Have I f*up my finances?

[Mgup]

Rea worried that I have made a colossal financial mistake. Mum of 2 teens, full time employed and a higher rate taxpayer

My mortgaged 2 bed London maisonette is worth £300k, I had £100k in equity and took a further advance of £53k secured on my flat out with the intention to buy a property in the midlands for investment purposes so that I might be able to relocate there in the long term and rent out the flat in London or sell and support my children to buy their own home in the future

I have struggled to find a midlands house for £170k which is what I am after, based on what my broker feels I can then get further lending for while using the equity the further advance for the deposit, stamp duty and legal fees.
My initial plan had been to rent the midlands property until kids finish school but having not found anything, I wonder what my options are, shall I just give the bank back the money taken for the further advance? Keep looking for a house outside London as per my original plan or put this money into a high interest account for 5yrs?
Rea scared and unsure of what to do for the best. No partner just me and the kids

I’m slightly surprised you borrowed an extra £53k without serious research into prices. Have you factored in having a buy to let mortgage, tax and agent fees(unless you’re planning to travel up to the Midlands every time the rental property has a leak or other problem)? The rental market is pretty brutal for landlords right now. Good luck.

Have you worked through the business case for tax, maintenance etc? As an accidental landlord I can tell you there’s not much money in it unless you have several properties or multi occupancy properties. Not even sure you can 100% rely on the gains in property value (which will be taxable) anymore.

I started the application process with the intention of becoming a landlord but the more I learn about it the more put off I am,

i haven’t accessed the money from the further advance, when is the latest stage I can pull out

Join some landlord fb groups! I joined with the intention of buying a place to let until my daughter was older but pretty much all landlords are jumping ship due to the new rules they are bringing in. I certainly won’t be buying to let anymore!

It’s just not worth it anymore is it, the changes are so off putting

To be honest it doesn't sound like were ever really in a position to afford to do this.

£170k is a very very small budget to be looking to buy a house with even in the midlands - I think people in London imagine you can buy a house elsewhere with a few peanuts but this is not the case unless you are looking in very deprived areas where the rental yield would be much lower and the whole thing would be riskier as you'd be less likely to attract stable, full time working tenants.

If you only have 100k equity in your current property you need to focus on continuing to pay this mortgage down not trying to buy a second property.

I agree. I live in the midlands in a 3 bed semi-detached house. Mid-sized, no garage, nothing particularly special although admittedly a nice area, and it's worth about £330k.

I live in a rubbish area and I would be lucky to get anything decent for £170k these days. And that's Scotland!

@Mgup being a landlord is tough. So many hoops to jump through and a well thought out business plan needed before you even think of buying.

I'd put the money in a high interest account for now and do some more research.

Depending on your mortgage rate then you might find you can get an interest rate higher than this.

If you're certain you don't want to / or can't afford to buy another property speak to the mortgage lender and ask what back-tracking is available for you as your situation has now changed and you no longer need the advance or equity release.

However, if I was in your situation, a high-earner who could afford the new mortgage on the London property, I would keep the 100K equity release (but not the advance payment if possible) and use this to pay for both my DCs Uni education in full. But this is my ultimate dream at the moment. I do have two teenager DC and I'm currently in the process of working out how we could possibly do this for them (ie. no holidays for at least 5 years!)

What rate is the mortgage advance on / fixed for and are there early repayment charges.

You may be a rare lucky winner if you are in a 5 year at 4pc or less. In that interest rates are increasing and you can stash it in a cash ISA (over 3 years) / high interest savings account and make a small profit risk free

Honestly, if you can give them the money back.

I'm in Hartlepool and every few days on our Facebook community pages we see a new message from an excited first time out of town Landlord saying they've bought a house in Dent Street or Sheriff Street or Cornwall Street, as an investment for their kids. First question we ask them back is 'have you completed yet' then point out that the area they're buying or have bought in are riddled with drugs and machete attacks.

They're cheap because run of the mill people won't live in them, and you then have major problems with trying to get reasonable people to rent them.

I think the rate is 4.05% the total borrowing is £197,000 current outstanding and around £53k for the extra advance making it around £250,000 total

If it’s just a mortgage offer and you haven’t received the money yet you can pull out any time. It’s hard to make money on a rental if you are full mortgaged op. Look into it more before you proceed.

Would it make sense to put the £53k in a high interest account say for 5yrs or so? Or diversify eg £10k gold, 40k high interest account and say £3-5k in an ISA?

Do you have the money already or not? It sounds strange to take out a mortgage advance to invest? To work out whether it’s worth it though you need to compare the rate of your mortgage vs the rate of interest/ investment return. If it’s not tax free you have to have interest of approx 7% to make up for a 4% mortgage or something like that - you’ll need to do the math.

Tbh OP you sound like you are just determined to find a way to make money quick and turn the money you have into more money. If it was that easy everyone would do it - you run a significant risk of ending up with less, not more money, and having taken some of the equity out of your home your mortgage costs will be higher. With the state of the global economy and the situation in the middle East id put the money back in your flat and focus on paying down your mortgage and securing your home, not schemes to get rich quick.

If there is no early repayment charges then simplest thing is to repay. However I expect there will be.

So if you don't want to do landlording any more, look for the highest rate savings accounts you can on Martin Lewis website - you want one greater than 4.04 to break even - but remember you will be taxed if it is not an ISA at your income rate (40% as a higher rate tax payer) which will be hard to find right now.

Lock in the cash DONT spend and repay once erc time period is done. You may just luck out and break even as interest rates look to be going up soon.

Most important - you might have a lucky escape plan here due to world events. Don't sign any contracts in the future until you fully know the implications.

Unless the extra 53k borrowing is on a very low interest rate you aren't going to find a high interest bank account rate that will pay you more than it will cost you to service the debt.
Banks will always intend to charge you more in interest on the money you borrow from them, than the interest they will pay you on savings you hold with them. This is how banks make money

You are utterly out of your depth

Pull out
and just crack on paying off your London flat

i do feel out of my depth, trying to make a good investment choice as have no one to rely on, no inheritance etc and just want to diversify my finances

Also last tax day for ISA is Sunday if you act very fast you can move 20k before then , and another 20k next week as it is next tax year.

ALWAYS read conditions - some have lock in periods and you will be unable to withdraw interest without a big penalty. Have a plan to pay your monthlies.

Good news is I see a good bunch over 4.05%

As always just what I would do , your choice / decision / responsibility.

Please don’t.

Just focus on paying off your mortgage. The end

and anything spare… pension or savings for your kids

If you don’t have the money yet, don’t take it. You’ll be hard pressed to find an investment that will be worth more than the saving in your mortgage as I assume it will be at 4%+ and the amount is too high to be put into an ISA.

you need to stop scrambling and sit down and do the math of each of your ideas. No one on here can work it out for you. Or speak to an independent financial advisor. It’s a lot to take out £50k of debt with no clue of what to do with it.