I'm meant to be signing a buy to let mortgage next week and am getting cold feet

[GalaxyInMyPants]

I inherited half a house recently and am in the process of buying my sibling out. First of all we were going to sell it and I arranged valuations, etc. then I decided I'd buy it.

I need a 70k BTL mortgage which the bank has said I'll get no problem.

I have a tenant lined up, someone I know. And I do trust that she'll look after it.

But I know that long term she won't stay there....maybe two years. After that I'd be looking for tenants. I keep hearing horror stories on here and in real life of nightmare tenants, or just the general expense, etc of a BTL.

My mortgage repayments would be £470 a month and rent £600. So after tax, insurance there's not a lot of money to save each month for repairs, new carpets, etc.

so short term I think it might at times cost me money and that's not even thinking about empty periods.

Long term I'd have the benefit of someone else paying my mortgage off. In 15 years I'd be mortgage free and could maybe think about retiring earlier than 67.

I worry if I don't buy this house that I will be working till 67. But then it would be nice to have some money now and enjoy life a bit more rather than having to be careful all the time.

If I don't buy the house I now feel I'd be letting down my friend who's excited about moving in and also my brother who's waiting for his money. Though he'd get it after we sold the house I guess.

Interest rates are meant to be rising. So that worries me a bit about the mortgage. If we sold the house I'd end up with about 70k cash, which I could try and save most of it I guess so I might be able to retire at 60 if I've got good savings still. And rising interest rates may help grow the money.

Then I think well I could try the buy to let and if it doesn't work out I could sell it down the line.......

It would be this or nothing...

So if you sold it what would you do with the money?

When you're letting you will be looking for tenants on a regular basis. What will you do if you have a month or two without for some reason? Do you have a backup for this?

The back up would be I could pay the £240 to the bank out my wages. But it would be tight.

If I had the money I think I'd just try to save/invest most of it. But have the odd holiday as well. Haven't been abroad in 5 years.

So you would be subsidising her.

No, I meant I'd pay the money out my wages if I had a period without tenants.

What if she changes her mind? Are there no cheaper homes for her?
What if she moves in and he joins her?

It can cost time and money to evict, how will this affect your friendship?

Well I'm surprised she's not gone for a cheaper home because there are cheaper in the city. The house is in the nicest part of the city so rent reflects that. There's worse areas where there's both private rentals and council......she says she wants to be in this area which the house is in.

And yes, I could potentially see us falling out. I'd be annoyed and pissed off with her if she was late paying rent, etc.

You have to think of this over the long term. It is very likely that property prices will go DOWN. At best they will stay the same. Even selling now and putting the money in a crappo interest rate savings account might give you more return over 10 years than the cost of

a) the interest you will be paying on the mortgage to buy your brother out and b) the potential losses in terms of maintenance, tax, rent defaults etc. c) the possibility that house prices might go back to 1998 prices (likely because at that time they were affordable in relation to incomes) over the next 10 years.

Anything could happen with your friend, you shouldn't be thinking about her at all. Are you attached to this house for sentimental reasons perhaps?

I think you might have hit the nail on the head about sentimental reasons. I feel like its the last link to my dad.

Ah. I thought there was a missing link as your plans aren't completely logical. I'm sorry for your loss, I have lost a lot of family recently and have been exactly there, placing value on property etc.

A house is just that, a home is something different. It's impossible to sell a home like it is a house. Perhaps you need to let go of it emotionally. What would your Dad have wanted you to do?

How long ago did your Dad pass away?

Just six months since he passed away. Dad was a
Ways one for been cautious and saving but he always said property was a safe place for your money so I don't know.

OK, your £600 month rent is looking very unlikely - private or LHA.

LHA tend to set a rent in an area, in fact, due to the LHA going up recently, LHA have outbid a lot of private renters. This is now changing and LHA is now being frozen at best, or reduced by about 5% for the forseeble future.

