Property or Investments

AlwaysAsking

Hi All,

We are looking for some advice.

Please let me go through my circumstances.

1. I am South African with a temporary residency permit (I have a path to citizenship - 6 years to get passport, we have been here for 1.5 years - as my Grandfather is from the UK)
2. We are aware there are limitations to which institutions will give us a mortgage
2. Me and my wife together earn £125k per annum.
3. I am not an permanent employee yet - Will be permanent at the end of January, my wife is permanent (She earns £25k, and Im on £50k basic and £50k commission)
3. At the moment our combined basic monthly costs are between 1700 - 2000 per month (rent - £675, council tax - £120, insurance etc we do annually, our cars are 'cheapies' that we paid cash for £2000 each)
4. We have no debts/no credit cards etc - my wife has a £400 overdraft on her account, but we never get to the point where its used
5. We have £25,000 saved and adding about £5000 a month to that
6. We are based in Manchester
7. We are looking to buy at the end of January or in February

Please ask if you would like additional clarity on any one or more of the above points, or if you need more context on my circumstances

Now to the questions:
1. In South Africa they had a product called an access bond, is there any product similar to this in the UK? closest I can find is a offset mortgage (but I actually want to be in a position to draw funds from the mortgage). What happens when you put 100k into a savings account with a 100k offset mortgage, does the monthly payment go to £0 or if you reduce the term of the mortgage does the term of the mortgage go to 0 months? - Im not allowed to post links - But you can google "access bond co.za" and the first link to come up will probably be some info on it.
2. We want to buy property to lease out and continue to rent property for ourselves - we were looking at a property that would generate £500 a month in rent - looking in the 80k to 110k range, is this a good idea? Or any suggestions on doing this - basically a fixer upper where doing a few simple things to increase the value/rental income (buy a bad property in a good area and fix up - minor fixes not major fixes)
3. We are thinking about paying it off in 1-2 years, then repeat the process once we have cleared the first property - do you think this would be a good idea?
4. Is it a good idea to get your first property locally or would location not be a huge factor? (Living in Manchester and buy somewhere else)
5. Should we be looking to save up another year and just pay cash? (Removes the benefits of leverage with a bond)
6. Do the banks in the UK frown (look less favourably) on buying properties that you intend to lease out vs. living there yourself, even if its your first property?
7. Are there any disadvantages to buying a cheap property as your first property? - stamp duty? and how big of a factor/variable is it?
8. If we wanted to do this 5 times over in the next couple years and end up with 5 properties generating £2500 a month all paid off, would the banks continue to loan to us or especially in the situation where we are not paying them off, but have the funds in offset morgages so we can access the funds again, would the banks continue to loan us money? (i.e. 5 x properties each worth roughly £100k, we have £500k in savings in offset mortgages I presume which would be producing £0 per month mortgage costs)

9. And most importantly - Should we consider alternative investments over property such as shares, bonds etc. especially considering brexit, the fact we will pay it off quickly, banks less likely to loan us money as foreigners (The main goals for me are an investment that will give me a good ROI and a reasonable amount of liquidity) Problem with shares etc is you cant pull the money out of the asset without selling the asset?

I understand this is a long post, and if you can answer some or all or even one of these questions, or if you have a question (more context) which would make answering these easier it would be greatly appreciated

MaxiRobriguez

1) Offset mortgage types vary but typically a mortgage of £100k with offset savings of £100k would result in the monthly payment being the same, but the proportion of that money paying off capital and paying off interest being 100% and 0% respectively. The net effect if you always have £100k in the savings account is that the mortgage term reduces.

2) £500 rent on £80k-£110k range is a max 7.5% yield, not including (additional) stamp duty, maintenance costs, additional income tax etc. I suspect you can get better long term returns elsewhere, not to mention without the hassle.

3) See pt2.

4) It shouldn't matter, but if you're planning to do maintenance work yourself or check the tenants are OK then you'd want the property to be closer to you. If you're far away you'll need to pay someone to do this.

5) No, mortgage rates are low. If you're desperate to go into buy to let then take advantage and invest the money you don't put down as a deposit elsewhere.

6) Yes, Buy to Lets mortgages are harder to obtain and more expensive too.

7) Disadvantages of a cheap property as to what?

8) The banks may continue to lend you money if you can prove your other properties are generating the income required to service the mortgage without additional money sources. Be wary you are concentrating assets in houses in the UK.

9) Almost certainly yes. Salary Sacrifice or SIPP will give you tax advantages you don't get with property, and will allow you to diversify your assets accordingly. Plumping all your money in one area is generally never a good idea. It has been over the last 20 years for UK property, but house prices back then were cheap and tax advantages were plentiful. That scenario doesn't exist anymore.

I would also consider your long term plans. Are you planning to stay in the UK until retirement? If the answer is no or unsure, you probably don't want to be buying UK houses.

AlwaysAsking

MaxiRobriguez wrote: »

1) Offset mortgage types vary but typically a mortgage of £100k with offset savings of £100k would result in the monthly payment being the same, but the proportion of that money paying off capital and paying off interest being 100% and 0% respectively. The net effect if you always have £100k in the savings account is that the mortgage term reduces.

2) £500 rent on £80k-£110k range is a max 7.5% yield, not including (additional) stamp duty, maintenance costs, additional income tax etc. I suspect you can get better long term returns elsewhere, not to mention without the hassle.

3) See pt2.

4) It shouldn't matter, but if you're planning to do maintenance work yourself or check the tenants are OK then you'd want the property to be closer to you. If you're far away you'll need to pay someone to do this.

5) No, mortgage rates are low. If you're desperate to go into buy to let then take advantage and invest the money you don't put down as a deposit elsewhere.

6) Yes, Buy to Lets mortgages are harder to obtain and more expensive too.

7) Disadvantages of a cheap property as to what?

8) The banks may continue to lend you money if you can prove your other properties are generating the income required to service the mortgage without additional money sources. Be wary you are concentrating assets in houses in the UK.

9) Almost certainly yes. Salary Sacrifice or SIPP will give you tax advantages you don't get with property, and will allow you to diversify your assets accordingly. Plumping all your money in one area is generally never a good idea. It has been over the last 20 years for UK property, but house prices back then were cheap and tax advantages were plentiful. That scenario doesn't exist anymore.

I would also consider your long term plans. Are you planning to stay in the UK until retirement? If the answer is no or unsure, you probably don't want to be buying UK houses.

1. It was my understanding that it either affects term (length of mortgage or monthly repayment amount)

2. If you put down £25k on a property and leverage the rest on a mortgage with a £500 per month rent, your yield is 24% and if Im putting in £5000 a month then the mortgage drops to 0 with a £25000 deposit over 11 months and the average yield across the year taking the leverage into consideration to about 10% over that 11/12 months, off the capital inserted

7. For example - higher risks of something being wrong with the property or the inability to live there ourselves - to small etc

Also to note I am hoping to raise my salary closer to 200k a year, allowing me to diversify across different asset classes over the next 12-18 months

Our long term plans are to stay in the UK