Can't afford a house..buy a flat instead for the future?

[MaryPat]

Just looking for opinions..Am currently renting a house. Have been saving up to buy a house but this last year prices have gone up and it will be a struggle to afford the size of house needed. I'm now thinking that maybe I should just go ahead and buy a nice flat instead, then continue to rent for the next few years whilst paying off some of the mortgage on the flat. When my youngest child eventually moves out (they are only mid teens at the moment) at least I would then have a property to live in. The money I'm saving now for a deposit would more than cover the monthly mortgage payments. Is this a crazy idea?

I like this idea but you also need to be realistic about your children being able to move out.
Would you rent the flat out?

Are you going to let out the flat or rent it out?

Sorry

Are you going to leave the flat empty or let out the flat?

I'm thinking of possibly renting it out but not sure if that would be a big hassle. Yes ive considered the prospect of whether kids will be able to move out at a fairly youngish age, but I keep thinking we need to somewhere to live no matter what. If we continue as we are it will be another few years to have enough saved for a house. At least if I bought something now I would be paying down a mortgage, so maybe I could have a chance of retiring one day!

If I don't rent it out then yes I'd leave it empty or else maybe my oldest could live there until they got their own place. Not sure!

Will your DC earn well enough to move out? How will they save for a house if paying rent? It could be very difficult for them.

Yes. You could buy a flat. You would get an income if you rent it out but you would need a buy to let mortgage and ensure you understand the law relating to landlords.

Can you get a btl mortgage if you aren’t a homeowner?

Cant you just live in the flat you buy?

If you buy it and rent out you will be taxed on the income, particularly important if you are already a higher rate tax payer or would push you into being in that bracket as that's a lot of tax. If you don't rent it out and leave empty you'll have council tax, service charges, insurance and utilities to pay which are not inconsequential. Insurance on an empty property isn't cheap and often comes with a requirement to either have all services drained and switched off or heating on 24/7 at a particular temperature.

Why can’t you live in the flat?

If it is your first place most people without a big income or a lot of help would start by buying a flat or small house depending on where you live then working your way up from there.

House prices are going up and up, so the amount of deposit needed is also increasing. If you buy a flat, hopefully the value of that will also increase over time which would give you a bigger deposit towards your house. That said, it depends on how much the flat and house you are looking at are worth. As a first time buyer, you get relief on stamp duty for your first property. You would need to look at how much stamp duty would be on a house to decide on whether it is worth saving it on the flat or waiting to save more on a house. I would also think carefully about the points raised by previous posters regarding expenditures for the house being empty/tenanted.

Have you considered a stocks and shares isa instead? The FTSE tanked during covid and is now bouncing back - it might be an opportunity to invest your money without the hassle of tenants, insurance or stamp duty considerations. Motley Fool is a good website to look at for advice on which shares to invest in, or you could get a tracker which will go up (or down) in line with the ftse 100 (or 250 etc), so is generally less risky.

You will really really struggle to get a BTL mortgage for your first purchase.

@MaryPat

I'm thinking of possibly renting it out but not sure if that would be a big hassle. Yes ive considered the prospect of whether kids will be able to move out at a fairly youngish age, but I keep thinking we need to somewhere to live no matter what. If we continue as we are it will be another few years to have enough saved for a house. At least if I bought something now I would be paying down a mortgage, so maybe I could have a chance of retiring one day!

I think it's a good idea if you can get the BTL mortgage - no idea about those so just going by a poster above saying a first-time buyer might struggle to get one.

Only thing is don't forget that there are costs involved with renting out a property, for example replacing the washing machine, fridge etc if it goes wrong and general maintenance like plumbing etc, plus assuming you will still be liable for the service charge as the owner.

I have thought about renting out my flat in the future as I know I won't be able to afford to sell it up and upsize to what I will actually need, but I just don't think I could afford the slush fund required to do any emergency repairs or replace appliances.

To rent it out, you would need a BTL mortgage, which usually requires a high deposit (25% +) and rental income of 145% of mortgage payments. Many (most?) BTL are interest only, not repayment, so unless you will be overpaying, you won’t be reducing the mortgage. To leave it empty, you would need a residential mortgage, the size of which depends on your outgoings - the thing to check is how much you will be able to borrow if you continue to pay rent.

Have you spoken to a mortgage advisor to discuss your options? That would be my first port of call. Until you know what you can afford, it’s pretty hard to make a decision!

Good luck!

Thanks everyone for their thoughts. Lots to consider. I don't think we will go down the buy to let route. If we proceed with this plan then I would see if my eldest son would want to stay there for a few years, at least that way the flat would be occupied. If not then just need to keep saving and hopefully the market will stabilise in the next year.

please check shared ownership you would be able to afford a larger property which you could live in now & either staircase for a larger share or sell when your dc do move out.
You will find that if you can buy a "second hand" resale that the costs would be lower than renting (especially in places like London & there is a website which explains details)
www.gov.uk/affordable-home-ownership-schemes/shared-ownership-scheme