WIBU to clear out our life savings

[PumpkinMeadows]

So, we were supposed to be selling our home and buying a new one. Two days before we were due to exchange, our buyers pulled out (no real reason given, though said they "may" change their minds again in a couple of months ).

Anyway, the home we were buying is already a little bit of a stretch for us - but should be manageable. We managed to get together a 25% deposit, which was no mean feat.

Our sellers have given us two weeks to find another buyer, or the house goes back in the market.

We are of course considering that option, but time is against us.

Spoke to our broker who said we "might" just be able to get a let to buy mortgage on our current property, so we wouldn't have to sell it, then use the equity from there to buy our new home.

If we did this, we would have to reduce deposit to 15% and also clear out virtually every penny we have in savings. Mortgage payments would also increase by just over 25%. And of course the interest rate is a lot worse than on the current deal we have, but we would still fix for 5 years.

We would likely make a small profit on the first home on the rent, but it wouldn't come close to covering the additional 25% mortgage. That said, it's all theoretically doable based on our joint income (assuming we can even get the mortgage).

I'm just worried about having no savings at a time like this, considering the way the economy is going...but at the same time, we don't want to lose what we consider to be our "forever home".

Or should we be happy enough to know that at the worst, there is a property we could sell (albeit probably not very quickly) if we had to...

*ps - Name changed because family/friends know my regular user name.

It will all depend how much you love the house, you want to buy.
Will the rental income not cover the increase in mortgage payments?
Also you may have an increase in stamp duty.
We have done a let to buy mortgage and the rental income covers our new mortgage.
although stamp duty increase made our eyes water, I am still pissed off by that.

Don’t go tying yourself into financial knots to get this house. It’s not worth it in this economic climate. Follow the normal process, if it doesn’t come together there will be other houses

Wouldn't you have to pay extra stamp duty when you buy a second home? That might make it unaffordable if that's the case

@Teenangels

Thank you.
We really love the house.
We will have to pay extra stamp duty, which I've factored in.
The first property won't come close to providing the sort of money we need for the second mortgage, partly because it will be taxed at 45% (I understand from the broker). So there will be some extra, but that would cover approx 12% of the new home mortgage...

I would not do this. Even if you pick the hokum from the hysteria re rising cost of living and interest rates, things are going to become worse financially for many of us.
I would get some further mortgage/financial advice; your current broker may not be independent. You may end up losing your 'forever' home if things go as predicted. Is it worth the stress of having no savings in a financially and societally volatile world for 4 walls?

You are really stretching yourselves as we go into uncertain Financial Times. I wouldn’t.

The additional stamp duty will be repaid if you sell the house within a certain time.

Although if you can afford to pay both mortgages and save the rental income, you could eventually get an offset BTL, which will reduce the mortgage interest on the rental.

Do you have relatively secure jobs? If so, BTL is tougher nowadays but potentially a good option. In the current climate you could sell up, if it doesn't work out and pay less CG tax as you've lived in it.

I appreciate you've only got two weeks but worth crunching the numbers.

I wouldn't. I would pull out and look for another house.
I always fins house buying fascinating. You literally look at a house for 10 minutes once or twice them commit to buying it for possibly up to 1mil or more for some and you are none the wiser to any problems with the house or wiring, plumbing etc until you move in! I don't know where the system came from. Same for renting. We rent. Based on a 2 minute look and then after we move in we find the problems or things we don't like.

At least with a car you take it for a test drive... I suppose not much can be done as you can't teat drive a house.

Anyway.... what I was going to say was there will be other houses. Don't make your self more financially vulnerable for some brick and mortar

Did you forget to nc in your reply? maybe ask MN to edit or delete that reply if you can

Thank you.

I think we are good on the job front.

I will try and run those numbers, as you suggest. I think we just need to make some (more) sacrifices elsewhere...

@Jumpformylov3

I do hear all that, I really do

I would add that we have had a structural survey done and had gas and electrics checked (significant issues were found and we have come to terms on how they will be resolved).

We started this process at the beginning of the year (having tried and failed to sell/move a few years back). We lost out on a lot of houses before finally getting this one (sometimes offering £50/60k over asking) - it's been a long slog and we thought we were at the end of it. From what I've seen on the portals the past few days, there is nothing out that that compares in terms of price versus what you get for it. The longer we leave it also, the higher interest rates are going.

So we wouldn't be trying to buy another house after this - we would stay where we are for the foreseeable future (as much as this space just doesn't work for us anymore - bought pre-kids).

I wouldn't do this

You said it was a stretch already

So what if they out it back on the market?You're still likely to get it. Don't let them put pressure on you that will cause you to do something financially harmful. It could be catastrophic if it goes wrong

Have you thought about the plans to make it mandatory for a BTL to be EPC C? That could potentially cost you thousands depending on your property (eg with victorian terraces sometimes the only way to get to this is to install solar panels). And what if you can't get the tenants out when you need to because they've got rid of no-fault evictions as planned?

