Please help me decide if it would be a good idea to buy a second property

BARGAINMAD_2

We are 45 and 48 and are in the very fortunate position of having been mortgage free for last 4 years. House is worth around £260,000 and we have £80k savings. Our joint salaries are £50k and we have no debts/credit cards. We have 2 sons aged 17 and 20 and as with most parents are desperately worried how they will ever afford a home.

We were thinking of putting £60k down on a house and remortgaging our house for £60k. Mortgage rates are so low and interest rates on our savings are so low and any money we save will be for our sons to help them buy houses, whether now or in the future.

My question is should we buy now, even though the oldest one is not ready or mature enough to move out, and have to rent it out for a few years or do we carry on saving like mad and let them get their own mortgage one day? I am worried that even with a massive cash deposit they may miss the boat in the future?

I see it very simplistically that we could overpay on the 60k mortgage and in 15 years the property would be ours outright. Even if one of them rented it long term off us it would be for half the market rate. We are not buying to sell and make a profit but hopefully to keep for good. Problems could arise if they both wanted to move away and our cash was tied up in it when they needed it and then there would be CGT liabilities.

Any input/thoughts/advice would be gratefully received.

fed_up_and_stressed

BARGAINMAD wrote: »

We are 45 and 48 and are in the very fortunate position of having been mortgage free for last 4 years. House is worth around £260,000 and we have £80k savings. Our joint salaries are £50k and we have no debts/credit cards. We have 2 sons aged 17 and 20 and as with most parents are desperately worried how they will ever afford a home.

We were thinking of putting £60k down on a house and remortgaging our house for £60k. Mortgage rates are so low and interest rates on our savings are so low and any money we save will be for our sons to help them buy houses, whether now or in the future.

My question is should we buy now, even though the oldest one is not ready or mature enough to move out, and have to rent it out for a few years or do we carry on saving like mad and let them get their own mortgage one day? I am worried that even with a massive cash deposit they may miss the boat in the future?

I see it very simplistically that we could overpay on the 60k mortgage and in 15 years the property would be ours outright. Even if one of them rented it long term off us it would be for half the market rate. We are not buying to sell and make a profit but hopefully to keep for good. Problems could arise if they both wanted to move away and our cash was tied up in it when they needed it and then there would be CGT liabilities.

Any input/thoughts/advice would be gratefully received.

Realistically at 48 and 45 do you want the commitment of another 15 year loan on your main property ?

Also what if your son does not want to live in the house you buy ?

I think your decision needs to evaluate what the local property prices are like are they going crazy in your area or is it slow growth ?

BARGAINMAD_2

I don't know exactly what house price growth is like in our area. I know they have started to rise again in last 18 months but different estate agents are saying different things. 2 bed terraced houses are definitely down from their peak 6/7 years ago. I saw a news article the other day which said unless you are living in a hotspot (which I don't think we are) to assume 3% growth for next few years. The areas we are looking in are the only half decent areas where you can still get a 2 bed house for around £120k. We are in South manchester.

BARGAINMAD_2

Re the £60K mortgage, obviously it is marvellous to be mortgage free, and we would prefer not to take out another mortgage, but We see that this is the only way at the moment, but someone else would be covering the repayments, either a tenant for a few years or my son, who would get a lodger.

cte1111

I live in South Manchester and according to the last survey I saw, prices in our area are static. This may well be contradicted by other surveys / articles though.

IMHO you shouldn't buy another house, mainly because I think the reasoning behind the purchase isn't too clear. It creates a burden of expectation for your sons, which they might not even want. What if one son decides to travel the world and the other goes to work on a farm at the other end of the country? The decision to purchase a property should come from the owner, not their parents in a vague panic decades earlier.

If you want to buy a property to let out, on the basis that it is a long term investment, as part of an overall financial strategy for yourself and your partner, after making sure you max out pensions, have some other savings, and have a solid plan as to what to do to cover voids, then go for it. To try to insure against possible house price rises, in case your children want to buy at some unknown point in the future, not such a great idea.

cte1111

Here's a recent article about house price rises / crashes, worth a read, although like all similar articles there may well be some bias:
http://www.dailymail.co.uk/news/article-3137683/The-Great-British-property-divide-London-homes-rocket-32-Bradford-sees-house-prices-slump-QUARTER.html

GoldenShadow

Wouldn't suit me. OH's parents bought a house to let out and we decided that if it were an option we wouldn't want it. It wouldn't feel like ours and that's really important to us, to have the freedom to move when we like and do what we like.

Depends on your lifestyles though. Are the kids keen to stay in the area long term? What kind of careers and salaries are they likely to get, what does property cost locally etc?

I'm 23 and OH is 26. The city we live in now we could only afford a house in a very bad area, so we are moving 25 miles out somewhere less ideal (we both work here) but more affordable. A lot of people my age don't even want to buy, forgetting whether they have the funds or not. They don't want to settle or be 'tied' down.

Pixie5740

I'd hang off buying a property unless you have a burning desire to be a landlord. There are ways of making your savings work harder other than investing in an illiquid asset like property.

Who knows what your sons will be doing, or where they'll be living when the time comes to fly the nest. If they move to another area it will be more difficult for you to help them with a deposit if your money is tied up in this second property.

BARGAINMAD_2

I think that is the main reason we are buying - to insure against house price rises. Thinking of the pitfalls of letting it out fills us with dread although we know the key thing is a good tenant. Our sons I don't think Are going to have professional jobs but the thought of them renting for life fillls me with dread. It's £600 a month for a complete tip near us. I know we were "spoilt" as we bought 18 years ago when property was at an all time low and we didn't need help from anyone to buy as you could get a mortgage for 3x average salary and that bought a 3 bed semi back then

BARGAINMAD_2

If we were looking to let it out for next 20 years and get income for retirement, we would do it tomorrow, but we wouldn't be able to gift deposits when the time came. My husband thinks what we are thinking of may take responsibility away from our sons and they should be encouraged to go out and try and earn as much as possible to get a mortgage in the future for a house in their name and then we can help them out financially.

booksurr

I agree with Pixie

it seems your scenario and question really is:

a) we have a modest pile of cash but not enough to allow our kids to buy a place of their own outright
b) we want to be able to help out the kids when the time comes

therefore your question is really one of what will be the best investment between now and whenever the kids need to buy property

the problems you have are:
- you don't know when they will want the money
- you don't know where they will want to live

therefore investing in a property will meet objective a) but may mean objective b) is difficult since you would need to sell at a time that may not be ideal to do so

you talk of owning the property outright in 15 years, that suggests you see it as part of your retirement plans not as a way yo increase the pot of money available to finance the kids fist purchase. If you invest in an illiquid property it certainly cannot be both your retirement fund and their cash pot to spend elsewhere

i cannot suggest an answer because only you can decide what your objectives really are as they appear mixed at the moment and a second property cannot achieve both at the same time

* EDIT cross posted with your reply above - i see you too recognise the inherent incompatibility of the stated plan in the OP