Best way to spend 50K on property?

FutileBreadMachine · 11 Oct 2012 at 21:42

My wife and I have saved up 50K, so we are debating how best to spend it on property, and since you guys helped us out with our wall problem, she actually suggested I ask you about this too

So as it stands we have about £120k left on our mortage on this flat (on a 2.5% tracker), and we also owe 25% of the current value to the government (they gave us a 25% equity loan). So let's estimate we owe them 50K, and currently I pay them a fee of about £80pm.

Now the problem is we actually want to buy a house, since we need more space. So what do you guys reckon?
A) Spend the 50K on the mortgage and then save up to buy a house some time in the future
B) Buy out the goverment share and save £80pm, then save for a house deposit.
C) Use the 50K as a deposit on a house and rent out this flat. This would also entail buying out the government share, since we aren't allowed to rent it out as long as they have a share. So we would have to get a buy-to-let mortgage on this place I think to buy out the goverment.

So overall we don't want to have to sell this place since I've stopped paying into a pension and would rather put my money into a house and flat. The main question really is whether to spend the money on the mortage/goverment loan, or to try get a house with it.

Before you get any ideas, I don't want to spend it on drugs and hookers, and I don't want to burn or nuke anything

tom_e · 11 Oct 2012 at 21:52

I'd rent the flat to cover its mortgage the buy a house.

Destination · 11 Oct 2012 at 21:55

Okay 120K left, 200K value, (50K of which is govt), so 170K left debt on your 200K.
50K savings.

Options,
Buy to let the 200K, LTV is 85% (170K), pushing it at that rate, doubt you'd get any rates sub 7-8%, monthlys will be over 1.1K, would rent cover such an option?
Sell property, move to new house, profit from sale region of 20K after all fees, add to 50K, have 70K for deposit, should be a reasonable amount to try to purchase with, LTV will be lower, and current homeloans can be discounted at a good rate as opposed to nailed on the buy to lets.

Paying off the 50K to save 80 per month is worst option, as 80 a month for a 50K loan seems incredibly low. Thats just above base interest.

Your mortgage is certain to be costing more, so knocking a chunk out of it woul yield better results I would think.

Won't give advice not in your situation.

FutileBreadMachine · 11 Oct 2012 at 21:55

tom_e said:
I'd rent the flat to cover its mortgage the buy a house.

Yeah this would be ideal, the only thing is I don't know if it's better to pay off some of the existing mortage, or use the money as a deposit on the house. I guess I would have to go speak to some bank managers, but I thought I would check with the friendly folk on GD first.

Spangles · 11 Oct 2012 at 21:58

Spend it on drugs & hoo.... oh. Nevermind.

FutileBreadMachine · 11 Oct 2012 at 21:59

Hikari Kisugi said:
Okay 120K left, 200K value, (50K of which is govt), so 170K left debt on your 200K.
50K savings.

Options,
Buy to let the 200K, LTV is 85% (170K), pushing it at that rate, doubt you'd get any rates sub 7-8%, monthlys will be over 1.1K, would rent cover such an option?
Sell property, move to new house, profit from sale region of 20K after all fees, add to 50K, have 70K for deposit, should be a reasonable amount to try to purchase with, LTV will be lower, and current homeloans can be discounted at a good rate as opposed to nailed on the buy to lets.

Paying off the 50K to save 80 per month is worst option, as 80 a month for a 50K loan seems incredibly low. Thats just above base interest.

Your mortgage is certain to be costing more, so knocking a chunk out of it woul yield better results I would think.

Won't give advice not in your situation.

Cheers for the advice, the goverment loan was for a first time buyer scheme, so I only pay a low fee on the loan for the first 5 years I think. It's a 2 bed flat, and here in Sutton they can fetch £1200pm, but I was thinking £1k would be fine to cover a buy-to-let mortgage.

Vanilla · 11 Oct 2012 at 22:01

Surely you can't move out and rent the flat to cover the itself because of the government share? You'd have to first buy out the government which would mean you lose your 50K and are back to saving up again?

Just letting the property without doing it formally can come back and hurt you. To let any mortgaged property you need the approval of the mortgage lender and many tenants are advised to check this (as well as the fact you have the right insurance).

There's a huge thread on MSE all about checking your landlord has permission to rent.

http://forums.moneysavingexpert.com/showthread.php?t=1377883

Vanilla · 11 Oct 2012 at 22:02

RationalGaze said:
Cheers for the advice, the goverment loan was for a first time buyer scheme, so I only pay a low fee on the loan for the first 5 years I think. It's a 2 bed flat, and here in Sutton they can fetch £1200pm, but I was thinking £1k would be fine to cover a buy-to-let mortgage.

A few tips on BTL mortgages - they want an income of at least £30k and the rest should cover 125% of the mortgage.

FutileBreadMachine · 11 Oct 2012 at 22:05

Vanilla said:
Surely you can't move out and rent the flat to cover the itself because of the government share? You'd have to first buy out the government which would mean you lose your 50K and are back to saving up again?