I would go hard on getting a new cash buyer, even decrease the price a bit to see if you can draw them in fast (would be cheaper than what you are suggesting). Any buyers from last time, that were especially interested, can you go back to them and see if they are still looking. Your sellers still need to sell (again), so it could still be to you.
I wouldn't do a buy to let, gives you too much exposure to the residential real estate market at the beginning of a recession, you could end up in negative equity.

Did you have lots of offers on your property, OP?

What would happen if your tenants didn't pay rent on the BTL? Or the boiler went? I wouldn't do it.

Nope, don’t do it. There are lots of houses out there. There isn’t only one “forever” home out there. This is a sign from the Universe to start over or stay put. I’d say it’s a lucky escape from a property that is a financial stretch in dire economic times.

The survey results are a red flag when added to this scenario

This whole thing is screaming 'dont do it'

Thank you.

@GreenLunchBox I didn't know about that EPC rule - thank you. I just looked it up, would apply to existing BTLs from 2028 (if introduced).

That said, the property is already at a high D, and that doesn't factor in some changes we made in the last couple of years which would move the needle further. May take us into a c, or not far off. But it's a good thing to know.

On the no fault evictions point, according to the government consultation: "The grounds for possession will be reformed to ensure landlords have effective means to gain possession of their properties when necessary. New grounds will be created to allow landlords to sell or move close family members into the property. Grounds concerning persistent rent arrears and anti-social behaviour will be strengthened."
So not too worried about this.

@Ohsugarhoneyicetea - yes, negative equity wouldn't be good 

@Northernsoullover If we had to /couldn't afford it from our salary income / income from the rental (bear in mind we don't need the rental profit to pay the new mortgage), we could borrow from our childrens savings in an emergency. But that would be a last last last resort. Like we generally don't even act like their money exists. It is for them. But they would still ultimately own both properties at the end of all this. Right now, they are both very little.

It's a big risk though...a big one. Going to rerun and stress test these numbers.

We did get a few offers on the house pretty quickly (after first day of showing). Took the highest. Looking around, there isn't much available now in this price range that's this sort of size. It may still prove attractive. That said, it's one of those houses where there is an external factor which means despite the house, you may (because of the external factor) not want to live here. Even though, having lived here for years, it hasn't proven to be an issue. But it does give people pause - and some have said it was the sole reason they would offer.

You’d be absolutely mad to do this. Sorry!

If it's a pylon in your garden,OP, I get why you're contorting yourself 🙈

On the no fault evictions point, according to the government consultation: "The grounds for possession will be reformed to ensure landlords have effective means to gain possession of their properties when necessary. New grounds will be created to allow landlords to sell or move close family members into the property. Grounds concerning persistent rent arrears and anti-social behaviour will be strengthened."
So not too worried about this.

I am an existing landlord, with several properties. I would strongly suggest that you take further advice. These proposals are just that. There is every chance they will be revised in the tenants’ favour as the consultation progresses, as happened in Scotland.
The ‘ no reason’ section 21 ground for possession is in the process of being abolished. Of course there are some some scum bag landlords who abused it, but for many of us it was the only way of getting rid of an anti social tenant.
Yes, there is an eviction ground relating to anti social behaviour, but only a very naive person would currently try to use that without a conviction or similar as evidence for that action.
Section 8 already covers rent arrears. In theory if someone is currently in arrears by 2 months the notice period to quit can be very short, as little as 14 days. If they don’t leave ( and bear in mind that even people who wish to cooperate can’t always secure alternative accommodation), then expensive and time consuming court action is necessary. Add into that equation that if their only option is social housing the local council will be telling them that they MUST stay put or they will be treated as intentionally homeless and the local council don’t then have to help them.
It is very easy to get court papers wrong, and all of the free advice is for the tenant.
I have found paying to belong to a landlord group has been invaluable.
You COULD end up with no rent, court fees, possibly your own legal fees, for up to a year due to problems with paperwork, court listing delays, deliberate prevarication, etc.
Even when you have a judgement you might then have more delays and expense in instructing bailiffs.
If you don’t have sufficient funds to cover the mortgage for at least 6 months or so, and a contingency that will cover for an unexpected major cost, such as an extensive boiler repair you might end up in a very vulnerable position.

It's good of you to be so patient

I was just astounded anybody would take what this government announce and believe them, so didn't bother trying to explain!

@LumpyandBumps Thank you - I'm not clued up about this admittedly. I only skimmed something as it was flagged by a previous poster - but I will do some reading up on this.

Can I ask, as a Landlord - does it make you want to now sell off your properties? Is there any solution for landlords (other than having large cash reserves)?

When running numbers, I have accounted for some time where rent wouldn't be paid - I'd factored in 8 months. But generally speaking, I do think I need to just re look at everything. Thank you for your advice

I'm a landlord and I'm strongly considering selling up next year

I’d put yours back on the market at a slightly lower price to try and get a quick sale, or else let the dream home go. I wouldn’t take the risk of letting your current house. If your tenants stop paying it can take months and cost a fortune to get them out.