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Original poster

Live mortgage-free or keep investment flat?

35 replies

alicethehorse · 10/04/2011 22:41

We own a flat in London, which we rent to a friend.

We're currently living in a rented flat near our college while we study as mature students (not in London).

The plan was to sell the flat and buy a family house wherever we get work after college (in 3 or 4 years time). DS will be 5 or 6 then. We hadn't planned to buy till then because I assumed a mortgage company wouldn't touch us with no jobs! (And you need a new mortgage for a new place, right?)

However I've realised that we could actually afford a flat round here from the equity on the London flat - i.e. we could sell up in London and pay cash here. We could live mortgage free and rent a room to a lodger too.

This is very tempting.
I'd love to have our own place here. I find running two places a headache, and more time consuming that I had appreciated. (Have just spent lots of time and money doing unplanned but very necessary work on the London flat).

However, the flat in London is in an area where prices are rising despite the recession. It is an area which is being gentrified at an alarming rate. Financially speaking the wise thing to do would be to leave our money in the flat in London as long as possible. Am I mad to consider jumping ship early? We'll never move back to London. We have no idea where we'll be working after uni, but it'll hopefully be somewhere we stay for a good long while.

(I'm a regular mumsnetter by the way, but feel uncomfortable talking about this openly so I've namechanged).

I do appreciate this is a nice problems to have! But I would really appreciate any advice, my head is going round in circles over this!

TIA Smile

OP posts:
tattycoram · 10/04/2011 22:49

If you can bear the hassle I would keep the flat in London as long as you can. Once you're out of the London property market that's it, you will only get one chance to cash it in, I would want to maximise that as far as I could. Secondly, you might be able to buy in cash where you are now, but you don't know where you will end up - it might be more expensive in which case you could regret not leaving your investment in London and secondly, you will end up paying two lots of stamp duty (I assume)

Whereabouts is the flat (if you don't mind saying)?

Gooseberrybushes · 10/04/2011 22:52

keep the flat keep the flat keep the flat

did I say keep the flat?

if you can afford it, keep the flat

by the way, keep the flat

Original poster
alicethehorse · 10/04/2011 23:00

Clapton in Hackney. Until a year ago we had a pub on the road with obvious crack dealing going on 24-7. That's finally been shut down, thank goodness, as has the club round the corner with the same problem, a few years back. I'm sure it's still a problem under the surface, but it's not an obvious one now.

Meanwhile new organic cafes, delicatessens and trendy bars seem to appear every time I go back!

It's the overspill from trendy Stoke Newingites being priced our of N16 driving prices up I think.

You're right the sensible thing to do is to leave our money there.

But I'd feel much more settled in our own place! We sublet 2 rooms here (the landlord knows and is happy with it). We've run into problems stemming from this being a bit of a grey area - are the people renting the rooms our flatmates or lodgers? If we owned our own place and did the same there would be no grey area. It would be our place and the lodgers our tennants. I would be much more comfortable with this.

But does this matter enough to lose a lot of money? In general, I do tend to think "sod it - don't let money rule what you want to do". But I'm a mum now, I need to make sensible financial decisions don't I?! (How grown up that sounds!)

Arrgh!

OP posts:
Original poster
alicethehorse · 10/04/2011 23:02

"keep the flat keep the flat keep the flat" I think you're sending out mixed messages Grin

Bugger. Does no one think it's a good idea? Surely peace of mind is worth something? (Ugg, that sounds like an insurance ad!)

Would I really lose out on that much?

OP posts:
tattycoram · 10/04/2011 23:07

I've got friends in Clapton, their house is lovely Smile

Honestly, I think it depends on the rest of your financial circumstances. I would be far far better off now if five or ten years ago I HAD looked on property as being a financial rather than emotional matter. But that's my experience talking and might not be the case for you.

Original poster
alicethehorse · 10/04/2011 23:11

Hang on, we would be making money from not paying out interest on a mortgage. How does that offset against the possible house price rise I wonder?

The interest on the mortgage is about £250 a month.

OP posts:
Original poster
alicethehorse · 10/04/2011 23:11

Clapton does have some gorgeous houses!

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Original poster
alicethehorse · 10/04/2011 23:16

Doesn't the no mortgage thing make a difference here?

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tattycoram · 10/04/2011 23:35

Will your flat go up in value more than £250 x 12 a year? That's the only financial calculation you need to make isn't it. The rest is down to the hassle/social whatever aspects of the decision

Original poster
alicethehorse · 10/04/2011 23:42

I think it might. I found my maths brain, here goes ....

At £250 a months I'm paying £3k a year interest.

In a rising market, over 10 years the value went up an average of £12k a year. I bought it for £105 and it's approx £250 now. (Obscene really.)

