Advice!

1730Ian

Hello everyone!

A house buying novice here looking for some advice….

We currently have a mortgage on our 2 bed home, 103k remaining at 2.5% fixed till next year.

Our plan within the next 2-3 years is to have another baby, and we will therefore require a bigger house. Our hope is to keep our current house and rent it out, aswell as purchasing our second ‘family’ home.

We currently put away £750 a month into a savings account, and as of October this year plan to increase this to £1000

Currently, we estimate we have approx. 25/30% equity in our current property.

What I was wanting advise on is how best is the £1000 allocated? Do we save this all up in a savings pot, or spread it between saving an overpaying our current mortage to further build equity? At the moment we are thinking £750 savings and £250 towards overpayments. The ‘savings’ pot also acts as an emergency fund for us if our monthly separate spends doesn’t cover the amount needed

We have set up an appointment with our mortgage advisor, however any advise from you guys would be much appreciated!

G_M

You're paying 2.5% on your mortgage.

You could earn more than that on your £1000 pm savings by judicious use of high interest current accounts, and regular savings accounts.

Once you've exhausted all the high interest options, start paying off the mortgage.

ThePants999

I totally agree with G_M.

For the benefit of readers in similar situations, I also often recommend investments. If you don't expect to need the money for some time, and you wouldn't suffer hardship if you lost some of it, investments will typically easily beat your mortgage rate. In this scenario, I wouldn't recommend because of wanting to use the money on a second house in the relatively near future.

Cakeguts

There is a huge problem with trying to let 2 bed houses. Young renters would prefer a 2 bed flat and older couples with children would prefer at least 3 bedrooms. To let a 2 bed house it has to be cheaper or the same price as a 2 bed flat otherwise you will have a problem finding a tenant. The trouble with this is that often a 2 bed house costs more to buy than a 2 bed flat which means that in terms of a rental it isn't a good investment. On top of that everyone assumes that because they have bought and lived in a house then it will let easily. It doesn't work like that.

If you want a house to let to get an income then buy a house or flat suitable for a buy to let don't just assume that any old house that you happen to own now and live in with achieve the result you are looking for.

As it is a two bed house you would do much better to sell it.

n217970

Cakeguts wrote: »

There is a huge problem with trying to let 2 bed houses. Young renters would prefer a 2 bed flat and older couples with children would prefer at least 3 bedrooms. To let a 2 bed house it has to be cheaper or the same price as a 2 bed flat otherwise you will have a problem finding a tenant.

Of course this may be irrelevent if you live in an area that does not have many flats.

The rest of Cakeguts post I do agree with though, there are probably better investments available for the money. Also (apologies if this is not the case) I presume this may be your first home and the idea of letting it may be out of sentiment. I have felt exactly the same about my last home but I talked myself out of it - it does not make good business sense and how would you feel if it got trashed? Which (unfortunately) is a very real prospect.

Crashy_Time

Tax liability for landlords has also changed.