Two mortgages - some advice much appreciated

phingers

Hi all. Some advice or direction would be appreciated from someone who is a financial adviser if at all possible. Here are the facts:

We left the housing ladder three and a half years ago as we relocated and, not knowing the new area, moved to a rental property.

With the proceeds of our house sale we purchased a student-let property as an investment for the future and to bring in an income that would be better than ISAs/savings accounts etc.

In January we rejoined the property ladder. Our new property was purchased with a repayment mortgage of £197,000 over 21 years costing £952 per month, taken out over 5 years fixed - redemption penalties etc. for early repayment. Property value around £250k.

Our student property is on an interest-only 22 year mortgage, £262,000 borrowed and recently renewed over 5 years fixed with (as expected) penalties for early redemption in that time; the mortgage costs £736 per month; other outgoings including monthly utilities plus maintenance means an outgoing total of £17,000 per annum. Income is £30,000 per annum. Property value is c.£380,000. The additional tax bill, split equally between the two of us, is roughly £5,000 per annum.

We both work at the moment but our income does not cover our outgoings; we do not live a flamboyant lifestyle, rarely go out and have no planned holidays for the forseeable future. We therefore dip into the student money every month to make ends meet.

In 22 years time - when we are in our early 70s - the repayment mortgage will be cleared and we will own a property - either this one or whatever we move to in the future.

The student property will, if we carry on as we are, still have £262,000 outstanding, although the mortgage company has requested that the outstanding loan be reduced whenever possible with overpayments of up to 10% of the outstanding balance possible each calendar year.

So, once we retire (!) we should be fairly well set even if we have to sell the student property to repay the remaining loan. The property will have inceased in value and sale price minus loan should be a decent sum, although it would be nicer to hang onto it with no mortgage and have the £30k+ income.

The thing is, we have no money to enjoy the now. It's all very well focussing on the future, as we were advised to do some time ago by an IFA and parents but, we've no money to enjoy life whilst we are young (ish) enough and physically able to do so.

This is not a 'poor us, isn't life awful' because we are OK, but we would like to know what a financial advisoer would make of this situation and what their advice would be for getting that balance between having money in the future but also having a little bit of extra lifestyle and something of a lifestyle right now.

Thanks in advance for any advice.

amnblog

You are saying two full times incomes do not cover and £952 mortgage and living costs? You must be netting >£2400 pcm, have you a large family?

phingers

Hi.
Yes, two children, one at uni, one at college.
I've just re-read my post and forgot to add that we have long standing credit card debts from when I was out of work a few years ago; all are on zero percent but costing £625 per month. Food is around £600 per month, fuel around £175, utilities around £200, car insurance, tax etc. It just all adds up doesn't it? So our outgo greatly exceeds our personal income.

scholesfan88

£600 a month for food? Are you feeding an orphanage...

csgohan4

scholesfan88 wrote: »

£600 a month for food? Are you feeding an orphanage...

That made me chuckle.


Seriously OP, post a SOA on the debt free wannabee forum to go through you expenses and income with a fine tooth comb


In all honesty, BTL are not longer a cash cow they used to be, student or not. ISA are tax free, BTL will no longer be tax deductible


Your other option is sell up or reduce those expenses

daisyfrau

Unless I have misread the student let house is paying for its own interest-only mortgage, with approx £8k annual profit to overpay its mortgage after taxes accounted for. But you are also dipping into its income which isn’t ideal. I really think you should separate your household and your investment finances completely.

It seems your real issue is that you aren’t managing your household budget on the other side of things. The debt and overspending sound like the main reasons. A statement of affairs would be the place to start. If you can’t cut spending or increase income enough to balance the household books, perhaps you should reconsider if you can afford to run an (or perhaps just this particular) investment purchase. But that said - your goal should be to balance your books (cut spending/raise income) such that you live, and ideally save, off your CURRENT incomes rather than dipping into savings or investment income to pay for day to day things.


My view - happy to hear from more experienced/wiser folks.

It’s great you recognise the problem and want to get it sorted. Good luck!

Thrugelmir

phingers wrote: »

We therefore dip into the student money every month to make ends meet.

Use the net rental income to pay down your credit card debt. Little point in compartmentalising your income. Look at everything as a whole.

Remember the gain you make on selling the student let will ultimately be subject to CGT.

You make no mention of your pension provision either. An extremely tax efficient way of building long term savings.