Can anyone help on our quest to be mortgage free?

audioblackout

Hi everyone!

Well recently we've had some AMAZING news. Our plans for a house extension have been passed. And it's all made us start to think that if we are clever, if we use what we have learnt in getting the plans together etc, we could pay of our mortgage within the 20 year period and perhaps sort our a nice little pension for when we are older. We had a brain wave and wonder if anyone would recommend this as a vision or perhaps there could be another way?????

We bought the house 4 years ago. Basically our mortgage is presently £100,000. Our house is presently worth £190,000 (due to alot of DIY hehe). The extension will cost around £50,000. We're hoping to re-mortgage and get this money from the bank. ie We will have borrowed £150,000 in total. Once the extension is done, an estate agent told us it should be worth £300,000.

OK so there's a few things we thought we could do at this stage. The first would be to sell up, and find another house to extend. Do the same thing again and again, and just keep going like that until we have the mortgage paid off and a nice sum of money to buy a house to rent out for the pension.

But the other idea we thought is perhaps we could re-mortgage again, once this first extension is done. If the house is going to be worth £300,000, doesnt that mean we could remortgage for another £150,000? Then surely we could buy another house for that price, move out of here and into that, do it up and extend it but RETAIN this house? ie Rent it out? Will the bank allow this? Or does it have to be a buy-to-let if you're renting out?

This way, the house we're presently in becomes our pension house, with the mortgage being paid off by tenants, and we move on to pastures new, which we then do up and extend and try to use to pay the rest of the mortgage off and eventually get back to a nice standard of living?

I mean the obvious problem is that we'll have created a nice big place and have to downgrade or living accommodation, but if we're getting stuff paid off by renting and i have a vision for the future, then this is no problem.

Phew. Well I hope someone understands us here. Don't really want to make a wrong move at such a critical stage in our lives - especially since we've been talking about have babies!!!! :T

Trying_to_be_good

The critical point with a mortgage is whether you can afford to pay it - not (just) what the house is worth.

How much mortgage can you afford? If you're planning on having kids will your income reduce (i.e. one of you stop/go part-time?). I understand 100% mortgages are alot less available since the credit crunch started.

Jonbvn

If you start renting out the house then it will become BTL by definition. This means that several issues become relevant, including the following:

1. Rent should cover 125% of the mortgage interest. Look at the sums:
Interest say 6% on a total amount borrowed of £300k is £18k per year x 1.25 = £22.5k rent per year = £1875 minimum rent required per month. Unlikely IMHO.

2. Maximum LTV of 85%. Some lenders prefer 75% max. You're talking of borrowing 100%.
3. The outlook for house prices is definitely negative at the moment.

Selling and buying a doer-upper seems like a better option at the moment. Given that you now have a large amount of equity in your house, you should be able to get more for your money during these turbulent times.