My long-term plan

JamesBro

Hi there.

I hope this is in-keeping with the tone of this forum, but I just wondered if someone could give me some advice on my future plans from a property point of view.

Currently, I'm two years into paying off a mortgage on a house in London which I bought for £320k and it is now valued at £345k. The area is on the up and Crossrail will benefit it when(!) it happens in a few years' time.

I earn £40k. My partner earns £35k. We have a toddler and a baby. We pay around £2,800 on our essential monthly outgoings. Our joint income is approximately £4,000 per month. We have, however, very few savings.

That's the background. As for the future...

We don't want to spend our lives in London. We want our children to grow up in somewhere less crazy and less polluted and move to an area with better schools, for when the time comes. We are considering a move up to the Peaks, closer to family and friends and there are likely to be some work opportunities up there too.

Anyway, to cut to the chase - we are convinced that we don't want to sell our house, especially with the potential of the area we live in. I'm sure the value will keep on increasing.

Am I living in a dream world thinking, we can rent out our London 2-bed house and use some equity for a deposit to buy a £250k-£300k home up north? Is it too naive to think the rent income could essentially pay for our London mortgage and our salaries up north pay for our new mortgage?

As you can probably tell, I know nothing about this and have made my plans based on my little understanding.

Or am I too fixated on the idea of keeping a home in London? Would it make more financial sense to buy something bigger and better up north and just sell the London home when the time comes in two/three years' time?

Thanks!

spadoosh

Youll fail affordability tests.

No one is going to lend the best part of £600k with capital of about £60k to a couple earning £75k per year. (im guessing i dontthink youve said how much equity is knocking around)

You typically need about 25% capital for a BTL mortgage. And typically around 10% for your own home. You might be able to do that but there just no way you could pay the £2k+ in mortgage payments should the property be empty for even a short period.

Not to mention BTL has a whole heap of legal requirements. Its not something you should be getting in to if your goal is to make a few extra quid on your property. Its a job. For all intents and purposes youre liable for the well being of someone.

If you want to make more money, you need to work harder (or more clever). It could be in the form of a BTL, but you need to appreciate, it will involve a substantial amount of work and risk on your part.

need_an_answer

My view is unless you want to enter into the business of being a distant LL and all that entails,then you should look to sell up and move where and when you want.

why are you so fixated with London...if it is that good then you'll want to remain part of it all....

Even if you could raise a second mortgage on a property up north,dont forget it will cost more because of extra stamp duty payable as a second home.

In my experience I think if you were to move then you'd soon forget the London lifestyle and the property there will become a bind to you...renting it out wont mean an easy ride necessarily and being a LL from a distance can be hard and costly.

I'm a LL of several properties,my furthest from home being only 11 miles...but there are times when that one still becomes a chore and not as easy to self manage as the others...so moving many miles away increases that void between you and the property further....

I've also found that properties that you've lived in as the family home are always difficult to transition to the rental market for varying reasons

JamesBro

Thanks - just what I was looking for, to find out how simple or not it is to do. Clarity appreciated.

Perhaps my best bet would be, with the goal of moving up north and not selling in London, to rent up north, at a low cost (maybe 60 per cent of what a mortgage would cost?) and save as much money in the meantime. But that's more of a short-term idea, I guess.

JamesBro

need_an_answer wrote: »

My view is unless you want to enter into the business of being a distant LL and all that entails,then you should look to sell up and move where and when you want.

Thank you. Seems like the most sensible idea, I guess. It's always been the hope that I wouldn't have to sell-up in London, but looks like I'd probably have no other viable option.

Regarding, "why are you so fixated with London...if it is that good then you'll want to remain part of it all...."

Fair point. I've just heard too many stories of people who regretted selling in the 90s and then saw their former house price double in the 00s! I guess I'd just have to accept that could happen and not be regretful...

sal_III

Even if by some miracle you manage to pass affordability for the 2 mortgages, BTL is not a passive income, it's likely to even be an expense. Require a lot of work/effort, not something I would be looking for with a new job and 2 young kids.

BTL is rarely worth it, before you have at least 50% of equity in your own home.

Just sell and move and beat out the "property tycoon" dream out of your head.

edit:

JamesBro wrote: »

Fair point. I've just heard too many stories of people who regretted selling in the 90s and then saw their former house price double in the 00s! I guess I'd just have to accept that could happen and not be regretful...

