Mortgage for a Year v Renting for a Year

DJBucko2009

Apologies if this had been discussed previously, but I can't find easy answers to my questions from searching.

I'm currently living with my parents, but I'm looking to move into a 1 bedroom apartment in Birmingham city centre.

Having looked at typical monthly mortgage repayments, the element of those repayments which is interest is much lower than the cost of renting an equivalent property - and given that cashflow isn't a significant consideration, then all else equal it would appear to be cheaper to buy than rent.

My question is about the "all else equal" part of my statement. If I bought a flat after 1 year but then decided I wanted to move, what would I be penalised? For example let's say I had a mortgage with an "initial period" of 2 years, if I wanted to sell after one year, would my mortgage provider fine me, and if so what would be the value of this fine if I had borrowed, say, £135,000.

Alternatively, if I wanted to move out and rent somewhere else e.g. if I left the country or relocated within the UK for work commitments, after 1 year of owning this property and I wanted to let it out, would I have to convert my mortgage to buy-to-let? Again would any fines apply and would this depend on whether I stayed with the same mortgage provider? Would the repayments now typically be higher?

The trade off is obviously cost for flexibility - but if I could understand the level of flexibility a mortgage would provide me after the first year I could make a better comparison between the pros and cons of renting/buying.

Many thanks

kingstreet

Subject to loan to value, affordability etc, concentrate on products which have no early repayment penalties with a lender with a good record on consent to let.

This will mean you'll have only your selling costs if you do decide to sell and no need to try to remortgage to a BTL if you decide to let the property instead.

If you took a two year fix and decided to repay it, it would normally see you charged 2% of the mortgage redeemed in year one, 1% in year two but this would depend on the lender and product you chose.

Thrugelmir

Buying for a year then selling. Taking into account all the costs and hassle isn't worthwhile.

Owning a BTL isn't a guarantee of riches either. Potentially could cost you money. Personally I wouldn't buy until you are ready to put some roots down. Until then being flexible has it's advantages.

captain747

I agree with the Thrug..

amnblog

You are assuming you will find a buyer after 12 months.

Selling is anything but a simple and reliable process in England.

getmore4less

Do a full capital/cash flow analysis of the scenarios.

The friction cost at transition points can make the savings unviable in the short term.

Buying/selling in 1 years will have high costs that ill probably exceed any savings on interest/rent and there is the added risk of maintenance.

Capital appreciation might help but then there is the chance of a loss.

Buy and rent eliminates the selling costs but has new ones like safety certificates and other rental setup costs, you could still be entering the rental phase with a cashflow loss

A key initial measure will be potential gross yield as a rental this needs to be in excess of 5% closer to/over 10% much better

Consider carefully if you want to become a landlord especially an absent/remote one.

Another strategy if you can stretch to a 2 bed and get a lodger(s)

Foxy-Stoat_3

If your considering buying then you will have 10% cash deposit plus fees in your bank, yes?....take your £15,000 and buy Premium Bonds and rent for a year until you know what you want to do.

If your thinking about BTL mortgages then you will have at least 25% cash plus fees in your bank.....again, take your £35,000 and buy Premium Bonds and rent for a year.

If you win the Million, pass on some wealth this way !