Downsizing for retirement

The_Famous_Flame

Hi MS Experts,
My discussion title may be misleading but best I could do!
I'm M(54) and wife 52.

We own a house valued at £700k with mortgage remaining £60k 4.71% interest

We also have a rental flat valued at £270k with £162k BTL mortgage remaining 5.42% interest 
Rental income pre tax £1160.

Lastly we have a £43k loan 1.59% until next Jan.

We are planning on selling our house next year to move into a cheaper property - £500k.
We would like to keep the flat as an investment and pension top up. I hope to retire in 2030.

With timings of finding a new job (wife is teacher), we may need to live in the flat for a short period which will require changing the BTL to residential mortgage. This would also stop us porting the current mortgage.

What we are wondering is whether we should pay off the BTL mortgage as it's at the highest rate, and take out a new small mortgage for new house £100k? which would I imagine be on a better rate, or pay off loan and buy new house mortgage free.

Paying off the flat would save me the headache of changing BTL to residential, and then back to BTL.

Sorry that was a long summary!

grumpy_codger

The_Famous_Flame said:

... we may need to live in the flat for a short period which will require changing the BTL to residential mortgage. ...

I'm no expert, but is changing really necessary? BTL mortgages are more expensive and more risky. Why would the lender care if you live there for a short time as long as you keep making payments?

SDLT_Geek

The_Famous_Flame said:

Hi MS Experts,
My discussion title may be misleading but best I could do!
I'm M(54) and wife 52.

We own a house valued at £700k with mortgage remaining £60k 4.71% interest

We also have a rental flat valued at £270k with £162k BTL mortgage remaining 5.42% interest 
Rental income pre tax £1160.

Lastly we have a £43k loan 1.59% until next Jan.

We are planning on selling our house next year to move into a cheaper property - £500k.
We would like to keep the flat as an investment and pension top up. I hope to retire in 2030.

With timings of finding a new job (wife is teacher), we may need to live in the flat for a short period which will require changing the BTL to residential mortgage. This would also stop us porting the current mortgage.

What we are wondering is whether we should pay off the BTL mortgage as it's at the highest rate, and take out a new small mortgage for new house £100k? which would I imagine be on a better rate, or pay off loan and buy new house mortgage free.

Paying off the flat would save me the headache of changing BTL to residential, and then back to BTL.

Sorry that was a long summary!

Off topic I know, but you need to check the stamp duty.  If you are buying in England, the relevant stamp duty is stamp duty land tax.  Because you have the BTL you need to be careful not to end up liable for the extra 5% SDLT.

For example, you would need to complete the purchase within three years of completing the sale of the existing home.

Living in the flat in between should not in itself cause a problem (notwithstanding some sloppy HMRC guidance) but it would be best not to change the ownership of the flat around (or you might fall into a trap with the conditions for the replacement rules).

Albermarle

Downsizing to a cheaper property is not always as simple as it seems. Looking at cheaper areas/smaller properties can result in a lack of enthusiasm for such a move. End result can be not moving, or maybe end up moving to somewhere that does not release the kind of equity first envisaged.
Of course you may have it all worked out !

Otherwise if you need to move into the flat, what about the tenants? They may well become awkward about moving out, in which case it could take months and months to get them out.

The_Famous_Flame

grumpy_codger said:

The_Famous_Flame said:

... we may need to live in the flat for a short period which will require changing the BTL to residential mortgage. ...

I'm no expert, but is changing really necessary? BTL mortgages are more expensive and more risky. Why would the lender care if you live there for a short time as long as you keep making payments?

Thanks Grumpy, that's true - I think I'm just very risk averse and fear I'd be the rare instance of being found out. Apparently it's against the terms of the BTL agreement and can have big penalties.

The_Famous_Flame

SDLT_Geek said:

The_Famous_Flame said:

Hi MS Experts,
My discussion title may be misleading but best I could do!
I'm M(54) and wife 52.

We own a house valued at £700k with mortgage remaining £60k 4.71% interest

We also have a rental flat valued at £270k with £162k BTL mortgage remaining 5.42% interest 
Rental income pre tax £1160.

