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AIBU?

Share your dilemmas and get honest opinions from other Mumsnetters.

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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:

sansou · 31/12/2019 10:08

I think OP that you need to broaden your house search criteria. How old is your DC? If DC1 already has a place in secondary school, you don't have to remain in catchment to buy. You need to think long term - no-one can afford what they really want in a house wrt size & location. 99% of us compromise in one way or another. I would seriously consider stretching to buying in an adjacent but cheaper area (still OK for DC1 to travel to school). Not ideal I know but literally, beggars can't be choosers. Put your practical head on!

ArabellaDoreenFig · 31/12/2019 10:09

I think it’s a bad idea for your circumstances OP.

Why not use the 20k as a deposit on your own home ?

You can always sell up and move to a cheaper area later on.

Lippy1234 · 31/12/2019 10:14

I think your idea is a good one OP.

MintyMabel · 31/12/2019 10:17

you could buy a house under your name and avoid the additional cost of buy-to-let

A residential mortgage requires you to be resident. You will need permission from the mortgage provider to let the property and unless you have lived in it for a good while they will refuse.

Please don’t give advice on the internet if you don’t know what you are speaking about.

Original poster

Everythingnotsaved · 31/12/2019 10:28

@SnakeRattleRoll virtually the same circumstances as us. Long term I would move but it’s hard to give up good jobs, good schools etc. The housing market in this country sucks for anyone not already on the ‘ladder’

OP posts:

LemonTT · 31/12/2019 10:33

10 years ago this would be a good idea. But the government and Bank of England have deliberately squeezed BTL investments. They have removed tax relief, applied capital gains tax and increased LTV. That isn’t taking account of void costs, refurbishment and repairs. Property prices have stalled so don’t expect easy gains.

As someone else said, look at moving as soon as you can. Can you get a civil service transfer?

You should also try government schemes that help with home ownership. Help to buy or shared ownership and keep on top of new developments that might have affordable home elements.

andyjusthangingaround · 31/12/2019 10:35

OP, I can see posts on BTL, however yours wouldn’t be a BTL IF this is your only property. Once you got that clear this is a viable option, but you will need more than 20k.
When people say they don’t make money, buying an investment property is not alway about making money but not losing it, ie someone else is paying the mortgage and the upkeep.
Just be smart and plan ☺️

H0lidayDecision82634 · 31/12/2019 10:47

I don't think you can have a buy to let mortgage, unless you already own property

Secondly, you have to pay higher mortgage fee, higher deposit, stamp duty. You would need to complete a self assessment tax form to HMRC

The alternative is to buy a property & rent out a room. You can earn X amount before paying tax. Info is on www.gov.uk

MintyMabel · 31/12/2019 11:08

I don't think you can have a buy to let mortgage, unless you already own property

There are buy to let mortgages available to first time buyers.

The alternative is to buy a property & rent out a room.

Which would require a residential mortgage, which would require the OP to live in the property. Not a solution.

daisychain01 · 31/12/2019 11:11

While you're figuring out your best option, put your 20K into Premium Bonds for a few months. Your capital is secure and the money won't be worth putting into a longer term stocks and shares plan if you're going to withdraw it in the next year or so, nor will it attract any interest in any other investment vehicle for such a short duration.

MintyMabel · 31/12/2019 11:14

however yours wouldn’t be a BTL IF this is your only property

Again, not true.

She is buying a property to let it out. She requires a buy to let mortgage.

If she doesn’t get a buy to let mortgage, she must immediately tell her mortgage provide pr she intends to let the property. Her deal will be recalculated or may even be withdrawn (which is understandable given she will have misrepresented the situation)

Inliverpool1 · 31/12/2019 11:15

MintyMabel - you can buy on a residential mortgage and change it to a buy to let one (or get permission to rent it out) on day two of ownership. I’ve done that 4/5 times

MintyMabel · 31/12/2019 11:25

MintyMabel - you can buy on a residential mortgage and change it to a buy to let one (or get permission to rent it out) on day two of ownership. I’ve done that 4/5 times

Except that the lender can refuse and withdraw the mortgage.