Just letting the property without doing it formally can come back and hurt you. To let any mortgaged property you need the approval of the mortgage lender and many tenants are advised to check this (as well as the fact you have the right insurance).

There's a huge thread on MSE all about checking your landlord has permission to rent.

http://forums.moneysavingexpert.com/showthread.php?t=1377883

Yeah I covered this in C

"C) Use the 50K as a deposit on a house and rent out this flat. This would also entail buying out the government share, since we aren't allowed to rent it out as long as they have a share. So we would have to get a buy-to-let mortgage on this place I think to buy out the goverment."

So I'm not sure how it would work. We would need £170K to get rid of the current mortgage and the goverment equity loan, so I don't know if another bank would just give me that - I expect they would want a deposit from me, so there goes my house deposit!

cm1179 · 11 Oct 2012 at 22:07

give the £50k back to the tax payer.

FutileBreadMachine · 11 Oct 2012 at 22:16

cm1179 said:
give the £50k back to the tax payer.

What?

Destination · 11 Oct 2012 at 22:49

He means repay the govt part, it is afterall a v cheap interest loan from the taxpayer.

233 · 11 Oct 2012 at 22:56

pay off whatever has the highest rates. either that or sell up release the profit you have in the current flat and then use that plus your 50k as deposit on a house

FutileBreadMachine · 11 Oct 2012 at 23:01

Hikari Kisugi said:
He means repay the govt part, it is afterall a v cheap interest loan from the taxpayer.

Ah I see, I thought he was referring to tax dodging like Amazon, Facebook and Google have been reported doing in the papers

Yeah I think the FTB loans are a bad way to get people on the property ladder, since they are helping to keep prices at their staggeringly high levels, but I wasn't going to say no to such a low rate loan.

Simon · 11 Oct 2012 at 23:06

£80pm is very cheap so don't pay that.

Your mortgage rate is low too so you'd be better off putting as much as you can into an ISA account that pay a higher rate of interest. Paying off the mortgage makes no sense in this scenario.

If you do rent out the flat you will want as much equity in the house and as little in the flat for tax return purposes as you can offset the interest.

FutileBreadMachine · 11 Oct 2012 at 23:11

Simon said:
£80pm is very cheap so don't pay that.

Your mortgage rate is low too so you'd be better off putting as much as you can into an ISA account that pay a higher rate of interest. Paying off the mortgage makes no sense in this scenario.

If you do rent out the flat you will want as much equity in the house and as little in the flat for tax return purposes as you can offset the interest.

You're right, I am loathe to leave such a low rate. I got the mortage just before 2009, so when the 2yr deal was up, it dropped onto the BMR, which you can't get anymore (they replaced it with the SMR which they can set themselves, so they set it higher). So if I leave this mortgage for a BTL one, I will forgo my really nice current rate.

Simon · 11 Oct 2012 at 23:14

Unless you can port the current mortgage to the new house and top up with another product ?

FutileBreadMachine · 11 Oct 2012 at 23:19

Simon said:
Unless you can port the current mortgage to the new house and top up with another product ?

That would be brilliant. I will have to speak to my lender (Nationwide) about that, but I have a feeling they will not want me to keep this good deal and will try to "upsell" me to a higher rate. I was hoping they would keep it simple and just bump up the current mortgage to buy out the goverment, then I would be allowed to rent this place out and just keep it ticking along on the 2.5% rate.

aln · 11 Oct 2012 at 23:26

A or C. B is financially stupid. If you can manage C, go for it.

P.S. If you're on a first time buyer scheme, the Gov % counts as towards your LTV %, which means any new deal you get will be based on your own LTV rate, not the one boosted by the Gov. The only way you'll keep your deal is if you still own +60% of the property (and you're sticking with the same sort of mortgage).

Your mortgage rate is low too so you'd be better off putting as much as you can into an ISA account that pay a higher rate of interest. Paying off the mortgage makes no sense in this scenario.

This too.

Actually B isn't a bad idea if the value of your property has went up since buying. I was assuming it hasn't, but if it has you should look into whether or not you'll repay at the value you paid or the current value.

FutileBreadMachine · 11 Oct 2012 at 23:44

aln said:
A or C. B is financially stupid. If you can manage C, go for it.

P.S. If you're on a first time buyer scheme, the Gov % counts as towards your LTV %, which means any new deal you get will be based on your own LTV rate, not the one boosted by the Gov. The only way you'll keep your deal is if you still own +60% of the property (and you're sticking with the same sort of mortgage).

This too.

Actually B isn't a bad idea if the value of your property has went up since buying. I was assuming it hasn't, but if it has you should look into whether or not you'll repay at the value you paid or the current value.

It's an equity loan, so the government owns 25% of the place, so if I sell it, I have to give them 25% of the sale price, and if I want to buy more equity back from them, I have to pay for a surveyor to evaluate the place, and then I would pay however much it was worth at the time. So it's actually in my interest for property prices to fall, so in effect I owe them less money, but after checking some property price sites, flats here have been going up every year. I think it's the London effect.