Buy to let or save?

[Rockaroundthexmastree]

Hi,
I am after some advice. My husband and I currently live in a (rented) tied house (via his job). We have been considering purchasing a small house to buy to let. According to a mortgage broker we could get this on a “normal” mortgage as it would be considered our primary mortgage/home due to the nature of our tied rented house. If I have explained that correct!

Our reasons being - we would like to move on from his current job in the next 10 years and therefore would loose our home which provides a very nice home with relatively v cheap rent.
As it stands we could not afford to buy a similar home for us to live in realistically with a similar lifestyle as we have x3 kids, therefore we are thinking to buy the best we can afford to rent out to get us on the property ladder and to eventually sell OR to move into when potentially our older children have moved out (young teens).
Our other option is to just sit tight and save save save as we are in a good position to do that right now. And then just buy whatever home we can afford to move into in 10 years with whatever deposit we have saved.

I guess my question is - would you buy to let now or just save as much as you can ? I can not decide which is the most financially wise decision given interest rates and other things.

It’s a difficult decision to make especially at a time when interest rates are high but there’s no guarantee of that lasting. Property does go up and well as down so you would have to choose very carefully.
I know people who’ve invested in stocks and shares rather than property and done well and others who haven’t because they’ve had to take the money out at a point when the stock market hasn’t been doing as well. Theoretically both stocks and shares and property should do as well over time but it depends when you need to cash out.
the disadvantages of a buy to let are getting the tenant out when you need it. Although you could run it as a holiday let to avoid this issue
The capital gains issue of you not living in it.

If you go for a property makesure it’s one that would resell easily for example in the area I live that means it’s got a drive, garden and pedestrian access to the garden for the bins and a minimum of two bedrooms. It would probably be a good idea to purchase something you could live in in necessary.
Would you still be able to save as well as buying a house?

Thanks for your reply.
The broker was very confident we could get a normal mortgage to then rent out, as our tied home is in a similar vein to someone for example in the army and living in accommodation and would be considered our primary home. However I appreciate they don’t always get this right!

@Autumn1990 yes we would still be able to save once the home was purchased assuming the rent via a tenant covered the mortgage and a little extra for other costs. We could afford something in a nice village area with the features you mention, and if push came to shove something we could live in just would probably have to sacrifice a bedroom each for the children currently as a 4 bed would be a stretch too far.

I think I would buy. It's a hassle, having tenants etc, but it also means that you can move any time, should the job change/go sour etc.
That said, if you know about investing etc, I'd be tempted by that. I don't have a clue, but, it might be worth looking into how before you commit to buying.

It doesn’t mean you can move anytime. Part of the “hassle” of tenants is getting them out. It’ll take at least a year to evict someone currently, and when the rent reform acts pass it might not even be possible to do a fault-free eviction.

And technically you might be able to get the mortgage but I’d bet my bottom dollar you’ll need to sign something saying you won’t let it to third parties. You could lie… but are you willing to?

True, @HoleGuacamole
Personally, I'd still buy, but that's because I like to own a house. But that's not a reason someone else should.

@HoleGuacamole no absolutely not willing to lie. I have based this on what the broker assured us so have not considered the fact that it may not actually be possible. If we had to get a buy to let mortgage then the decision would be easier as I think we would be better off just saving. My husband has worked in his role for a long time and losing his job is highly unlikely - it is more that he wants a change in the future

I would keep saving at the moment whilst interest rates are giving a good return on savings and house prices still possibly falling but keep an eye on the market on a regular basis and you might just find a decent house that serves both for renting out and possible moving into for either the short or longer term. Hope that helps.

With interest rates the way they are at the moment, id definitely save.

Sit tight and save, save, save, or better invest, invest, invest. You can put £20k a year each into an ISA for CGT free gains. It’s a no brainer.

Being a (professional) landlord is a responsible position. You are after all providing someone with a home to raise their family.
You need money on hand for repairs, and voids.
You need to pay tax on the rental income ( small deductions only now ).
Labour will get in, and who knows what laws they will change?
You have no doubt read the threads where tenants will absolutely not move out until the are evicted, and often don’t pay the rent in that scenario.
BTL was great for the last 20 years, but the last boat has sailed.

I also have a buy to let property so I’m not judging 😂 but I don’t think I would’ve bought it in OP’s circumstance.

Not least because it will mean foregoing all first buyer reliefs (LISA benefits, stamp duty benefits) and if it can’t be sold potentially higher stamp duty on the property they buy to live in.

The property has to bring in a lot of value to offset those opportunity costs.

Historically the stock market has outperformed the housing market. However most people have done better with the property market because of the ability to leverage (borrow against) the investment. (ie you invest £100k in a house borrow £100k it goes up 10% is worth £220k you have made £20k (less interest cost), alternatively if investing £100k in stocks a 10% increase gives you £10k.

Also worth taking into account stamp duty, ISA allowances, tax on rental income, capital gains tax, but all will depend on the sort of numbers you are working with.

In terms of figures - Talking approx buying a house worth approx 200k now to rent versus putting away savings of between 15-20 k a year to buy a house to live in eventually.
We both work full time and also have a seasonal side business so any rental income would be taxed.
In addition, we are not first time buyers (previously owned homes in first marriages) so there would be nothing to gain in terms of missing out on first time buyer advantages.
We are extremely busy people with work, business and kids and I worry that the extra hassle of a rental property might be abit much but equally I’d be happy to take that on if it makes most financial sense

What LTV are we talking about on the 200k purchase? That makes a massive difference to calculations for profitability of renting v investment?

@DrySherry if we bought now, it would be 85%, next year 75-80%

Absolutely not the time to invest in property. Most obviously because we are just starting the return to normal interest rates, indeed it is only recently rates have become real terms positive after a very long time being extremely accommodative.

Along with that accommodation comes the misallocation of capital and a search for yield , which is what you are seeking here, extracting it via the tenant's labour.

Stockmarket (stocks, ETFs etc), property, gold, bonds etc. are all examples of how to allocate your fiat currency capital, the yield on each being different and the liquidity varying. History teaches us that the value of all fiat currency will eventually approach zero (via inflation) - with that in mind choose carefully!

@DavidOpines so… keep sticking savings in the highest interest ISA we can find and forget about it for a few years?!

My feeling is that's not enough and that you should try to get toward a 40% deposit. You can't write off the interest costs anymore against tax. That's not to say you couldn't do it, it's just not so profitable anymore at low LTV.
I would focus on saving for at least a year anyway whilst prices continue to fall and the savings interest you are getting is high (relatively speaking). Are you making full use of your isa allowances for example ?
Everyone has their own appetite for risk though. I would find a good financial advisor to discuss your ideas and the pros and cons with.