Inliverpool1 · 31/12/2019 11:27

They can but they don’t typically .... when you’re looking to borrow money tye bank holds all the power. When they are looking to get their money back you hold all the power

Dontdisturbmenow · 31/12/2019 11:29

I'm afraid you will likely to find a lender prepared to lend you the money. For one, the banks don't like to give buy to let to people who are not already owner of their own properties. When they do, they expect a high LTV. The requirements for BTL are very different.

Then you need to take into consideration that you'll have to pay tax on the rental income. If it takes you in the 40% (if you are not there yet), that plus the interest payment can wipe out all your income, when you also factor in costs for repairs, insurance, letting agent fees, void time etc...

That's not accounting to the fact that being a landlord is stressful as hell. You never know when you're going to have that phone call to say the tenants are going and you need to start the procedures and costs to find another tenant. The stress of that call to let you know the boiler has packed in, or they don't have water coming, or they can smell gas. Or the anxiety you get when you check your bank balance and the rental has not been paid on time.

That's not considering the calls from the agents/neighbours complaining of noise, problems with using the communal areas etc...

Honestly, I definitely wouldn't do it, the stress is not worth the benefits.

candycane22 · 31/12/2019 11:35

Don't buy to let if you need the money to cover mortgage. You can have empty periods and also rent dodgers. Remember upkeep costs too.

PolloDePrimavera · 31/12/2019 11:41

I agree with using the £20k as a deposit for a family home. The renting out idea sounds like a lot of faff and uncertainty. And if family can and are happy to help, which I think you mentioned, then that makes much more sense.

MintyMabel · 31/12/2019 11:56

For one, the banks don't like to give buy to let to people who are not already owner of their own properties. When they do, they expect a high LTV. The requirements for BTL are very different.

There are correctly over 400 BTL mortgages available to first time buyers with a range of LTV going up to 85%.

MsMellivora · 31/12/2019 12:11

Being a buy to let a landlord can have great returns, it can also be a disaster. I looked in to it seriously about a decade ago. We actually owned our home outright but the risks are huge. There are bad landlords but there are bad tenants and one bad tenant can wipe out all profit but for you the risk is worse as you wold be relying on that income to fund your home. For me it was just about making a better return and the money was not for living expenses.

Watchagotcha · 31/12/2019 12:17

From experience I’d say that I would only do this if you can do it mortgage free. We own two flats outright and rent them out. Because we don’t have mortgages on them, any void periods are not a problem, and because we don’t rely on the rent as income there is a pot of money to use for repairs - which can sometimes be very hefty. We will probably have to pay £6000 for an upcoming roof repair - luckily we have the money available.

Also, we use an agent to manage them which keeps us up to speed with compliance, safety legislation, minor repairs are done quickly etc.

Inliverpool1 · 31/12/2019 12:37

You can insure against non paying tenants, emergencies etc .... even with the £60 a month premium and the mortgage I could still be making £200 a month profit on each house. Show me a bank account that pays that sort of return

flirtygirl · 31/12/2019 13:26

Go see a mortgage broker and talk through your options.

Mumsnet is very risk adverse but like many have said get a residential mortgage then convert it. You are not breaking any laws.

You may not make any money but as long as the mortgage is covered and you can get insurance for voids and repairs it still a good thing to do.

I would do it if I had some money and the fact that you have an good income and do not need the income from the rental would mean I would jump at this. Keep all that income separate, if any and carry on using your current income.

It can be sold, moved into or used to get a retirement property later on. Even with less tax breaks, if you did not require a monthly income or monthly profit, letting houses is still worth it for the long term gains.

You may also find that if a good purchase gains in the next 5 or 10 years that you can use that to get a family house.

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