Advice needed!

Sara_c_g

My partner and I are currently renting but really want to buy a property in Belfast but because of the last years freaky house price boom we are totally priced out of the market. An opportunity has come up where my cousin, who lives in Glasgow,is selling his 2 bed flat in Glasgow and has offered it to us for 85k (5k under what it was valued at). We are seriously considering buying it to rent out, then selling in a few years to make enough money for a deposit in Belfast but with conflicting reports in the media its hard to know if this is a good time to take this step. The rent would cover the mortgage and letting agent fees so we would only have to pay council tax, rates and insurance so in essence we could just let it continue to rise in price (hopefully!) and have a decent deposit in a few years. Does anyone have any advice for us as we are a bit clueless. Should we see a financial advisor or try to source a mortgage ourselves? Is it a good time to do this whole thing?
Thanks in advance for any advice you may have!
Cheers,
Sara

IveSeenTheLight

Sara_c_g wrote: »

My partner and I are currently renting but really want to buy a property in Belfast but because of the last years freaky house price boom we are totally priced out of the market.

Your right, Belfast has boomed this year. It shows as the number 1 hot area for property prices in the last quarter.

The following link shows that Belfast has increase 50% in this year. Man I wish we had a magic ball to show that increase
http://www.nationwide.co.uk/hpi/historical/Q3_2007.pdf

Sara_c_g wrote: »

so we would only have to pay council tax, rates and insurance

If you have a tenent on a minimum 6 month AST, then you will not have to pay any council tax, the tenant is liable for this

Sara_c_g wrote: »

Does anyone have any advice for us as we are a bit clueless. Should we see a financial advisor or try to source a mortgage ourselves? Is it a good time to do this whole thing?
Thanks in advance for any advice you may have!
Cheers,
Sara

Definately, you should see a financial adviser, they are better qualified than most on here.
Some on here will say prices will drop, others that it will stagnate or rise. The truth is nobody knows here for certain what will happen.

What you need to do is look at your specific area (Glasgow) and try to find out how the market is going there.

You are hoping to make an increased dposit by rising house price equity on the Glasgow flat. This may happen, but what would your position be if you bought, the prices dropped and took 5 years to recover.

Property will always make a profit in the long term, however it will depend on how quickly you need that profit to be made and if you can live through any decrease until it rises again.

You first stop should be seeing that Financial advisor

macaque_2

Sara_c_g

I think you are off your rocker. You want to buy a home to live in which is fine.

Since you cannot afford to buy the home you want however, you are now entertaining the idea of speculating in property. Like any other investment, the price of houses can go down as well as up. You should not speculate with money you cannot afford to lose.

What happens if the market does go the wrong way? How would you be able to buy if you were saddled with debts in Glasgow?

And one final comment. Beware of friends offering discounts. If your cousin is geniune in his desire to help you, let him sell the flat for £85K and give you the £5k difference to help you buy in Belfast.

silvercar

First post I've seen by Macaque that I totally agree with!

Buying a home where there is a risk that your investment can fall in value is one thing; after all you have to live somewhere and buying a home is more than a financial investment.

Investing in a BTL now in order to speculate to get a deposit is not the right move. Especially when you only plan on a short spell of ownership.

Without sufficient funds behind you, to cover voids and other unexpected costs, it is too dangerous to rely on the possibility of house prices going up. Just because N.I. had a boom doesn't mean Glasgow will follow.

In practical terms, there are literally only one or two lenders who will give you a mortgage for a BTL with no home of your own.

Sara_c_g

Hi,
Thank you all for the replies. We have now made an appointment to see a financial advisor to advise us about that particular property or what else we could do to try and raise the funds for a deposit. We have worked out we have paid over 32k in rent (scary!) over the past 6 years and really would rather channel this sort of money into a home of our own!
Thanks again,
Sara

IveSeenTheLight

silvercar wrote: »

In practical terms, there are literally only one or two lenders who will give you a mortgage for a BTL with no home of your own.

Absolutely incorrect.
Most BTL's are now based on the perceived rental income versus the mortgage payments.

silvercar wrote:

Without sufficient funds behind you, to cover voids and other unexpected costs, it is too dangerous to rely on the possibility of house prices going up. Just because N.I. had a boom doesn't mean Glasgow will follow

It is worth bearing in mind the concern over house prices at the moment.
Glasgow in particular showed a house price rate decrease for most of this year until recently.
The quartely House Price Increase went from 11% to 10% to 8% before going back up the latest quarter to 10%
It is not garaunteed however that an increase will continue in the short term.