How much will it go up over the next 3 years? What's reasonable do you think?

Thanks everyone, this is really helping me mull this over.

OP posts:
Original poster
alicethehorse · 10/04/2011 23:48

There's also the income from our London lodger offset against any income from a new lodger. Plus the money we'd save by not renting. Also need to be mindful of any property management fees (license to print money for them if you ask me!). Plus stamp duty and moving costs.

But as a bottom line, whether it's more or less than £3k a year is a good yardstick I agree.

OP posts:
mamatomany · 10/04/2011 23:49

It might not go up, it might go down but it'll still go down by less than everywhere else in the UK so you'd still be up on the deal.
How salable is the flat, will it sell when everywhere else is struggling to sell ?

Original poster
alicethehorse · 10/04/2011 23:54

I'm confident it'll sell. I spent 6 months flat-hunting and looked at 30 flats before finding this one! I could only just afford a one bed in the area, and in the same price range are a load of really dodgy conversions. Our flat is really nice, well-converted and we've recently fitted a new kitchen and bathroom which look great. Also it's a share of freehold which is unusual on flats in general.

OP posts:
Original poster
alicethehorse · 10/04/2011 23:54

Good question though, and you're right we really couldn't take selling it quickly for granted.

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Original poster
alicethehorse · 10/04/2011 23:56

Does anyone know how do you find out how much prices are going up in your area at the moment?

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Original poster
alicethehorse · 10/04/2011 23:58

Doh Google, obviously!

OP posts:
mamatomany · 11/04/2011 00:03

Up ?

I know how much they dropped by last year.

Rightmove and the Halifax have some information but they do rather have a vested interest, I think the land registry is your best bet.

Original poster
alicethehorse · 11/04/2011 00:20

They're not falling in Clapton though.

If my calculations are right, and the stats on this chart are right, then prices went up a whopping 50% in Clapton over the last 2 years.
(The average price starting at £213,048) in 2009 and ending at £321,666 in 2011)

In the area I live now, they went up 20% over the last 2 years.

Also you are talking about a lot more actual cash if we left it in London, as we'd have more invested.

Bugger it's clear isn't it. Gooseberrybushes summed it up nicely I think.

I wouldn't mind loosing a little money to enjoy our home more now, but it really wouldn't be a sound financial decision would it? The bottom line is we'll be able to afford a much nicer family home in 3 years if we sit tight, won't we?

That's not what I wanted to hear! Grr!

OP posts:
Original poster
alicethehorse · 11/04/2011 00:25

To be fair there was of course a big dip 2 years ago! But the difference between the 'recovery' in Clapton and where I live now is pretty big isn't it?

OP posts:
Original poster
alicethehorse · 11/04/2011 00:25

I wonder if lots of people will go off to buy investment flats in Clapton now Grin

OP posts:
Frazzzled · 12/04/2011 17:56

I would keep the flat, you will have an income at some point after uni, so if you sold in the long run by not paying a mortgage would mean extra cash which you could save or fritter away, best keep it in the property. Remember if you ever wanted to buy a second property to let you would have all the legal, stamp duty etc costs.

However, if you need money for the down payment of a new house, you could always look to re-mortgage london flat?

If you kept your flat for another 10-20 years then the only way is up, so I would look long term...

I don't think there will ever be a problem letting flats out in London! not much supply and there will always be demand...

NoelEdmondshair · 13/04/2011 09:49

OP - you refer to the person living in your London flat as your "lodger" but isn't s/he actually your "tenant"? Do you have a tenancy agreement with them and pay tax on any profit you make from the rental? Do you have permission from your mortgage company to let the flat?

Don't mean to interrogate you Smile.

titchy · 13/04/2011 10:03

Another vote for keep that flat!

Also you don't know where you'll be working, so you could be faced with buying somewhere now, then having to sell it in a few years and buy somewhere else. Two lots of stamp duty and legal fees and an unecessary estate agent cost.

Keep the flat!

crw1234 · 13/04/2011 15:47

Another vote for keeping the flat - the transaction cost of buying something for a relativitly small amount of time - would put me off - and agree make sure its all legal with your tenant - and you could look into getting proper management for the flat so you don't have to spend so much time on it - and of course the cost of the mortgage is offset by the rent

nooka · 13/04/2011 16:00

I have a house I rent out (in London) and I really really wish I'd sold it when I moved as it is a constant source of stress and a total money eater (this month the agent has told me I should spend £600 on electrical works and £2k on damp treatment for example). So I am more inclined to say sell it, take the money it's made and be very grateful for it, because although prices could go up they could also go down. On the other hand if you have a reliable long term tenant then I'd be more inclined to look at what the numbers tell you and hang on until you know where you are going to live long term (assuming you are only where you are for another year or so?)