My plan to be mortgage free

Hi, been browsing the forums for a while now but first post and thought I would run my plans by you all.

I am divorced but in a long term, long distance relationship. After my marriage broke down I moved back in with my parents, unfortunately the marital home had to be sold just at the point the market crashed so I came out of the deal with very little.

My partner is also divorced and between us we bought her ex out of her property. At the same time we purchased a buy to let property by releasing some equity from her property, this was about 2 years ago when prices were still low and we got a very good deal on a property.

We are now in a situation where her property has about £60k of equity and the BTL has about £90k of equity. We purchased it for £165k in Oct13 and its has just been valued at £210-215k.

We plan on moving into the BTL next year as it will make the moving in together less stressful, my partners property will be sold giving us about £60k in the bank. The mortgage at this time will be about £117k.

The plan is to live in this property for about a year, giving my partner time to settle in and get established in her job. Now we could reduce our mortgage by the £60k and pay the remainder off in about 5-6 years. However, although the house it nice its not necessarily somewhere we want to live long term.

My plan is to re-mortgage the house at 75% LTV which would release about another £40k. The mortgage repayments would be around £800/month over 25 years, if I fix for 10 years at around 3%. We then rent this house out again which will cover the mortgage repayments. We currently get £850/month for it.

This gives us around £100k deposit for our "forever home" . We take out another £200k mortgage to purchase a £300k home. Again fixed at 3% for 10 years the monthly repayments will be about £1000.

After 10 years when the fixed period comes to an end on the property we are renting out, the remaining mortgage will only be about £110k. Over that 10 year period, the value only has to increase by 16% for it to be worth £250k. This means that there would be £140k of equity which would be enough to pay of the mortgage on the £300k house.

If we sold both properties and put all the money into the £300k property, to pay the mortgage off in 10 years we would need to be paying £1500/month. As it is we would only be paying £1000/month. That is a saving of £60k over the 10 years.

Or to put it another way to pay off the £150k mortgage if we put all out money into one property and keeping our payments at £1000/month would take 17 years, 7 years longer. That's an extra £84,000

So by keeping the rental property we would be better of by between £60k and £84k assuming its worth £250k in 10 years time.

I am therefore hoping that the rates remain low for at least 18-24 months longer as my plan works as long as I can get a 10 year fix for 75% or less LTV mortgages for around 3%

Can anyone see any flaws in my logic
Thanks

Comments

  • lvm
    lvm Posts: 1,544
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    That is a lot of numbers and info...my head hurts now :P

    Seems like you've done a lot of planning for this.

    One thing though - from what I understand, you want a 10 yr fix on the property you want to move into but you only want to stay there a year? So when you move out and have to change to a BTL mortgage or *attempt* to get consent to let, you may have a hefty ERC to pay.
  • swindiff
    swindiff Posts: 849
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    Seems to me like a lot of people don't inform their mortgage company when they decide to rent a property out that they have been living in. When I spoke to my broker a couple of years ago she said that they were not really bothered as long as the payments were being made, I guess this could well have changed.

    My plan would be to just keep on paying the residential mortgage whilst making the necessary changes when becoming a landlord again, insurance, gas checks etc.

    Worse case scenario, the mortgage company are not at all happy and require the loan to be repaid. We would then sell and put the money back into the other property, probably max 10% per year would be allowed. Could they charge us an early redemption if it is them that are requiring the mortgage to be terminated?

    Best case scenario nothing happens and we repay the residential mortgage over the 10 year fixed period.

    I guess scenarios in between those include a charge by the mortgage company for permission to let or changing to a BTL mortgage at a higher rate of interest.

    Cheers
  • getmore4less
    getmore4less Posts: 46,882
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    edited 15 June 2015 at 2:17PM
    Why not go one step further and keep both the properties you have now.

    You are landlords now and plan to be in the future so why not try to build a portfolio.

    Look at the yields and make sure as much of your borrowing as possible is tax deductable, this does not have to be on the properties let if done properly itherwise ther will potentialy be a hefty tax bill on that £850pm rent..
  • Pretty sure if you read the T & Cs you are obliged to tell the Mortgage Company if you stop living there and rent it out. ERC for a 10 year fixed is usually about 7% of the purchase price so be careful.
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