You need to re-think with £400/month as the rent and allow for 2 months void. I would not expect anything in the way of increases - rents tend to track wages and, combined with vast oversupply of rentals, have shown little if no increase over the last 10 years - in nominal terms i.e. about 20% fall in real terms.

On a tenant basis, I would be reluctant to take on anyone on tax credits. If there's any benefit screaming to get vastly reformed i.e. slashed - its tax credits. A part time job as a waitress will not bring in enough money for a 400/month rental never mind £600/month.

Incidently, how did you come up with the valuation?

Its hard to come to a value when you're not actually selling a house i.e. a lot tend to be optimistic esp. these days, where the actually number of houses transacting are very low.

Have you tried rightmove to see what near by houses have sold for recently?

I would go for it, particularly if you are on a repayment mortgage. You retain the asset and, taking a long term view, can only benefit.

However, you need to investigate the tax implications of not taking a mortgage for the full amount but borrowing interest free from your DH.

You want to offset as many expenses against the income from the property as you can to limit your tax liability. I would imagine that taking an interest free loan means you cannot offset any of that amount against rental income therefore you may be hit by extra tax at the end of the year which you could avoid if you took out a mortgage for the whole of the £70k.

Or rethink The Tenant!

does a 35k mortgage really cost £470pcm ?

Do it I started BTL 15 years ago sometimes been stressful but property does go up tenants come and go but it works out. Had one bad tenant over that time go for it good luck

In your position I think I would go for it. Worst case, you need to find another tenant or have small empty periods between lets. And you have enough to cover that in the short term, although obviously not ideal.

From what you are saying, this is a long term consideration, and I really can't see that in 15 years' time the house would not be worth more than it is today. Even if there is a dip in the near future, it will have increased again by the time the mortgage is paid off - incomes and other costs will have increased in 15 years' time and it is not possible that it will be worth less than now. Even after the huge crash in the 90s house prices went up again within 15 years.

If you have managed to pay the mortgage off by then, you will own a property outright - in a nice area and in a nice saleable condition. (Assuming you keep on top of maintenance, which it sounds like you will).

You are not mortgaging yourself to the hilt and you have a financial cushion - your DH and monthly savings if need be. Presumeably you have no other large debts, other than your own mortgage - so what have you got to lose?

In 15 years time you can sell and have a lump sum - bigger than if you invest your half of the sale now - or you could keep it and continue renting for ongoing income if you prefer.

This is a really good opportunity. I would grab it!

I can understand how you want to make it work, if it has such sentimental value.

As for your friend, why do you think she rather have a nice 3 bed house in a good part of town, as opposed to an affordable home in the city?

Wouldn't we all......

If she can't really afford the rent already I think you need to find someone else to rent to. She won't stay a friend for long if she suddenly pleads a shortfall and you have to pick up the difference, you will be watching for all her other expenditure, wondering why she can't find a fulltime /steadier job. Obviously if you start off on a lower rent on the understanding that she will look after your longer term investment that is slightly different. Don't forget that if/when you sell you will have to pay capital gains tax on the increased value of the property.

Keeping the house for sentimental reasons is understandable but it might be clouding your thinking.

What would your Dad have wanted? My guess is he wouldn't want to see you having debts and worries. Although being frugal he would have wanted to use the money wisely.

I think this is a great opportunity to do both, spend a little and save a little.

Capital Gains Tax is on a sliding scale and would be split with your brother if sold. Contact the tax office and they will give you an exact number of what you have to pay.

Your db will also be liable for tax for the cash he receives from you.

I think you need to get a pen and paper and do some maths, based on immediate gains and loss, likely gains or loss over 5 and 10 years. Try to remove the sentimental attachment when you do this and do call hmrc. They are very helpful in situations like this.

Well I didn't get the mortgage so that's that.

Interestingly enough I also found out most buy to let mortgages don't let you rent out to people on housing benefit so my friend couldn't have moved in anyway.

I signed papers with an estate agent last night to put it on the market.