planned. Will (hopefully) have at least 3 years of double school fees soon so major expense there. Just aiming for a bigger house with no mortgage -won't be able to afford a bigger house on our salaries (with the above school fees) so the only way to do this will be to consolidate our assets.

Therefore, we've decided to reap the benefits of our BTL investments now rather than keep them on indefinitely.

the_end_of_the_rainbow

12 months later……

Well, I've been absolutely rubbish at updating this diary – read the forums daily but have not felt the urge to update this. Let's see if I can do better this time around!

So the aims, as stated in the first post were:

1. Sell the mortgage free BTL property (BTL3) in tax year 2015/16 – still want to do this however this property is rented to a family member (at below market rate ) and they are struggling to get a mortgage so they can move on. This was always going to be difficult to move forward with but we need to start putting the pressure on. Holding up the sale of this property may ultimately prevent us from buying a new house.

2. Remortgage BTL1 this year when the current deal ends and then sell in tax year 2016/17 – Remortgaged current residential house and redeemed the mortgage on the BTL therefore BTL1 is now also mortgage free. Long term tenant who always pays on time.


3. Reduce mortgage on BTL2 with the proceeds of the above. Remortgaged but didn’t reduce mortgage. Mortgage on this property is now £244,000. Plan to put this one on the market and sell as soon as current tenancy ends (Jan 2016)

4. In 2017/18, either move into BTL2 and rent / sell current residential home or sell BTL2 and find a bigger property in our current village and purchase without needing a mortgage. We've now decided that we want to stay in our current village therefore we will be selling BTL2. This will release approx. £150,000 of equity.


So, the plan for the next 2 years is to sell at least 2 of the BTL properties. This will release approx. £220,000 in equity which we will use as a deposit for a bigger house in our current village.

Properties rarely come onto the market here and when they do, they are at least £470,000 and are snapped up very quickly. Therefore we need to be in a position to move as soon as an opportunity presents itself and having our money tied up in other properties does not give us that flexibility. We would look to buy a new house and rent our existing residential property out rather having to 'sell to buy' therefore enabling us to move quicker.

We also need to build up our savings as much as possible as using the current affordability rules and taking our ages into consideration, we will only be eligible for a small mortgage. Therefore we may need at least £370,000 cash to be able to move (eek!)

Increasing our savings significantly will be difficult as we pay for 2 x independent schooling. Current savings (i.e. those not allocated to specific 'pots') stand at £35,000. The maximum that this will increase by each month will be approx. £250 - £350 so need to look at other ways to make / free up some cash if we are to have any hope of moving anytime soon.

So a summary of the above
Minimum cash required to be able to purchase another property in this village - £370,000 (purchase price of £470,000 less new mortgage of £100,000)
Equity to be released by selling BTL2 and BTL3 – approx. £220,000
Current Savings £35,000
Total Equity & Savings - £255,000

Shortfall £115,000

Other money that may be available:
Equity in BTL1 - £60,000 (may need to look at selling this before buying but rental income is good on this one and need to be careful of capital gains tax so would need to spread the sale of BTL's over different tax years.)
Equity in current residential - £60,000 (but not looking to sell before buying so effectively this will be difficult to access).