Are we mad!! Mortgage free or buy to let??

Wizimum

Good morning- looking for guidance and opinions.

We are 45 and lived in our property for nearly 20 years. Our endowment will mature in May 2019 and will provide a return to clear the out remaining mortgage of 30k, due to come to an end Jan 2020 and able to clear our credit card debt of 20k.

As we are young(ish) and have no savings and small pensions we are unsure how to provide for our future. After looking at options we think that a good option would be to remortgage and keep our existing debt in property 30k and borrow 140k (total 170k over 25 years, benefiting on paying residential rates rather than btl rates and conditions). With the 140k we have made an offer on a flat (accepted!!) we will own this outright and plan to let out. The endowment not used to pay off credit card debt will cover purchasing costs and home improvement on home we will live in And any on the btl property.

Initially factoring in mortgage payments, income tax and contingency for vacant periods, ongoing repairs etc it will cost us £300 a month, but as rents rise and the capital in the properties increase there should be a shift in our favor, fingers crossed with no crystal ball!! We will enter into a fixed rate for 5 years to help us budget for outgoings.

We have three teenage children and are young at heart. We think that this made provide options for us in the future. When kids leave we could live in the flat and rent out the family home for greater income. If we want to go off traveling or live abroad for a time rent out both properties to generate an income.

What do you think....are we mad??

quantumlobster

Yes. I do think you are mad. You have an opportunity to clear all your borrowing and start ploughing money into your admittedly small pensions, but instead you are going to mortgage yourselves into your 70s for a very uncertain return.

Cancel this ridiculous idea and increase your pension payments instead.

Wizimum

But we can either sell the property in 15 years and use the equity as a lump sum, or not and use the rental as income.

I know there is an element of risk but your suggestion to put money in pension with saving rates as they are don't allow for the same level of return?

babyblade41

The property market is different now... it's something I dad 35 years ago and it provides me with a secure living and well below retirement age , but...... If I were me now then no way would I.

When you have debt to the extent you have on cards it's slightly worrying ...in any scenario pay off debts first and foremost

Enjoy mortgage free living then discuss pension options

LilElvis

Rental income on a flat worth £140k is never going to give you enough to be able to travel the world/ live abroad without you having a reasonable pension in addition. Having the level of debt you do indicates you already live above your means, so how would you cope during void periods or if you have a non paying tenant who you need to evict? What if your three teenagers all choose to go on to higher education - how will you support them if all your surplus income is going towards paying a mortgage in the hope of future profits?

Wizimum

Thanks baby blade the reason we are considering now is we can remortgage with no fees and obtain a residential mortgage instead of the nasty btl.

Sounds like it worked for you, thought it would for us too.

AnotherJoe

Wizimum wrote: »

Thanks baby blade the reason we are considering now is we can remortgage with no fees and obtain a residential mortgage instead of the nasty btl.

Sounds like it worked for you, thought it would for us too.

Times have changed. Very different tax treatment, very different laws (much more onerous from POV of a LL) and the house price inflation we've seen in the past that has given LLs much of their eventual return simply isn't replicable.
Instead of paying off your mortgage at a very low rate of interest you'd have been much better off not increasing credit card debt (ata massively higher rate) focusing on your pensions
So, it's probably too late to get you to back away from this idea now you've sort of committed to it by making an offer, and presumably came here just looking for some encouragement and ra ra noises, but I'm another one also answering your question in the affirmative, yes you are mad, or if not mad, your financial plans make no sense. They didn't in the past (rack up cc debt ) and they don't in the future.

Wizimum

Hi AnotherJoe

Not totally committed yet as very early In the process. loathed to 'pull out' but Your possibly right about the encouragement as I have niggles we are doing the right thing. Not many people we know in our postition And No parents to discuss it with either that's why I'm reaching out on here.

Value your views obviously coming from a place of experience. Thanks

beckysbobbles1

To me it sounds like a good plan.


So long as you can afford to pay the new mortgage if there is no tenant in the flat then it sounds good.


Of course who wouldn't want to be mortgage free at 45 however you clearly do need to think about the future and having another property seems sensible.

babyblade41

Wizimum wrote: »

Thanks baby blade the reason we are considering now is we can remortgage with no fees and obtain a residential mortgage instead of the nasty btl.

Sounds like it worked for you, thought it would for us too.

Difference is the property market was a lot different then...

It doesn't produce a high living but I don't go on holiday, have flash motors and prefer a bottle of wine in the garden. Tv or wherever so rarely go out
My children are in their 30's so no dependants.

If I wanted all the above then I'd need a full time job ...

Being a LL is hard work, invariably costly and can land you in hot water.. my properties were mortgage free from get go so the risks were less so a slightly different scenario

babyblade41

AnotherJoe wrote: »

Times have changed. Very different tax treatment, very different laws (much more onerous from POV of a LL) and the house price inflation we've seen in the past that has given LLs much of their eventual return simply isn't replicable.
Instead of paying off your mortgage at a very low rate of interest you'd have been much better off not increasing credit card debt (ata massively higher rate) focusing on your pensions
So, it's probably too late to get you to back away from this idea now you've sort of committed to it by making an offer, and presumably came here just looking for some encouragement and ra ra noises, but I'm another one also answering your question in the affirmative, yes you are mad, or if not mad, your financial plans make no sense. They didn't in the past (rack up cc debt ) and they don't in the future.

Totally agree with the above..I'd be concerned with the CC debts.

I use a CC for large purchases only for insurance but otherwise it's kept in the drawer at home