You need to factor in as well, that if this is not your house, you may have to pay your own rent and the mortgage of the BTL should it be in an empty state.

Speak to your financial advisor, make sure you can cover everything in a worst case scenario, what is the rental market like for this area? Are you renting the place furnished or unfurnished.

A lot to consider before you go for it.

silvercar

Absolutely incorrect.
Most BTL's are now based on the perceived rental income versus the mortgage payments.

I agree most BTLs are based on rental income versus mortgage payments BUT the lenders won't give BTL mortgages to people who don't own their own home (with or without a mortgage).

Debt_Free_Chick

Sara_c_g wrote: »

Hi,
Thank you all for the replies. We have now made an appointment to see a financial advisor to advise us about that particular property or what else we could do to try and raise the funds for a deposit. We have worked out we have paid over 32k in rent (scary!) over the past 6 years and really would rather channel this sort of money into a home of our own!
Thanks again,
Sara

Don't worry - you probably would have spent more on mortgage interest plus the other costs of homeowing, which you avoid when you rent (buildings insurance, maintenance etc).

By all means see a financial adviser about the mortgage, but have you really thought this through?

You are planning to borrow money to make an investment. You don't know that the investment will repay the borrowing - as house prices could fall, so that when you sell, you get back less than you've borrowed. What will you do then?

In addition, you are planning on letting the property out .... a few questions ....

What is the rental market like in Glasgow? Plenty of tenants?

What monthly rent would the property command?

What is the current state of the property? Is it "immaculate" and likely to have tenants fighting over it? Or do you need to spend money to get it up to scratch?

How will you pay the mortgage when the property is empty e.g. before you get a tenant in? Whilst you decorate or improve? In between tenants, as you can't have one moving out at 10am with another moving in at 12pm?

Who is going to manage the property, to be on hand to deal with any issues the tenants have? You can't do this, living in Belfast - so have you factored in the costs of paying a managing agent to do this?

Do you have a contingency for any emergency repairs or maintenance e.g. replacing the boiler if it fails with a tenant in the property?

You say you don't even have a deposit - is that right? :eek: What about all the costs of buying? Solicitor, survey, searches etc?

If you are letting the property, you will almost certainly need a deposit - but see what the financial adviser suggests.

In addition, even if you don't need a deposit (unlikely) you will need cash for the costs, plus a contingency, plus you may need to improve/decorate in order to let the property.

Have you looked on Rightmove for similar properties available to rent, in the same area?

macaque_2

Sara_c_g wrote: »

Hi,
Thank you all for the replies. We have now made an appointment to see a financial advisor to advise us about that particular property or what else we could do to try and raise the funds for a deposit. We have worked out we have paid over 32k in rent (scary!) over the past 6 years and really would rather channel this sort of money into a home of our own!
Thanks again,
Sara

You talk as though the £32K served no useful purpose. It represents a charge for a service. It provided you with accomodation and spared you the cost of repairs and maintenance. It also gave you access to an expensive amenity without having to commit large sums of your own money.

You also have to factor in house price movements when looking at the difference between renting and owning. If you are a home owner and house prices go up, your interest payments are offset by capital gains. If house prices stay flat however, you are (now) better off renting by up to £1,000 a year. If house prices decline, you are significantly better off renting.

pamaris

If I am correctly informed, you will need a 15% deposit for a btl, which comes to £12750 for 85k. Add a couple of grand to that for fees and relevant repairs. Surely it would be better to save this sort of money for a proper deposit on your own home.

Do a LOT of research about house prices; in particular the so called "credit crunch" and "liquidity crisis".

I think you will get burned if you follow through with this idea. Be sure you are well informed about this:

http://en.wikipedia.org/wiki/Housing_bubble
and this
http://en.wikipedia.org/wiki/Tulip_mania

I am not trying to be alarmist, just encouraging you to think this through from every angle. You need to have a clear idea of what you think will happen with the property market, and why you think it will happen.

Chances are, the IFA will find a way to make it happen for you, but that doesn't mean you should do it.

moneysavinmonkey

would you borrow 85k to invest in the stockmarket?