Buy 2nd home or pay off mortgage?

monkeysaver

Hi :-)

I currently own a London flat worth £325K and have £105K still to pay off - currently able to pay off £10K a year in overpayments. I believe I could get a mortgage of £300K.

Being freelance and with no pension I see the London flat as an investment and would ideally like to move to the south west in the next year or two....

My question is should I sell the flat and put everything into a new property or try to buy a second flat...

If I did buy a 2nd property what's the most tax efficient way to do it -should I leave a bigger mortgage on my new property that I'd live in or on the exisiting property- I understand the debt part of the mortgage is offset against rental income in terms of tax?

With a 2nd property I know there's the increase in stamp duty and also the advantages being a landlord are decreasing...eg the 10% you could spend on upkeep is being slowly taken away...so I'm finding it hard to decide what the best long term strategy would be.

If anyone has been in a similar position I'd be so grateful to hear of how you approached it.

Thanks!

Thrugelmir

monkeysaver wrote: »

Being freelance and with no pension I see the London flat as an investment and would ideally like to move to the south west in the next year or two....

Do you intend managing the investment property yourself?

For tax efficiency consider starting a pension first.

There is no tax efficient method of buying a second property. The numbers need to stack up on their own merit.

monkeysaver

Thanks Thrugelmir,

I would intend to manage it myself.

Isn't there a benefit of leaving the largest mortgage debt on the rental property? My understanding is the rental income is offset against the mortgage payment (the debt part not the paying off of the loan) -

I may be wrong but it's that kind of thing I feel naive about in trying to work out the actual cost/profit of considering going down the 2nd property route.

Thrugelmir

monkeysaver wrote: »

I would intend to manage it myself.

Isn't there a benefit of leaving the largest mortgage debt on the rental property? My understanding is the rental income is offset against the mortgage payment (the debt part not the paying off of the loan) -

That's a long distance to travel from the south west. Both in time and cost.

Interest is tax deductible against the rental income. Though the rules have changed.

https://www.gov.uk/government/news/changes-to-tax-relief-for-residential-landlords


When you come to sell the property there'll be CGT to pay on the gain.

monkeysaver

I'd look to get someone in for 12 months minimum....with boiler insurance etc I wouldn't envisage needing to visit regularly.

Thanks for the link - I had seen it and again makes look like a less inviting option and tricky to work out the actual finances. I should be able to get £1300pcm in rental income.


I feel caught between not wanting to lose the property in London vs having a better quality of living now (using all capital on 1 property) and starting to pay into a pension.

I appreciate there is a large personal decision here...however I feel with the right knowledge it would be a lot clearer what to do purely based on projected numbers...or perhaps simply both options are hard to predict the outcome of and really is down to the individual?

Thrugelmir

monkeysaver wrote: »

I appreciate there is a large personal decision here...however I feel with the right knowledge it would be a lot clearer what to do purely based on projected numbers...or perhaps simply both options are hard to predict the outcome of and really is down to the individual?

Ideally portfolios should be diversified. There's no wrong or right, but a balance to be struck. Crunching numbers is a must before proceeding . As the reality isn't always as great as the conceptual dream.