Caveat: we (me and wife) live in London so prices and incomes are relative to the market here. We are luckily both in good jobs (we used to receive bonuses - no we are not bankers!!!- which we have always used to pay down debt quickly). Plus I think we have been lucky to have spotted a good area where values have (nominally) gone up considerably. So our numbers are maybe going to look unusual and we believe the market around us is highly inflated, we have just tried to make that work for us!!
Our plan as it played out:
We started in Jan 2003 buying a small maisonette for £210k. 85% mortgage which we worked hard to pay down quickly. We still own the place (next door has sold for £400k last year) which we have rented since. We owe just over £50k for this mortgage.
In 2006 (October) we upgraded to a small 3 beds town house in the same area. Price paid was £420k. We paid a £70k deposit saved up and used a lot of resources to pay the mortgage as fast as we could. Woolwich in 2008 (literally days before the BoE started reducing IR to 0.5%!!!) was kind enough to offer me a 0.69% above base for the lifetime of the loan. We kept repayments to the originally quoted amount so have been killing the capital over time. Currently we owe £220k to the bank for the house and are paying capital down to the rate of about £1k a month. Thanks Barclays! We kept this place also and rent it as from this Jan. Next door house just sold for £640k.
In 2012 we bought again (our family also had increased by then) we bought another place. Big one, this is for life, for £775k (5 beds Victorian) in same sort of area. We had again saved every penny we could and used every resource to raise a £200k deposit and got a 75% on a 2 year fixed 2.34%.
So we now sit on a portfolio with some money in it, we are also almost (nominally) mortgage free. We receive an income from rentals that is the same as our mortgage outgoings. So effectively what we have to meet is the cost of keeping the two rentals going (maintenance, fees, income tax etc!) and this is a commitment about the same as before we bought our last place in 2012.
Now we have one big decision, as we both believe that a HPC is coming. Out LTV for the overall portfolio is about 40%. We could sell the two rentals and live mortgage free. We however would like to hold on to the portfolio to pass it onto our kids when they grow up. On the one side we are exposed to IR escalating and if that couples with a crash then the maths would not work anymore, we would be screwed. On the other, we do get a really good income from rentals and are starting to save again to pay down debt aggressively.
I am really not sure what is the right call…