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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

Original poster

To ask if you think this is a sensible financial choice?

72 replies

Everythingnotsaved · 31/12/2019 08:14

So, I live in an expensive part of south England where we have never been able to buy a house despite earning good money! Raising kids in a rented house.

I have just come into some money £20k that isn’t enough to buy a house but could be enough to buy a small flat to rent out & have a bit of extra income to rent a bigger family house.

It’s not ideal obviously but would give us a property to live in once the kids have left home or sell and move somewhere cheaper which is the plan.

The kids are in a great schools & we both have great jobs- we just missed the boat a bit on houses (we’d need at least 100k to buy a house here)

Aibu? Silly idea or not? I feel like a child when it comes to financial decisions to be honest...

OP posts:
Original poster
Everythingnotsaved · 31/12/2019 09:13

@akittencalledjesus family would help too but not sure if that’s making it even more complicated!

OP posts:
Egghead68 · 31/12/2019 09:14

I let a house and make very little profit on it (maybe around £150 a month) after tax, maintenance (£££), landlord's insurance etc. (and no profit at all if you factor in the extra stamp duty I had to pay because of it).

I wouldn't rule it out but please do your homework very carefully, don't rely on the income and have a plan in place for paying the mortgage when you don't have tenants.

AiryFairyMum · 31/12/2019 09:14

Would one of the government help to buy schemes be an option? Maybe this www.gov.uk/affordable-home-ownership-schemes/help-to-buy-equity-loan

Egghead68 · 31/12/2019 09:15

I think help to buy is only for people who intend to live in the property themselves.

AiryFairyMum · 31/12/2019 09:16

Sorry, I meant that for a house for you to live in now. These are the main details
Help to Buy equity loan

You can get a low-interest loan towards your deposit. This is called an equity loan.

Eligibility

The home you buy must:

be a new build

have a purchase price of up to £600,000 in England (or £300,000 in Wales)

be the only one you own

not be sub-let or rented out after you buy it

be one that you can show you can’t afford (if you’re applying in Wales)

How it works

With an equity loan:

you need a 5% deposit

the government will lend you up to 20% (up to 40% in London)

you need a mortgage of up to 75% for the rest (up to 55% in London)

AiryFairyMum · 31/12/2019 09:18

You’ll have to pay equity loan fees, but not for the first 5 years.
In the sixth year, you’ll be charged a fee of 1.75% of the loan’s value. The fee then increases every year, according to the Retail Prices Index plus 1%.
Your Help to Buy agent will contact you to set up these monthly fee payments. You’ll also get a statement about your loan each year.
Fees don’t count towards paying back the loan.

You must pay back the loan after 25 years or when you sell your home - whichever comes first. The amount you pay back depends on how much your home is worth (the market value).

Mintjulia · 31/12/2019 09:19

Could you look at a shared ownership house for you all to live in? With a £20k deposit plus a reliable salary and a great pension, you should be paying no more than you currently pay in rent. And it takes away all the tax & tenants hassle and enables you to live in the home you own.

Egghead68 · 31/12/2019 09:19

Sounds like a good option.

StylishMummy · 31/12/2019 09:19

I'm a mortgage adviser by trade, the only people I see making good money on BTL now is those who buy a shithole and do it up from their own tradesmen and rent it for top dollar, tiny mortgage payments (interest only) then refinance to release equity 3 years in to do the next one

Original poster
Everythingnotsaved · 31/12/2019 09:21

@StylishMummy and those people are probably the reason I am so priced out 😫 Just can’t compete!

OP posts:
Raindancer411 · 31/12/2019 09:23

I am still wondering where in the south you can get a flat for 20k?!? Or a house for 100k please let us know... that isn't at all expensive when we are in SE and no house around here goes below 250k...

Personally after watching rogue landlord programmes and my family member having her place destroyed by lodgers and the courts didn't do anything, I would say invest it for now!!! Some people have been left out of pocket so much they had to go bankrupt.

