Mortgages - thinking of buying a flat

[bmwmike]

hi

So I realise I'm late to the game with this one, but here's the situation. Have a low LTV on the family home, and good bit of equity. Early 40's both he and she in age. She not working, but will be soon.

Currently considering either a flat (~110-130k) or a small business (~60k) as a way to spend some spare capacity in my monthly pay cheque, plus it provides (IMO) a level of security as presently we are too dependent on the single source of income. £130k would see us upto around 55% LTV.

Initially I was going to take out a second mortgage and pay the deposit in cash. Now I'm wondering if we might be better increasing the mortgage on the main place and paying for the flat or business outright? In my head, it seems to keep it simpler plus I keep my cash/investments in the bank for a rainy day. Also on said rainy day regardless of what happens, we have a flat paid outright.

My question, in the midst of all my waffle - is this crazy, and do banks generally allow equity withdrawal in this way?

Thanks
Mike

[bmwmike]

Thanks - less keen to start a business in the sense that we'd have to put 50% or whatever in, or just in principle they don't tend to go for that?

If going for a flat, would you say its best to mortgage the flat (have two mortgages) or pay it outright and have one larger mortgage?

Guess i need to speak to HSBC really..!

Cheers

[bmwmike]

Thanks sarnie


Wasn't too worried about tax relief but will check


Btw wasn't starting a business but buying an existing one.. apologies for confusion. Does that change anything ?

[bmwmike]

Ozzie Osmond said:

What's your plan for when interest rates rise and your net income from the flat after tax doesn't even cover your increased borrowings?

Why not,

• Pay off some more of your existing mortgage, and/or
• Invest in a stocks & shares ISA?

Less hassle, less debt, greater flexibility.

And how's your pension planning? Are you in a position to hoover up some nice 40% tax relief while it lasts?

Thanks for your message.

Interest rates arent going anywhere for a long while, and even if they do, I can cover them back up to normal levels. Any more than normal levels there'll be a lot of other folks suffering before I feel the squeeze, and I don't think they'll let that happen anyway. The entire UK is built on debt.

I plan on overpaying the capital anyway.

Already have stocks.

Pensions meh, already paying in around 10%, doubt i'll get to see the value and frankly, a flat or second (or third!) physical tangible asset is far better IMO as I can pay it off by retirement and leave it to the kids etc. I don't care for a new car or any of that crap, so the money i would have paid on a new car per month i shove into a mortgage to buy a flat. Except then I realised the tenant could pay off a chunk of that. I have found a flat for £110k with a sitting tenant (long term) and they are paying £550 per month. I've had a flat before so have a little understanding of what i'd be getting myself into. I could cover the mortgage payments myself out of spare cash anyway, so times when its not rented, I am confident would be OK. Interest rates going up i'll probably fix for 5 years anyway, as the spread between fix and tracker is minimal at the moment and fixes with HSBC allow 10% overpayments.

TBH can see where you're coming from as I've always been of the mindset that less debt is better but actually, the way the system works, debt is not a bad thing if managed properly.

[bmwmike]

Good spot on the contradiction regarding fix vs tracker

Would depend on the spread and total loan amount at the end of the day.

Businesses.. a local card shop for 30k, for example. Local retail basically, excluding convenience stores etc. Again,not set on it. Just feel I should be taking more risks while I can and whilst I have time. Midlife crisis perhaps... maybe I should get something with 2 wheels instead

Sensible option would be just overpay mortgage and get it paid off but to what end. Prefer try and get at least one other property under my belt by retirement age.