Mortgage, buy to let and pension pot
Discussion
I have been reading with interest the many informative topics and the replies so i thought it was near time i stopped reading and got a topic started for myself.
I (29) am currently renting with my girlfriend (24) and her daughter from a previous relationship (5) and we are planning to jump on the first step of the property ladder... At the moment i have saved a £20K deposit and £1k for fees etc, my partner has zero savings and coupled with a very low income has no chance of saving. We are looking at a house value of £120-130K in the area where we are renting as we know the area and schools, initial monthly repayments should be in the region of £550-600 a month which is slightly less than our current rental £625 per month (my partner pays me £250 per month towards bills and rent).
Thats a little of the history so will cut to the chase;
My income is ~£46k before tax, i have no debt except a student loan to the tune of £15k being repaid at £300 per month.
I will be the sole mortgage holder.
My partner will pay £200-250 towards bills/mortgage per month (exact figure TBC).
I will get a deed of trust in place that covers my input on the deposit/fees and the higher % of the mortgage incase of separation.
Now the tricky bit, we plan to live there and have another child and move after 3 years to a bigger "home" in the same area in the region of £170k -current values unlikely to increase massively over the next three years IMO. To fund this i plan on continuing to save £1k a month to build a deposit of £36k, i also plan on renting the first house which will cover the repayment mortgage ( i will get a change of mortgage from residential to BTL) and once this is paid off it'll be our pension as such in either resale value or from the rental income.
Now after all my ramblings i hope it has made sense, question is though is it a feasible and sensible longterm option?
Advice welcomed
I (29) am currently renting with my girlfriend (24) and her daughter from a previous relationship (5) and we are planning to jump on the first step of the property ladder... At the moment i have saved a £20K deposit and £1k for fees etc, my partner has zero savings and coupled with a very low income has no chance of saving. We are looking at a house value of £120-130K in the area where we are renting as we know the area and schools, initial monthly repayments should be in the region of £550-600 a month which is slightly less than our current rental £625 per month (my partner pays me £250 per month towards bills and rent).
Thats a little of the history so will cut to the chase;
My income is ~£46k before tax, i have no debt except a student loan to the tune of £15k being repaid at £300 per month.
I will be the sole mortgage holder.
My partner will pay £200-250 towards bills/mortgage per month (exact figure TBC).
I will get a deed of trust in place that covers my input on the deposit/fees and the higher % of the mortgage incase of separation.
Now the tricky bit, we plan to live there and have another child and move after 3 years to a bigger "home" in the same area in the region of £170k -current values unlikely to increase massively over the next three years IMO. To fund this i plan on continuing to save £1k a month to build a deposit of £36k, i also plan on renting the first house which will cover the repayment mortgage ( i will get a change of mortgage from residential to BTL) and once this is paid off it'll be our pension as such in either resale value or from the rental income.
Now after all my ramblings i hope it has made sense, question is though is it a feasible and sensible longterm option?
Advice welcomed
Buying and selling home is expensive and a huge amount of hassle, more so if you have a young family.
Time will also be at a premium. Do you really want the hassle of dealing with tenants and another house at such a time?
It's also a risk...how would a drop in property values or an increase in interest rates affect you? Would you still be able to carry out your plan? What would you do if you couldn't get tenants, or if they turned bad a wrecked the place, or didn't pay their rent?
IMHO your first priority should be to house your family in a suitable accomodation. If you find you have money left over after that (which you won't), then great.
Time will also be at a premium. Do you really want the hassle of dealing with tenants and another house at such a time?
It's also a risk...how would a drop in property values or an increase in interest rates affect you? Would you still be able to carry out your plan? What would you do if you couldn't get tenants, or if they turned bad a wrecked the place, or didn't pay their rent?
IMHO your first priority should be to house your family in a suitable accomodation. If you find you have money left over after that (which you won't), then great.
Will your partner be on the deeds of the property? If so she will need to be a party to the mortgage, even if her income is negligible (although any maintenance, tax credits etc may be taken into account by the lender to help affordability.)
If you decide to own the house in your sole name, your income should cover the mortgage you are considering, but her £200-250 contibution will not be taken into account by the lenders for affrodability purposes.
You are starting at ~85% LTV, in 2-3 years time you are either going to have to have paid sufficient off the first mortgage (or house vales need to have risen by enough) that you will be able to remortgage onto a BTL. Currently these pretty much top out at 75% LTV (there are 80 & 85% ltv schemes available, but the rate/fees are sky high) You will also have to receive enough in monthly rental to cover 125% of the monthly mortgage payment. It may be that in a few years the BTL market will have more options for you, but right now, who knows.
Will it be a good income/pension pot? A lot of people are betting on this, but you'll need to wait a few years to find out if your gamble paid off.
Have you considered stratching yourselves now to buy the more expensive place and then buy the BTL in 3 years time?
