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Original poster

Can anyone help - £100k - best use of it in our circumstances?

54 replies

SamanthaJones · 10/11/2011 18:04

I've name changed for this but I am a regular, I hope that's ok.

I'd be grateful for any views - we recently inherited £100k and aren't sure of the most sensible thing to do with it. (We will get some IFA advice too)

We have a mortgage which is interest only, with repayments of £700 a month

We are about to convert it to repayment, which will be 1,900 a month

We already have another buy to let house (with no mortgage) which gives us a rental income of £625 a month

We are considering buying another with the £100k which will give us a rental income of £550 a month

The total rental income of £625 (that we already get) + £550 (if we bought new place, cash) + the £700 we already pay would be = £1850 so effectively we could convert to repayment and rental would cover our mortgage (we could cope with the odd period unlet)

Or we could just pay £100k off our mortgage

Or we could have an offset mortgage, not sure about that

Thanks for any advice anyone can give.

OP posts:
Original poster
SamanthaJones · 10/11/2011 19:14

X posted! Oh good, I thought so (better return than that I mean)

I know, it's a nice dilemma to have!

I don't work, dh does. All joint marital assets.

OP posts:
skrumle · 10/11/2011 19:15

can i ask why you can't get a BTL mortgage on the property you own? my sister has one on her old flat (that she couldn't sell) which is based purely on rental income as she has used her job income to get mortgage on new property. as long as you have a decent deposit you could get a BTL mortgage and then get the mortgage interest set off against the income (cutting down your tax bill), allowing you to pay off an even larger chunk of your own home's mortgage.

witherhills · 10/11/2011 19:16

what about capital gains tax on the 2nd and 3rd properties if you sell them?

Personally, I'd pay a big chunk off your mortgage, change to repayment, you might end up paying similar per month?

have a nice holiday, treat yourselves and then put the rest in the bank

sabrinathemiddleagedwitch · 10/11/2011 19:24

BTL mortgages are based on the rental income rather than the owners actual income. You could buy 3 BTLs each with a 30% deposit which would protect you from voids etc and you could gross about £300- £400 per month but is a risk if the market goes down further but the gains would be 3x if the market rises before you sell. Its a long game.

Original poster
SamanthaJones · 10/11/2011 19:26

Happy to tie it up for 20 years

Gosh, could we really buy more than one? There are plenty of c£100k places round here.

OP posts:
Original poster
SamanthaJones · 10/11/2011 19:31

So Sabrina are you saying

30% deposit = £30k x 3 properties

So buy 3 x £100k properties and let each one at 550?
So each has a mortgage of £70k, assume £300 int only payment
250 income to us

OP posts:
Want2bSupermum · 10/11/2011 19:33

So, how old are you, are you both working and do you plan to stay in your home for more than the next 10 years?

Also, how much do you currently have in savings? What are your expenses and do you have children/ex's to support?

I assume you have a mortgage of around 175k and given the previous info that your home is worth around 350k.

My inital thought is to refinance your mortgage on your primary residence into an offset mortgage. You should consider paying the GBP100k into this account. Then, I would buy the 2nd rental property from the proceeds of a mortgage on your first rental property. For rental income of 550/month, you should be able to afford to carry a mortgage of GBP50k on rental properties. If you have an unoccupied period you can draw down on the 100k in your offset account (ie against your primary residence).

However, I don't know enough about your personal details so I can't say for sure if you should do this.

mummmmmy · 10/11/2011 19:35

In which case, If you bought the property in your name so the income is just yours rather than shared with your husband, you would't have too much income tax to pay as could use the remainder of your personal allowance. Income tax would be less than £1k a year and your net return would still be around 6%.

Tax would be much more of an issue if you are (or expect to become) a higher rate tax payer as the 40% or 50% tax would wipe out so much of the income that it would almost be better to pay of your existing mortgage.

sabrinathemiddleagedwitch · 10/11/2011 19:39

Yes.

You can get a BTL mortgage at 4% which would be £373 repayment or £233 interest so £1119 or £700 interest. If they were all rented you could get £950 a month if you had interest only (£530 repayment) but interest rates are going to go up and you would be commited to £210000 of borrowing.

MooncupGoddess · 10/11/2011 19:41

If you're going to buy another property (or more than one), OP, make sure you do a proper risk assessment to see what would happen if interest rates shot up/house prices fell/rental prices fell, etc. We're in uncertain times, economically. It sounds like the existing mortgage on your house is quite large so you'd need to consider what would happen if your husband lost his job/became ill etc.

mummmmmy · 10/11/2011 19:51

Completely agree with mooncup. I'd be quite nervous of buying 3 properties and taking on £210k of mortgage right now. It'd only take one tenant not to pay and a 2% increase in interest rates and all the £950 profit would be wiped out!

