let to buy or try to go mortgage free?

[Rach1970]

I have a flat with a mortgage still owing of £130,000 which is now worth around £380,000. I am about to receive an early inheritance of £200,000.
For some time I've wanted to move into a house with garden with my DH and DD.
I would love to keep the flat (and ideally let it out as it can earn £1500 per month in rent) but in the area I'd like to move to houses are upward of £300,000 and for a dream house I'd need nearer £400,000.
Any ideas about let to buy/ releasing capital to buy a new house?
Me and the DH have a joint income of about £45,000 so wouldn't be able to borrow so much just based on joint income.
What would others do in my situation?

[SillyBlueHat]

You need to see a financial advisor. Personally I would try and hang on to the flat as it will pay for itself

[Rach1970]

Thanks I will do. Would love to keep the flat, am sentimentally attached but need to move for space/garden etc.

[flow4]

You do need to see a financial advisor, because you have different options.

As it stands, you have £200-£250k equity in the flat, £200k inheritance and could borrow around £150k... So if you sell, you can look at houses £400-450k mortgage free, or up to £600k if you borrowed.

If you used the inheritance to pay off the mortgage on the flat and kept it, you could still use it as equity, by taking out a BTL. These are a max 75% and valuations for BTL tend to be low (as I know, cos I've just had one! ), so you'd release about £250k capital and still have the flat to let out and generate a healthy income. You'd still be able to take out a residential mortgage of about £150k, and you'd have £60-70k of the inheritance left (after fees), so you could still buy a new house around £400-450k, but you'd have two mortgages - BTL and 'normal' resi.

I'm doing the latter atm (tho' all my figures are much smaller!). I have been mortgage free for the past 8 years, but am doing BTL on my current house because the market is slow to release equity and buy a bigger house with garden.

I'm apprehensive to say the least! It has been really liberating to be mortgage free - to know I can't lose my home, that I can always keep a roof over my children's heads, and to have lots of disposable income and not have to count pennies. So TBH, I'd say this is a psychological decision as much as a financial one - are the space/garden more important than total financial security? In the end, I have decided that for me, they are...

Good luck, whatever you decide! :)

[specialsubject]

thoughts - being mortgage-free is a great one for peace of mind, and on your income it should be achievable.

if you let out the flat and live somewhere else, it becomes liable for capital gains tax on the sale after three years. There are exemptions but you would always be exposed to the rules being changed.

without expenses, it appears to me that with the flat sale and your inheritance you have £450k. Dream house, no mortgage - then all you have to do is ensure you have savings if you lose jobs.

I know what I would do... :-)

[flow4]

Yes, me too, in your financial position. :)

[Rach1970]

Thanks everyone for your really helpful advice. It's nice to know the options. I knew mumsnetters would have good ideas!