Property prices / income in the 90's were record low, made sense for a sharp rise due to dwindling supply.

Today that ratio is 4 times higher in London and is at a breaking point. Even with HTB EL artificial inflation and bottom rate mortgages there is only that much people can afford to pay. There is almost zero chance of doubling house prices in the next 10-20 years.

need_an_answer

JamesBro wrote: »

Fair point. I've just heard too many stories of people who regretted selling in the 90s and then saw their former house price double in the 00s! I guess I'd just have to accept that could happen and not be regretful...

Don't look back in anger....

Yes lots of people have a story about how where they used to live has doubled in price etc etc...but renting out those properties isn't always the solution to keeping an investment...

What happens when the property is not looked after by tenants and you lose a years worth of rent putting it right....that happens to some LL's more frequently than you would think.

move on and enjoy what life brings you in a different environment...you could end up being the person that laments at a later stage that it was the best move you ever made!

AdrianC

JamesBro wrote: »

Currently, I'm two years into paying off a mortgage on a house in London which I bought for £320k and it is now valued at £345k.

How much is your mortgage?

I earn £40k. My partner earns £35k. We have a toddler and a baby. We pay around £2,800 on our essential monthly outgoings. Our joint income is approximately £4,000 per month. We have, however, very few savings.

So you're getting through £1,200 of discretionary expenditure per month, and saving nothing?

We don't want to spend our lives in London. We want our children to grow up in somewhere less crazy and less polluted and move to an area with better schools, for when the time comes. We are considering a move up to the Peaks, closer to family and friends and there are likely to be some work opportunities up there too.

Eminently sensible.

Anyway, to cut to the chase - we are convinced that we don't want to sell our house, especially with the potential of the area we live in. I'm sure the value will keep on increasing.

Oh, hello. I can hear the "accidental landlord" siren approaching...

Am I living in a dream world thinking, we can rent out our London 2-bed house and use some equity for a deposit to buy a £250k-£300k home up north? Is it too naive to think the rent income could essentially pay for our London mortgage and our salaries up north pay for our new mortgage?

I have absolutely no idea.
How much is your mortgage currently? Will you even get consent to let?
What rent would you get for the current property?
What allowances are you making for voids, maintenance, management, service charges, damage, etc etc?
Have you considered the +3% SDLT on the place you'll be moving to, and the CGT on the eventual sale?
What would your incomes be "up north"?

Or am I too fixated on the idea of keeping a home in London?

It certainly sounds like it...

Would it make more financial sense to buy something bigger and better up north and just sell the London home when the time comes in two/three years' time?

That would certainly be by far and away the simpler and more certain option.

As a half-way, have you considered moving out to a commutable part of the home-counties, and retaining your London jobs?

JamesBro

Thank you!

This is why MSE is so helpful. My life's plans have changed in half an hour!

Seriously, it's a bit of a relief to end the idea. I always thought it'd be a better quality of life to sell at a profit and get a bigger and better house/lifestyle out of London. It's more my partner who needs convincing.

Understand accidental landlord issues too. Don't want to walk into anything unknowingly.

The property tycoon dream dies here...!

Thanks all.

JamesBro

The biggest help to get over the "dream" is to be of the mindset that prices won't be going through the roof and that there is a levelling out of house prices. If I feel as though I won't be on Rightmove every month checking house prices after I sell up, then it's most helpful! If it only stands to make a 20/30% profit max in the next 10/20 years, then I'm fine with that.

Though it has already gone up by £25k in two years. But it's a two-bed house, which can only go so far, I guess.

InformedAdvicePlease

Don't rent your house out especially when you will be so far away! We have 2 rental properties. Never made any money of either off them due to bad tenants and tax. 40% of income from it and now you can't even offset mortgage interest payments. The whole thing was an absolute nightmare so now we rent to family, just enough to break even. We know the places are looked after and don't have to worry about them.

Saying that we are still going to get really stung if we ever do decide to sell (we probably won't) a we will have to pay captial gains tax and they have got rid of taper relief. It's just a no no to being a landlord in this day and age.

One tenant cost me > 10k in lost rent and damage and there was nothing i could do about it.