Want2bSupermum · 10/11/2011 19:59

I agree with mooncup too which is why you need more info before making a decision like this. If DH is not in a stable financial position then buying a 2nd rental is much more risky. If DH is making 50k a year and you have savings to cover 6 months of living expenses the risk of having a cash flow issue is much lower.

happybubblebrain · 10/11/2011 20:07

I would sit on it for a couple of years while house prices come down, then buy two houses when the market is rock bottom. Put it wherever it gets the most interest in the meantime.

Original poster
SamanthaJones · 10/11/2011 22:53

Oh thank you for these new posts

No, our main mortgage is £350k on a house worth c£700k. We have 18 years left on it.

Other house (rented out) is paid for, no mortgage

I think preparing for worst case scenario is very wise, eg house prices go down, interest rates go up

Low risk would be to put it towards main mortgage and convert that to repayment I suppose.

OP posts:
Original poster
SamanthaJones · 10/11/2011 22:54

Dh earns more than £50k a year
I do too if I work (but am sahm)

OP posts:
Original poster
SamanthaJones · 10/11/2011 22:55

And we don't plan to leave our main house, no. We're in our 30's.

OP posts:
jollydiane · 10/11/2011 23:05

Key points

  1. Are you a higher rate tax payer? Don't forget any rental income is subject to income tax and possibly Capital gains tax when you dispose of the house. If you a buying a rental property in joint names for tax purposes make sure that the deeds are in the name of the lower rate tax payer.
  2. You would actually be running a business (that is was a but to let is) are you really ready for that.

Here is the order I would suggest.

  1. Pay off any loans (credit cards etc)
  2. The stock market has been at a low point so consider a Unit Trust ISA were you a spreading the risk. Many unit trust firms allow you to pay zero initial charge if you keep the assets for 5 years. Perhaps drip feed £1000 per month for a year. You can invest about £10000 a year
  3. Pay down the mortgage or use an offset mortgage which gives you flexibility.
Original poster
SamanthaJones · 10/11/2011 23:08

No debts or loans at all (other than mortgage)
Yes, happy to run another house as a business eg BTL
Good point about deeds
Yes, I know capital gains will apply if we sell either of the BTL properties

OP posts:
jollydiane · 10/11/2011 23:16

I suppose it comes down to risk vs reward. I think knowing that no matter what happens (health, success of my business, and goodness knows what else) that I will always have a house is very important to me. I am happy to take others risks in my life but I do like to have security.

ChippingInNeedsSleep · 10/11/2011 23:41

At the moment you have your capital in the rental property, this isn't the best move. Tax relief is better if you have the mortgage on the rental propery. So I'd sort that out first.

I would also keep all of them on IO mtges because then the choice is yours - you can overpay or if the shit hits the fan you can scale right back. I can't see any advantage having a repayment mortgage.

Then I would make sure that your savings account covers a good 6 months of DH's wages - just in case. Plus I'd sort insurance out (death/redundancy etc) if you haven't already.

I'd then make sure I had enough equity in my home to make the repayments on IO low enough to afford on one wage (& bills etc)

After all of that, see what's left, buy what you know will rent using your capital as the deposit - I'd put in 25-30% if it was me.

Or really - if it's too much hassle, send it to me and I'll look after it for you Grin

JustRedbin · 10/11/2011 23:50

England to beat Spain on Saturday.

Original poster
SamanthaJones · 11/11/2011 07:30

Thank you very much for all this advice.

We have lots of insurance and other cash in the bank.

I will let you know what we decide, these posts have been very helpful, thank you.

OP posts:
ChippingInNeedsSleep · 11/11/2011 23:11

It would be good to know what you decide :) and as I said, if you really aren't sure, I'll look after it for you Grin

yeahyeahitsallmyfault · 12/11/2011 07:58

you can't 'create a debt' on a BTL property beyond the original cost BTW, however sounds like you have some tax planning issues that would pay for a visit to a tax accountant.
One person has said this, but: diversification..... ? It improves risk.
BTL is not a business in the traditional tax beneficial way (IHT/claims) again this needs consideration..
Sorry not enough time to read the every post, so ignore at will!

herhonesty · 12/11/2011 20:40

mortgage definitely.