If you decide to own the house in your sole name, your income should cover the mortgage you are considering, but her £200-250 contibution will not be taken into account by the lenders for affrodability purposes.
You are starting at ~85% LTV, in 2-3 years time you are either going to have to have paid sufficient off the first mortgage (or house vales need to have risen by enough) that you will be able to remortgage onto a BTL. Currently these pretty much top out at 75% LTV (there are 80 & 85% ltv schemes available, but the rate/fees are sky high) You will also have to receive enough in monthly rental to cover 125% of the monthly mortgage payment. It may be that in a few years the BTL market will have more options for you, but right now, who knows.
Will it be a good income/pension pot? A lot of people are betting on this, but you'll need to wait a few years to find out if your gamble paid off.
Have you considered stratching yourselves now to buy the more expensive place and then buy the BTL in 3 years time?
Took a chance and viewed a house today at lunchtime for sale at £130k currently without chain that has previously been rented out and is now vacant ready for sale. I wanted to see what our 130k would get in the area first hand.... results were interesting!!! Every carpet needs replacing due to wear, kitchen is visibly fine but very worn/chipped/damp damaged mdf/poorly fitting, bathroom suite again is badly worn and in need of updating of tiles and sealing around shower and bath, garden is a shambles of weeds and hardcore, gas boiler last checked in 2007 (even though its been rented out), the plasterboard walls are full of picture hook holes and finally there are signs of damp in some areas of the patio door frame to the garden.
This has opened my eyes that the house in question will quickly swallow up cash to make it livable for us and secondly with a view to rental it'd need cash spent (will give that one a miss). It also shows what a house will look like after the neglect of rental tenants-mind you we are renting but take care of the place.
To answer some questions;
Minor property value/interest rate fluctuations i could absorb to some degree but savings would have to be put on hold, the property i've been looking at should be relatively safe given the low value and worst case i could just afford both mortgages but funds would be severely stretched.
I would most likely have only my name on the mortgage and deeds.
My partners contributions will not affect my mortgage entitlement to a vast degree and hence i'd prefer to go it alone but the contributions and "common law" may see me in financial trouble should we part company and i have not protected myself to some degree. I'm not sure if Eric was hinting at this with regard to no more children but that may make things more binding than common law? and the 15% CSA would hurt financially.
After 3 years i don't believe we'll have paid off enough on the mortgage ( i calculate ~£7800 based on interest rate of 3.9% and payments of £550 per month against 105000 loan, math was never a strong point so correct me if i'm way off target here) to be granted a BTL on the first property without overpaying which will obviously affect the saving idea...
In summary i think our best option is to keep renting and saving with a view to buying a 3 bed semi with decent garden and garage for £150-160k that'll be a family home and in a few years buy a <£90k terrace and rent it out with a lick of paint and a gas safety check.
What measures do i need to take now to make sure i don't get stiffed after a separation?
This has opened my eyes that the house in question will quickly swallow up cash to make it livable for us and secondly with a view to rental it'd need cash spent (will give that one a miss). It also shows what a house will look like after the neglect of rental tenants-mind you we are renting but take care of the place.
To answer some questions;
Minor property value/interest rate fluctuations i could absorb to some degree but savings would have to be put on hold, the property i've been looking at should be relatively safe given the low value and worst case i could just afford both mortgages but funds would be severely stretched.
I would most likely have only my name on the mortgage and deeds.
My partners contributions will not affect my mortgage entitlement to a vast degree and hence i'd prefer to go it alone but the contributions and "common law" may see me in financial trouble should we part company and i have not protected myself to some degree. I'm not sure if Eric was hinting at this with regard to no more children but that may make things more binding than common law? and the 15% CSA would hurt financially.
After 3 years i don't believe we'll have paid off enough on the mortgage ( i calculate ~£7800 based on interest rate of 3.9% and payments of £550 per month against 105000 loan, math was never a strong point so correct me if i'm way off target here) to be granted a BTL on the first property without overpaying which will obviously affect the saving idea...
In summary i think our best option is to keep renting and saving with a view to buying a 3 bed semi with decent garden and garage for £150-160k that'll be a family home and in a few years buy a <£90k terrace and rent it out with a lick of paint and a gas safety check.
What measures do i need to take now to make sure i don't get stiffed after a separation?
I suppose you heard the outcome of the recent court case ( Jones V' Kernot - only last week)?
It essentially solidified the legal view that unmarried couples are in a much more dangerous position when it comes to property valuations on separation.
http://www.morrlaw.com/news/jones-v-kernott-man-lo...
It essentially solidified the legal view that unmarried couples are in a much more dangerous position when it comes to property valuations on separation.
http://www.morrlaw.com/news/jones-v-kernott-man-lo...
