Buying a cheap house while renting

bris

A 30k flat will be the very lowest of the low. The area will be about the bottom end of the scale you can get, they are 30k for a reason.

Downsizing__for_sanity

Hi bigmaz,

Try not to take people's comments too personally on this, there are lots of people here who know far more than I ever will about mortgages and they are a helpful bunch.

Try working through the numbers first before you decide that you can't afford where you want to live:

Buy to let property @£30,000 with 25% deposit: you need £7,500.

Live in property similar to where you are: @£170,000, you might qualify for Help to Buy scheme 5% deposit: you need £8,500.

Not much different really. And if as you say income isn't a problem, can you try to save as much as possible as fast as you can? Ebay stuff you don't need, take on a few extra hours at work, cut down on your takeaways, groceries, gym membership etc for a while?

And if you are wondering about investment - say the house market goes up by 10% in the next 10 years. The £30,000 house is now worth £33,000, and the £170,000 house is now worth £187,000 ish.
(Basic numbers I know, but I am no financial whizz).

Benefits - you don't have to move at someone else's whim, any improvements you do, you can keep and you get to enjoy, and you don't have the potential hassle from tenants for what might be a very small return.

Downsides - big mortgage. But that might still be less than your total (BTL mortgage+rent payment) minus BTL income.

If you could overpay your £170,000 mortgage for a few years, you would reduce the total cost with interest, and then be a good BTL mortgage candidate, with the added security of having your own home if something goes wrong with the BTL market. I do see where you are going with the idea of the property ladder, but I think you would have to buy somewhere you would be happy living in with your kids if eg the landlord wanted you to move out. (Is there any chance your current landlord would let you buy the house off him, since you like it so much?)

Let us know what your thoughts are. Kind regards,


DFS

Pixie5740

The Help to Buy Scheme: Equity Loans are only available in England and the OP is in Scotland. Scotland does have a Help to Buy Scheme but it's only for new build properties and has run out of money.

bigmaz

Pixie5740 wrote: »

The Help to Buy Scheme: Equity Loans are only available in England and the OP is in Scotland. Scotland does have a Help to Buy Scheme but it's only for new build properties and has run out of money.

Yeah, unfortunately cannot get it anymore up here

Thank you for your reply though Downsizing, it was very helpful.

[Deleted User]

For what it's worth I'm very much pro renting and have an understanding of a variety of benefits, but I don't follow how your rental can be so much cheaper than a mortgage that it's completely unaffordable to buy. If the flats you're interested in near you are renting with such a high yield, why is the yield for your landlord so (remarkably) low? Are you renting from a family member, or in some sort of rent controlled building? I'm curious about the figures on your current rental! Doesn't have much relevance to your plan but I'd like to know.

bigmaz

citricsquid wrote: »

For what it's worth I'm very much pro renting and have an understanding of a variety of benefits, but I don't follow how your rental can be so much cheaper than a mortgage that it's completely unaffordable to buy. If the flats you're interested in near you are renting with such a high yield, why is the yield for your landlord so (remarkably) low? Are you renting from a family member, or in some sort of rent controlled building? I'm curious about the figures on your current rental! Doesn't have much relevance to your plan but I'd like to know.

Our rent is £650 per month, the going rate for our kind of house in our area. To get a mortgage for £170,000 with the same repayment as our rent would require a very large deposit. And thats looking at rates as they are just now, if that go's up a few percent then the repayments will rocket.

kingstreet

Pixie5740 wrote: »

The Help to Buy Scheme: Equity Loans are only available in England and the OP is in Scotland. Scotland does have a Help to Buy Scheme but it's only for new build properties and has run out of money.

Help To Buy - Equity Loan is newbuild only in England, Scotland or Wales and in some areas, the Scots scheme has run out of money for the current financial year.

Owain_Moneysaver

bigmaz wrote: »

Income, deposit and rent being 125% of mortgage payment wont be a problem. Interesting about "below minimum for BTL lenders". What is the risk to them lending on low value property for renting, out of curiosity?

Tenants who trash the property can easily knock £10k off the market value. If tenants don't pay the rent, the property can get repossessed as the landlord can't afford to keep up the mortgage without rental income. Repossessed property often is poorly maintained and presented and costs the lender to repossess, and sells at below market value. If large numbers of properties in the area are dilapidated, unoccupied, or scheduled for [STRIKE]slum clearance[/STRIKE] urban regeneration, then the remaining properties can be almost worthless.

At £30k now there simply isn't the value in the property to provide adequate security for the lender, probably with even a 50% deposit.

bigmaz

Owain_Moneysaver wrote: »

Tenants who trash the property can easily knock £10k off the market value. If tenants don't pay the rent, the property can get repossessed as the landlord can't afford to keep up the mortgage without rental income. Repossessed property often is poorly maintained and presented and costs the lender to repossess, and sells at below market value. If large numbers of properties in the area are dilapidated, unoccupied, or scheduled for [STRIKE]slum clearance[/STRIKE] urban regeneration, then the remaining properties can be almost worthless.

At £30k now there simply isn't the value in the property to provide adequate security for the lender, probably with even a 50% deposit.

The area and properties around about it are not as you describe. I know the area. They are quite small flats, and quite a few of them are being rented out.

Owain_Moneysaver

bigmaz wrote: »

The area and properties around about it are not as you describe. I know the area. They are quite small flats, and quite a few of them are being rented out.

Yes, but they will probably be cash purchases by investors. If there is a BTL mortgage then there will be adequate security possibly from the investor's own house or from other properties which will be aggregated together.

You may actually be better to look at more expensive property where a mortgagor will accept a lower %age deposit, although of course it will still be more £. A lender might not lend £20k on a £30k flat, but might lend £45k on a £60k flat, if the rental figures stack up.