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How Does This Work Then

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Buying a 2nd home

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I have a house currently valued at £200k with a mortgage of £106k. I currently earn approx £40k.

I am thinking of buying a flat valued around £250k, I'm not sure whether to borrow against the equity in my house to fund the deposit on the new place and rent out the house to cover the mortgage on the house, possibly to my son and his family. Then I'd live in the flat on my own and pay the mortgage from my salary.

Or... should I just sell the house and buy the flat?

Firstly, is this a good idea? Opinions welcome and secondly, where can i get some good advice regarding mortgages/loans etc

How does this work then? Just seen this on http://forums.moneysavingexpert.com/showthread.html?t=84117

A mortgage of £356,000 on £40k a year.

No wonder the housing market is in such trouble.

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Guest struthitsruth

Mmmm.

Looks fantastical at first glance doesn't it.

I'm no financial advisor, but I wouldn't be surprised in the least if a mortgage broker were able to draw up a credible financial plan to support the venture.

There isn't quite enough information supplied by the poster for a serious look at the arithmetic. Their 94K equity would easily provide for the deposit of £25K (10%) or £62.5K(25%) but would the existing or the new mortgage be interest only or somesuch buy-now-pay-later-when-you've-gotten-rich type of borrowing arrangement.

The lender or broker will take into account the projected income earned from rent from the first house, and this could be anywhere from £6K - £10K - who knows it might be detached with garage in a suburban dream desirable area, or it might be in stabbsville (!). With self cert and fast track mortgages available, the income figures could be just made to add up in order to arrange the loan. People have been doing this sort of thing all the time, IMO, and this doesn't seem an extreme example.

In the end though you are right, the total borrowing amounts to £365. What if the house doesn't bring in rent 12 months of every year ? ( renting to family is a liability in itself in many cases ) What if the net income from rental is severely reduced by unexpected high maintenance costs ? What if interest rates were to rise to 7% ?

I can admire people who are able to see the risks and are still prepared to take them - they deserve the potential gains, easy though they might appear. Sadly I think most are lured without properly considering the situation.

Personally, I couldn't sleep at night with that much debt.

:unsure:

Edit: Meant to write total borrowing of £356,000 of course.

And of course, the forum member whose opinion on this would be far more thought provoking would be Time to Raise the Rents !

Edited by struthitsruth

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Mmmm.

In the end though you are right, the total borrowing amounts to £365.  What if the house doesn't bring in rent 12 months of every year ? ( renting to family is a liability in itself in many cases )  What if the net income from rental is severely reduced by unexpected high maintenance costs ? What if interest rates were to rise to 7% ? 

I can admire people who are able to see the risks and are still prepared to take them - they deserve the potential gains, easy though they might appear.  Sadly I think most are lured without properly considering the situation.

Personally, I couldn't sleep at night with that much debt.

:unsure:

Edit:  Meant to write total borrowing of £365,000 of course.

And of course, the forum member whose opinion on this would be far more thought provoking would be Time to Raise the Rents  !

i agree with your assessement

highhly levearged deals have clearly made mega bucks for people in the past- this person may well hit the jackpot.

however, eventually the deck of cards will tumble down and someone will be left with serious losses.

helluva gamble if you think you can avoid the fallout.

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I'm not quite sure that I can believe this.

If we take his option "Sell my house to buy the flat.", what he seems to be saying is, should I get myself 50K more in debt so that I can live in a flat rather than a house?

OK, I know he might have to move for work and the flat might be in a better area but something's not right!

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I'm not quite sure that I can believe this.

If we take his option "Sell my house to buy the flat.", what he seems to be saying is, should I get myself 50K more in debt so that I can live in a flat rather than a house?

OK, I know he might have to move for work and the flat might be in a better area but something's not right!

Even if he is not moving out of his area, a flat may be a better option.

I notice you come from Sevenoaks so a good example would be moving from a 2 bed house in the Bat & Ball/Greatness area to a two bed flat in say, the Oakhill/Kippington Road area.

The latter would be a lot more expensive, but a much more palatable experience!

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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