Thanks Eric for that link, i had not read that specifically but have read that unmarried couples are in a difficult position with the law as some benefit the cohabiting and some the married...... For example if i died and we were not married she'd have no say in the house but if married she'd get the lot? Declaration of trusts are certainly not pretty or loving but its something we have discussed and at the moment my partner accepts that it is a reasonable step. The cohabitation agreement is not something i've read about but google will explain 
Thanks for the help ans advice so far, thats why i posted here!!
Thanks for the help ans advice so far, thats why i posted here!!
There have been a few atempts by some MPs to have the law changed regarding long term cohabiting couples but most governments so far have been reluctant to change the law to remove yet another reason for getting married. Essentially, as itr currently stands, if either party wants the assuredness of the property rights that stem from being married, the advice is to get married.
Another area worth looking at are the issues surrounding succession rights and access to joint bank accounts,. These areas can turn out to be pretty fraught for unmarried couples.
Another area worth looking at are the issues surrounding succession rights and access to joint bank accounts,. These areas can turn out to be pretty fraught for unmarried couples.
pharmvrs said:
In summary i think our best option is to keep renting and saving with a view to buying a 3 bed semi with decent garden and garage for £150-160k that'll be a family home and in a few years buy a <£90k terrace and rent it out with a lick of paint and a gas safety check.
What measures do i need to take now to make sure i don't get stiffed after a separation?
Sounds like a very sensible option as for not getting stipped if you separate don't even think about it try not to separate. What measures do i need to take now to make sure i don't get stiffed after a separation?
With regards to property as a pension pot or assisting towards a pension pot I like the idea a lot dont but the way I see it teachers and civil servants thought they were lauging all the way to an early retirement look at them now, many in the private sector have lost their pension pots or had them significantly reduced if you can keep up repayments and have good tennants for 20 years your house isn't going to go anywhere its going to be a pretty safe top up to a pension in the future.
I have similar ideas re BTL etc. Surprised u have so many plans tho and u have only just looked at one house! Enjoy buying your first house. U learn a lot and gain a lot of confidence. Then go for the BTL. one thing I would say is ur deposits seem high! Are u wanting a higher deposit for lower interest charges? Surely un can still get 90% mortgages? Re house value, say u n your lass have 50k pa, that should get you 175. Your deposit not included in that so u have a 195k budget! Ppl always say get the best u can. I suppose if u go for something less though it will leave more cash for the BTL later.
In an ideal world the BTL would have perfect paying tenants for every month of my ownership but in reality its never going to be that straightforward (as we've all read the real life experiences here). This is my reason for aiming for a low value BTL as i would be able to cover the lean periods and the expected damage. Plus no point getting £550 per month rent against a £130k mortgage when i could get £500 against a £80k mortgage.......
I have a salary of ~£46k pre tax so i would expect a fairly decent mortgage proposal but that doesn't mean i have to spend every penny of it and would prefer to live a little more sensibly in a reasonable home that is not beyond my means and would allow for confortable overpayents.
I have too many plans and perhaps not enough action, time to start playing the game and get more viewings organised to see what money can buy and to speak to some financial gurus-thanks for the PM's i shall be in touch
From my basic math i'd be better off saving £1k a month which would literally take 6 months off a reasonable month.
I have a salary of ~£46k pre tax so i would expect a fairly decent mortgage proposal but that doesn't mean i have to spend every penny of it and would prefer to live a little more sensibly in a reasonable home that is not beyond my means and would allow for confortable overpayents.
I have too many plans and perhaps not enough action, time to start playing the game and get more viewings organised to see what money can buy and to speak to some financial gurus-thanks for the PM's i shall be in touch
From my basic math i'd be better off saving £1k a month which would literally take 6 months off a reasonable month.
A few points based on my opinion:
£1k for fees is not enough.
Moving and remortgaging is expensive and in the context of home ownership 3 years is not a long time - why not continue saving for the bigger house (you may be able to get it sooner)? If property prices are not going to move much as you suggest you will not get 'left behind'.
Using buy to let as a pension on an average family income with two children is not a good idea. Too many risks and financial burdens. Concentrate on providing the best family home you can and put any extra money into pensions/savings. You can always downsize when retiring once your children have grown up and moved out to enhance your retirement fund.
£1k for fees is not enough.
Moving and remortgaging is expensive and in the context of home ownership 3 years is not a long time - why not continue saving for the bigger house (you may be able to get it sooner)? If property prices are not going to move much as you suggest you will not get 'left behind'.
Using buy to let as a pension on an average family income with two children is not a good idea. Too many risks and financial burdens. Concentrate on providing the best family home you can and put any extra money into pensions/savings. You can always downsize when retiring once your children have grown up and moved out to enhance your retirement fund.
Me(25) and my GF(24) have just bought our first house after renting for 5 months or so, Our Sols fees we're £850, + £30 completion fee from the bank, We both agreed although the bank could lend us £200k+ (and one big high street bank would lend us £300k!!!! 
