Buy now or in 5 years?

bestyman

Looking for advice on if best to buy now or save money and buy later?


Present house is mortgage free, but not worth much, maybe 70k.
Will be renting this house out (£500pcm) when we move.


Looking to buy house at around 180k. At present saving 1k a month, but could possibly up this. Our joint income is 55k.


So, it seems I have some options.
1. Get a mortgage tomorrow and pay loads of interest over the next 20 years (more so if rates rise), but will benefit from rental income and property price rises ( assuming they rise).
2. Stay put for now and save £1,250 a month for 5 years resulting in 75k to put down (plus any interest). Downside here is no rental income and the house that was 180k might now be 230k ( but then again maybe not).


I'm not sure how to do the sums for both scenarios, so would really appreciate any thoughts.


Thanks

amnblog

You can't do the sums unless you can predict the future.

Move when it feels right for you and you family.

getmore4less

£70k @ £500pm rent is gross yield of 8.5% so that's OK.

Get the place ready to rent so you canb do it quite quickly when the time comes.

Start looking for a bargain house.

No hurry so keep saving hard and focus on finding whats right.

If starting a letting business and places are available yielding 8%+ might be worth looking at just getting another one like you have and get some economies of scale, buy, get ready to let, let, buy etc. till you find the right place for the bigger move.

Make sure you structure the borrowings so you can get tax relief on the full value of the places when let.

Thrugelmir

Why do want to keep the existing house, why not sell now. Interest rates are never going to be this low ever again.

MLSY

if you have a crystal ball to see the future you will get the right answer

anything else is educated guess work -do what feels best for your situation at the time

Propertyauthor

I have run these sums a couple of times and although you can't predict the future, you can look at what the forecasters say and what prices in the area have moved by since 1995 so you have an idea bout the future and can base things on the past too. Part of the answer depends on where your property is. Have a look at this (it's free) http://www.propertychecklists.co.uk/articles/property-forecast and here's the latest implications of price and rents on landlords, http://www.propertychecklists.co.uk/articles/private-landlord-rent. Then to help you decide, worth chatting to a qualified financial advisor about your future investment needs and a mortgage broker to see what you can borrow now and in the future. Rates are low at the moment, so for me, if I can buy now and get some property price growth over the next few years, that could help reduce my Loan to Value so I can then hopefully access better rates on-going.

kidmugsy

Thrugelmir wrote: »

Why do want to keep the existing house, why not sell now. Interest rates are never going to be this low ever again.

Presumably, Thrugelmir, you see it as likely to be advantageous to start a new mortgage on a five (or even ten) year fix?


Anyway, an owner-occupied house will be free of CGT; not so for a house that's let out.

getmore4less

Thrugelmir wrote: »

Why do want to keep the existing house, why not sell now. Interest rates are never going to be this low ever again.

With an initial Yield of 8.5% probably more after you work out the free cash from selling which would be uses to reduce future borrowing.

If happy to go into business letting this is a reasonable proposition.

The ROI is good enough to cover the main risks and the extra borrowing on an I/O basis.

With 50% gearing and a mortgage rate of 5%, the return on capital invested is over 12%.

dimbo61

How much did you pay for current house ?
You can offset up to 75% of current houses value or the purchase price which ever is lower against Rental income if you take out a BTL mortgage.
Time to speak to an accountant who deals in BTL.
You can then use this equity as a deposit for new bigger property.
If you can save £1250 a month then you should be able to afford a bigger property.
25% deposit and 5 year fixed offset mortgage !

Smi1er

dimbo61 wrote: »

You can offset up to 75% of current houses value or the purchase price which ever is lower against Rental income.

Have you a source for this nugget of incorrect advice?

dimbo61

If the poster takes out a BTL mortgage against the property he owns mortgage free can he not offset the Interest against the rental income ?