Buying second home - keep the first one or not!

chatman1

So - we have a property (Prop 1)which currently, after a long period of negative equity, has just started breaking even with a interest only mortgage. But at the same time has considerably increased in value. It is too small to live in though with our now much larger family, so it is rented out.

We need to buy a family home (Prop 2)and think are faced with the followng options:
1. Keep prop 1, make it a buy to let, take some equity out of it and buy prop 2, aiming to make them both on a repayment mortgage to be paid off in 25 years. Assuming that we have are stronger to work this side of 65 than to worry about fiancnes when we retire, prop 1 would be the pension plan! Problem with this plan is that both properties might have high mortgages on them and not sure what would happen if rates went up. I am sure there is a snag somewhere.
2. Sell prop 1, put down a high deposit for prop 2 and aim to pay it off sooner. Worry about retirement income then creeps up.
3. Sell prop 1, get on some scheme with lower deposit to buy prop 2 and use the savings to have an offset mortgage. Allowing some cash in hand as well as paying off the mortgage early.

I am sure a few people have been in a similar situation so would be grateful for thoughts.

Thanks

p00hsticks

How old are you ?
What other pension provisions (if any) do you have in place ?

GwylimT

If you are able to take a loan on your current mortgage have you paid enough off to get a buy to let mortgage?

kingstreet

To turn the current property into a let to buy, you'll need 25% equity on top of what you intend to borrow for the deposit for your next home.

The rent will typically need to be 125% of the monthly mortgage interest assuming a rate of about 6% per annum.

You'll need a lender for the onward purchase willing to treat the let property/mortgage as self-financing, otherwise you'd need to demonstrate you can afford both mortgages from your income.

Be careful of the loan to value of the purchase. Some lenders will lend less for a "second property."