MrsMoastyToasty · 31/12/2019 09:24

Something I have seen happen on property programmes is that the buyer purchases a run down house in a cheaper part of the country with no intention of living there themself. They then fix it up and add value and rather than rent it out they sell on. They repeat the process until they have enough profit to be able to buy in their preferred area.

NC4this123 · 31/12/2019 09:28

Do you mean you’d need £100k DEPOSIT ... and then mortgage ? Couldn’t you find a house for £400k put down a 5% deposit ( more mortgages offer these now ) and mortgage the rest 🤔

dottiedodah · 31/12/2019 09:29

EverythingNotSaved My apologies . I am unfamiliar with Buy To Let and the way it works !

Original poster
Everythingnotsaved · 31/12/2019 09:31

@Raindancer411 I wasn’t saying there were flats for 20k? We would use our 20k plus some cash from family to make it up to a 25% deposit on a buy to let IF we do it but some of the comments are making me reconsider if it’s a good idea

OP posts:
Original poster
Everythingnotsaved · 31/12/2019 09:32

@NC4this123 yes! Probably more actually- family houses at least 400k here

OP posts:
TrueRefuge · 31/12/2019 09:36

Its not a bad idea per se as long as you consider those things PPs have mentioned.

However, before you get carried away, it's extremely unlikely that you'd be given your first mortgage as a buy-to-let. I don't know of any lenders that do that. And secondly, most buy-to-let mortgages don't have the small deposit offers (5 or 10%); you'd need closer to 25-35%, massively reducing what you could buy.

Savingforarainyday · 31/12/2019 09:37

Surely 20k is a good deposit for a family home?

Have you gone to a mortgage advisor?
I saw one for free through Barclays and she was excellent.

Surely with a steady income, you still have over 20 years left of your working life.... ?

Savingforarainyday · 31/12/2019 09:40

And two of you are earning?

Can I ask- why haven't you managed to get a mortgage? If you both have great jobs, you're in your 40's....? Not being goady, I'm genuinely wondering what has held you back from getting a mortgage...?

Boxachocs · 31/12/2019 09:41

Look at a new build with the Help to Buy for a family home.

Original poster
Everythingnotsaved · 31/12/2019 09:45

@Savingforarainyday mainly not being able to keep up with rising property prices & also a bit of a financial catastrophe a few years ago where due to ill health, we lost all our savings

OP posts:
SnakeRattleRoll · 31/12/2019 09:53

I feel your pain OP. I earn around 40k (not loads I know} and my partner is a part time teacher on around 25k. In our part of the SE a smallish 3 bed is at least 350k (2 beds not that much cheaper). We have been told we can only get a mortgage for approx 240 to 250k on our earnings, so would need at least 100k deposit just to be able to afford a family home. Morgate repayment would be 1000 to 1100, rent in same is 1400. We can afford that, but as no lump sum of 100k can't afford to buy. It's a long hard slog for sure!

Louloubelle78 · 31/12/2019 09:57

I am a landlord, the new tax rules are crippling if you both have a good income. We are in the final stages of getting % relief on interest payments. Your gross rental income is now added to your income and the tax liability is worked out like that. It used to be the net that was added to your income. You can put the property into a company name, however, with only one property you might find there is no real gain as you become liable for different taxes and charges. Look it all up on HMRC for the latest guidance. I have been a bit vague as I can't remember the ins and outs of it in detail and don't want to misinform.

Daxilove · 31/12/2019 10:00

Keeping in mind the fact that buy to let mortgages require a much higher LTV (deposit), I’m struggling to understand how £20k would cover your initial deposit, even for a flat?

Inliverpool1 · 31/12/2019 10:08

Maybe not a flat due to maintenance costs. You’d be better off buying a house maybe up my way and getting tenants in tyat to clear the rest of your mortgage pretty quickly and then sell it and use that as a deposit for a house in your area.
That’s pretty much what I’ve done. I need £200,000 to pay my mortgage off do I bought 4 houses for £50,000 ish. Have rented them out at £200 per month below market value and the tenants will pay off the capital on my family home. Everyone wins. Only cost £24,000 initial investment from me