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If we buy a house - should we get a mortgage?

(16 Posts)
MortgageDecision Fri 11-Sep-09 10:50:02

I have namechanged for discretion and privacy. Would love input from any financially savvy types - I keep feeling I have missed something important.

DP and I (joint finances) have been left some money. It is a reasonably large amount and would buy a 2 bed house in our area. It seems sensible to buy property at the moment as savings and investments pay so little interest and we would hate to put it at risk.

We have looked at buy to let mortgages which do seem very expensive - our arrangement fee would be around £6000, before any interest payments.

If we paid outright, all the rent could go towards rebuilding 'savings', but there would be no tax benefit as no cost of borrowing. Presumably we could always mortgage in future if we needed cash. Of course we would have the work of looking after property and tenants.

We would maintain our credit rating through another mortgage. We would still have some cash we could access in an emergency.

Is there a good reason why we should use some as a deposit and get a mortgage that I am missing?

I appreciate we are in a fortunate position, but is it a hard way to have money - would rather have the person, than the cash. So not trying to be flashy or gloating, when I know lots of people are having a hard time financially - we have been there too.

sunnylabsmum Fri 11-Sep-09 14:57:00

why not buy with a mortgage of say 60% on either interest only or repayment basis so you retain some capital. The benefit of interest only is that you can off set this all against tax and so reduce the money the chancellor gets. If you do a repayment then you can see the loan total reducing but of course only the interest only element gets tax relief.

whilst i think it is galling that the profit on rental that you earn is then taxed so you loose out, by having an element of interest only on your mortgage they don't get this

MortgageDecision Fri 11-Sep-09 16:13:22

hmm. interesting thought. I feel such an urge for simplicity though! I am a simple soul! I think we would have to save a lot of tax before it was worth the 5K arrangement fee though!

GrendelsMum Fri 11-Sep-09 16:18:43

Just wanted to send sympathy on the feeling of rather having the person than the cash - I'm in the same situation, and it does make me upset and quite angry (not really justifably) when people say 'oh, you're so lucky to be mortgage-free'). We paid off our own home - DH runs his own business, so it's nice to know that if things take a downturn, we're safe in the house.

MortgageDecision Fri 11-Sep-09 16:26:27

Thanks! Don't get me wrong, it is lovely to have the security, but I think it is easy to overlook the loss, from the outside.

fluffles Fri 11-Sep-09 16:33:17

silly question here - but i presume you already own your own property outright with no mortgage??

if not, i'd do that first abosolutely!

secondly, i have a 'buy to let' property and right now it's not doing well. the buy to let mortgage market is super-conservative right now and i'm paying a HUGE interest rate and can't get out before 2010 without paying a HUGE penalty and at the same time the rent is just covering the mortgage but if i had a big maintenance bill then it would cost me sad

i didn't get into buy to let deliberately (i let my flat out when i moved into DPs) and my IFA says she'd advise not going into property until you've already used up ALL your stocks and shares ISA allowance.

On the other hand my stocks and shares ISA is doing ok smile

not sure if that helps?

MortgageDecision Fri 11-Sep-09 16:40:33

Yes, we do own our own home. My shares ISA is such a failure, have lost all faith! I think I am a bit biased as have a possible lovely tenant lined up. But nothing concrete.

RedAction Fri 11-Sep-09 16:44:21

Message withdrawn at poster's request.

fluffles Fri 11-Sep-09 16:44:54

your lovely tenant wont stay forever and it will cost everytime you need a new one....

not trying to put you off but i'd say tht the days of making money out of a single property are over - you either jump in and do it fulltime as a business or you put your money elsewhere.

sorry, clearly i am trying to put you off grin but i respect that it's entirely up to you!

MortgageDecision Fri 11-Sep-09 16:46:04

I have sweet fa in terms of pension - they seem so hit and miss, I lack faith in the products.

I think I am a stuff bullion under the bed sort of person!

HerHonesty Fri 11-Sep-09 17:20:54

advice we have always had was to pay of our residential mortgage as quickly as possible and retain our buy to let mortgage because of the tax advantages. you could get a small mortgage on your BTL and then reinvest any excess rent in a pension which also has tax advantages at point of investment.

a bit confused because you say you would maintain your credit rating with another mortgage?

MortgageDecision Fri 11-Sep-09 17:25:38

We have another house with a btl mortgage already. I guess that uses up most of tax allowances!

RedAction Fri 11-Sep-09 17:42:23

Message withdrawn at poster's request.

AnAuntieNotAMum Fri 11-Sep-09 17:55:29

If I've understood correctly you live in a house that you own outright and also own/have mortgage on another BTL house? Sorry if I've got that wrong.

If this is the case you already have a lot of money in one asset - property. Have you looked at investing in other assets? The jury is very out on property at the moment, just today the Financial Times was talking about the current rally in house prices being irrational and not likely to continue, while in another article talking about the index showing an upwards trend that might continue.

It's certainly a difficult time at the moment, I'd be tempted to keep my assets liquid until after the next election when interest rates are likely to start rising.

What sort of sum are you talking about?

beautifulgirls Sat 12-Sep-09 15:09:19

Why not stick it in a national savings guaranteed income bond for a few years and watch the market for now? The money is 100% safe and you know what you will be getting in interest on it too. You can always invest in property at a later date when the whole market is looking more stable.

sylar Mon 14-Sep-09 18:14:57

have a mortgage on it for the tax reasons mentioned. People often forget that you pay tax on the income from rental properties on anything over and above mortgage interest and expenses (at 40 per cent if highre rate tax payers). Then if you keep the property for more than 3 years (or at least it was 3 years when we had rental properties a few years ago) you will also pay hefty capital gains tax on the increase in value when you sell. The revenue are really craking down on this because lots of people try to get away with not paying it.

If you're higher rate tax payers you're best to have a sizeable mortgage on any rental property.

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