Lastly we have a £43k loan 1.59% until next Jan.

We are planning on selling our house next year to move into a cheaper property - £500k.
We would like to keep the flat as an investment and pension top up. I hope to retire in 2030.

With timings of finding a new job (wife is teacher), we may need to live in the flat for a short period which will require changing the BTL to residential mortgage. This would also stop us porting the current mortgage.

What we are wondering is whether we should pay off the BTL mortgage as it's at the highest rate, and take out a new small mortgage for new house £100k? which would I imagine be on a better rate, or pay off loan and buy new house mortgage free.

Paying off the flat would save me the headache of changing BTL to residential, and then back to BTL.

Sorry that was a long summary!

Off topic I know, but you need to check the stamp duty.  If you are buying in England, the relevant stamp duty is stamp duty land tax.  Because you have the BTL you need to be careful not to end up liable for the extra 5% SDLT.

For example, you would need to complete the purchase within three years of completing the sale of the existing home.

Living in the flat in between should not in itself cause a problem (notwithstanding some sloppy HMRC guidance) but it would be best not to change the ownership of the flat around (or you might fall into a trap with the conditions for the replacement rules).

Thanks Geek. That's why I think owning the BTL outright might be easier.

The_Famous_Flame

Albermarle said:

Downsizing to a cheaper property is not always as simple as it seems. Looking at cheaper areas/smaller properties can result in a lack of enthusiasm for such a move. End result can be not moving, or maybe end up moving to somewhere that does not release the kind of equity first envisaged.
Of course you may have it all worked out !

Otherwise if you need to move into the flat, what about the tenants? They may well become awkward about moving out, in which case it could take months and months to get them out.

Thanks Albermarle, we're moving to the same area as the flat. It's by the sea and somewhere we have visited for many years. Having said that, you're right and holidaying and living in an area is very different!
With the kids at Uni age we are keen to move out of London and I can commute for the odd days I need to be in the office. I'm planning to retire in 5 years so need to be as debt free as possible.
It does all sound like a fantasy but you gotta dream, right? 

Albermarle

The_Famous_Flame said:

Albermarle said:

Downsizing to a cheaper property is not always as simple as it seems. Looking at cheaper areas/smaller properties can result in a lack of enthusiasm for such a move. End result can be not moving, or maybe end up moving to somewhere that does not release the kind of equity first envisaged.
Of course you may have it all worked out !

Otherwise if you need to move into the flat, what about the tenants? They may well become awkward about moving out, in which case it could take months and months to get them out.

Thanks Albermarle, we're moving to the same area as the flat. It's by the sea and somewhere we have visited for many years. Having said that, you're right and holidaying and living in an area is very different!
With the kids at Uni age we are keen to move out of London and I can commute for the odd days I need to be in the office. I'm planning to retire in 5 years so need to be as debt free as possible.
It does all sound like a fantasy but you gotta dream, right? 

Well by moving out of London, the argument tilts more in favour of downsizing, as you can buy a similar property by the sea and have money left over.
People who try to downsize in the same area, often find it difficult to get comfortable in a smaller property than they are used to.

youth_leader

I agree that downsizing to a smaller place in the same area is very difficult.  I moved from my 5 bed 264 sq ft station to this 3 bed 1000 sq ft bungalow and four years on I'm still trying to declutter.  I particularly miss my gigantic kitchen table.

The_Famous_Flame

youth_leader said:

I agree that downsizing to a smaller place in the same area is very difficult.  I moved from my 5 bed 264 sq ft station to this 3 bed 1000 sq ft bungalow and four years on I'm still trying to declutter.  I particularly miss my gigantic kitchen table.

We have so much clutter to lose! Part of the thinking behind staying in the flat for a while was that I'd be forced to chuck 90% away!

youth_leader

Good luck.  I do recommend Facebook Marketplace, my son has just sold his late Dad's clubs and golf bags etc.  I do recommend photographing everything you 'declutter' - my daughter suddenly wanted a tiny ornament her late Dad had given her.  Very luckily I'd photographed all of the ornaments I'd taken to the charity shop and it wasn't there ... found it in her memory trunk.  Phew!