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Clever people - which would be the best course of action?

(4 Posts)
JDD Wed 25-Jun-14 08:32:43

My husband and I are in our early 30s and live in the South of England. We don't have any pensions or savings but have two mortgaged properties. One we live in which has a £260000 mortgage on about 5.75% and one which we rent out which has a £130,000 mortgage on about 2% (lifetime offset tracker just above the base rate, unlimited overpayments).

We want to sell the rental house as it's got a few problems (noisy neighbours, disputes etc) and it's nearing the stamp duty threshold so we don't think it''ll increase in value much more. If we sell it we should have about £100,000 of equity to reinvest.

Which of these options makes the most financial sense?

1) reinvest the £100,000 in another rental property which has more scope for capital growth or possibly two smaller flats.

2) use the £100,000 to reduce the mortgage on the house we live in and see if we can port the offset mortgage to our house.

With option 2 we could potentially be mortgage free in 8 years as we'd be able to overpay loads. However, we would then be in our early 40s with no pensions or savings other than the equity in our home (around £500,000).

With option 1 we would still have mortgages to pay off until retirement but we would then own our house and have passive income from the rental property/properties.

What would you do?

LadyKooKoo Thu 03-Jul-14 11:40:07

I would invest in the two smaller flats. Prefer flats for rental as you don't have gardens to worry about! Then i would look at other deals for the home mortgage.

Lonecatwithkitten Thu 10-Jul-14 22:28:40

Don't forget you will need to pay capital gains tax on your profit so that will reduce the amount you end up with by about £18,000 assuming you are both 20% tax payers.

Makeup822 Wed 14-Jan-15 00:32:38

If you bought one as near to L8ndon as possible you would be able to charge quiet a high rental and the property woyld gain in value more plus less mainteance and only dealing with one set of tenants!

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