) we decided we would also like to live our lives without struggling for cash towards the end of the month. Therefore we settled on a house that was just right (180k house with 20% LTV, with our repayments being at £622pm, and the repayments would see us with money to do things such as holidays, nights out, weekends away etc. Your right in protecting your cash incase the worst happens and you go your seperate ways, I've now got to watch my back for the next 30 years as if i kick the bucket, the OH gets the house in her name all paid off.
) we decided we would also like to live our lives without struggling for cash towards the end of the month. Therefore we settled on a house that was just right (180k house with 20% LTV, with our repayments being at £622pm, and the repayments would see us with money to do things such as holidays, nights out, weekends away etc. Your right in protecting your cash incase the worst happens and you go your seperate ways, I've now got to watch my back for the next 30 years as if i kick the bucket, the OH gets the house in her name all paid off. Eric Mc said:
Don't have another child.
Very good Eric! (I'll second that)Wife & I could have gone to the maldives every year and paid mortgage down pretty fast. But slightly bigger house, and 2 kids later = no money!
(full time nursery for 2 kids = £20k - just for nursery)
OP - I do like your plan however.
I was being a bit of a smart-alec but I really do think people do compartmentalise different aspects of their lives. Having children seems to be embarked on in an "emotional needs" rather than an "economic" frame of mind.
Having a child is probably the single biggest commitment anyone can make, both emotionally AND economically and yet people seem to go about it on an almost casual basis.
I'm certaionly not saying don't have chil;dren - but have a decent financial bedrock in place before you head off down that particular route.
Having a child is probably the single biggest commitment anyone can make, both emotionally AND economically and yet people seem to go about it on an almost casual basis.
I'm certaionly not saying don't have chil;dren - but have a decent financial bedrock in place before you head off down that particular route.
I've taken alot of what you guys have said onboard and after a poor viewing yesterday i know we know we need to buy the family home first then the BTL property as opposed to what i'd originally proposed. The BTL property should be relatively self funding once the initial deposit is saved so can quietly mature as the years pass with very little input from myself whilst i can divert money into ISA's etc etc for my eventual retirement.
Children are expensive there is no doubt about that and i think i ought to start running a nursery instead of a pharmacy after looking at some of their fees. When you weigh up the pros and cons of nursery/breakfast club/after school club it soon becomes apparent that for a parent like my partner on a low wage its not woth going to work full time to earn basically £3 an hour once the fees have been taken off. A pharmacist friend of mine has two kids both in nursery full time and is paying just shy of £2k a month........ now where is the sense in working fulltime to not see your kids and to make someone else rich? (another tread maybe)
Eric your first comment made me chuckle and having done my homework on who posts what on PH i took it as it was intended
With regard to the other comments surrounding the longevity of the relationship we've been together three years and gone through a court case that lasted 14 months for my partner to be granted permission to move 65 miles so we could live together (due to childs father kicking up a stink). That was the toughest time in our lives and i'm not looking for sympathy but hopefully it puts the relationship into context. If it does go tits up then i'm simply trying to keep myself safe, i won't link any threads but there are plenty of men on here that have got stiffed by their women and we can all learn from that. The deed of trust costs less than £100 and my partner is happy with it as she says its fair, so based on that i'd be silly not to take that insurance.
Children are expensive there is no doubt about that and i think i ought to start running a nursery instead of a pharmacy after looking at some of their fees. When you weigh up the pros and cons of nursery/breakfast club/after school club it soon becomes apparent that for a parent like my partner on a low wage its not woth going to work full time to earn basically £3 an hour once the fees have been taken off. A pharmacist friend of mine has two kids both in nursery full time and is paying just shy of £2k a month........ now where is the sense in working fulltime to not see your kids and to make someone else rich? (another tread maybe)
Eric your first comment made me chuckle and having done my homework on who posts what on PH i took it as it was intended
With regard to the other comments surrounding the longevity of the relationship we've been together three years and gone through a court case that lasted 14 months for my partner to be granted permission to move 65 miles so we could live together (due to childs father kicking up a stink). That was the toughest time in our lives and i'm not looking for sympathy but hopefully it puts the relationship into context. If it does go tits up then i'm simply trying to keep myself safe, i won't link any threads but there are plenty of men on here that have got stiffed by their women and we can all learn from that. The deed of trust costs less than £100 and my partner is happy with it as she says its fair, so based on that i'd be silly not to take that insurance.
Put simply we have not got the money to get married and buy a house so its one or the other basically, yes marriage can be done cheaply but that does not interest us so would rather wait until we can afford it. Likewise some friends have got engaged and have been for some years with no intention/money to get married so frankly we don't see the point being engaged. Its a bit like having a car but not being able to afford petrol IMO.
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