Financing Second House Purchase?

[peterperkins]

OK. Question for the PH Finance gurus..

I own my modest home. Value 100k no mortgage.
I have about 30k deposit available.
I am 56 years old in receipt of a modest pension of £1700 a month and can afford a mortgage.

Next door has come up for sale. Identical property to mine. Price 95k

It has a pleasant Polish couple in residence as (medium term tenants) paying £475 PCM in rent.
They have stated to me they want to stay if the property is sold for at least another year.
I have looked round it, it needs redecorating but nothing major. .

Now if i wanted to buy it and rent it out what is the best and cheapest finance option?

Mortgage my own property to the tune of 65k and buy the one next door outright as cash buyer 65K + my 30k?
Buy the one next door with a 65k BTL mortgage on that property and my 30k as deposit?

or perhaps

Buy the new house as my residence and rent out my current house?

Any other brilliant ideas?

I assume that as the other house is currently rented out it probably meets the various rental/landlord safety criteria and gadgets checklist.
Obviously I can check this..

[Saleen836]

Don't forget the lovely stamp duty!

[Sir Bagalot]

The best way to finance it is loan on your house and buy it outright. Not all lenders will allow this as a/ not all like giving finance to buy another property, b/ not all will lend to buy next door.

Ask Sarnie here and he'll help you

[red_slr]

Not worth bothering IMHO. You are in a nice solid position why take on a load of debt. The current tenants might seem alright but you never know plus in a year they will be gone and you could end up with a nightmare.

[Testaburger]

Not remotely my area of expertise, but it doesn’t look to make much sense.

65k borrowing over 25 years will be around 400 a month. Reducing the term (which I assume you’d want to do at 56) will increase the repayments.

Factor in the 2.5k or so SDLT and a couple of grand to redecorate, and it looks like a chunk of debt & expenditure for a very small profit.
That’s before you’ve considered maintenance/vacancy etc.

I think your savings are better off elsewhere.

[peterperkins]

Thanks for the advice so far. Looks like a non starter then at the minute..

[stongle]

Testaburger said:

Not remotely my area of expertise, but it doesn’t look to make much sense.

65k borrowing over 25 years will be around 400 a month. Reducing the term (which I assume you’d want to do at 56) will increase the repayments.

Factor in the 2.5k or so SDLT and a couple of grand to redecorate, and it looks like a chunk of debt & expenditure for a very small profit.
That’s before you’ve considered maintenance/vacancy etc.

I think your savings are better off elsewhere.

On a spreadsheet no. However, of the OP wants a quiet life / influence his choice of neighbours it's a relatively small premium to pay. If you can chip next door down to 90k, an 11yr mortgage should cone in around 575-620ish.

At the lower end, your sinking 100quid plus costs a month but buying an asset that can liquidated later.

It's very skinny, but quality of life is massively important (in retirement at least) - dodgy tenements may be an issue local to OP.

Saying all that, affordability does look tight!!!

[Testaburger]

stongle said:

On a spreadsheet no. However, of the OP wants a quiet life / influence his choice of neighbours it's a relatively small premium to pay. If you can chip next door down to 90k, an 11yr mortgage should cone in around 575-620ish.

At the lower end, your sinking 100quid plus costs a month but buying an asset that can liquidated later.

It's very skinny, but quality of life is massively important (in retirement at least) - dodgy tenements may be an issue local to OP.

Saying all that, affordability does look tight!!!

True, although buying out your neighbours to have neighbourly relations of your choosing, is a fairy left-field stance.

Not sure that was the OP’s angle!

[Killer2005]

Sir Bagalot said:

The best way to finance it is loan on your house and buy it outright. Not all lenders will allow this as a/ not all like giving finance to buy another property, b/ not all will lend to buy next door.

Ask Sarnie here and he'll help you

I've seen it quite a lot at work (BTL mortgage underwriter), and unless there was something of concern then there wouldn't be an issue with buying next door.

[stongle]

Testaburger said:

True, although buying out your neighbours to have neighbourly relations of your choosing, is a fairy left-field stance.

Not sure that was the OP’s angle!

He's not buying out his neighbours; but neighbours landlord (guaranteeing a pleasant neighbour for longer). Of course the next tenant could be an utter c**t; so really difficult to know. WIth a safe'ish sitting tenant; I think the short term risk here is fairly minimal unless house prices in the area tank (no information given on area).

Anyway, we're off thread. @ 56; is not coming out of retirement for a bit an option? Even if part time; sure it would go along way on affordability (and in 60's liquidate asset and buy annuity / drawdown / other passive invest?).

[Testaburger]

stongle said:

He's not buying out his neighbours; but neighbours landlord (guaranteeing a pleasant neighbour for longer). Of course the next tenant could be an utter c**t; so really difficult to know. WIth a safe'ish sitting tenant; I think the short term risk here is fairly minimal unless house prices in the area tank (no information given on area).

Anyway, we're off thread. @ 56; is not coming out of retirement for a bit an option? Even if part time; sure it would go along way on affordability (and in 60's liquidate asset and buy annuity / drawdown / other passive invest?).

Semantics at its finest!

As you say, there are no guarantees unless you keep it vacant...

[BoRED S2upid]

65 or 70k BTL interest only mortgage keep the payments down to say £175 a month £300 in the bank to boost your pension don’t bother redecorating until change of tenancy. Works well for pensioners throughout the country.

Living next door could work for or against you though yes you can keep an eye on it and them but they know where to come if there’s an emergency at 2am.

[Testaburger]

BoRED S2upid said:

65 or 70k BTL interest only mortgage keep the payments down to say £175 a month £300 in the bank to boost your pension don’t bother redecorating until change of tenancy. Works well for pensioners throughout the country.

Living next door could work for or against you though yes you can keep an eye on it and them but they know where to come if there’s an emergency at 2am.

That could (potential landlord risks aside) increase cash flow, but out of curiosity, what are the chances of getting an IO mortgage at 56 with an income as described by the OP?

[BoRED S2upid]

Testaburger said:

BoRED S2upid said:

65 or 70k BTL interest only mortgage keep the payments down to say £175 a month £300 in the bank to boost your pension don’t bother redecorating until change of tenancy. Works well for pensioners throughout the country.

Living next door could work for or against you though yes you can keep an eye on it and them but they know where to come if there’s an emergency at 2am.

That could (potential landlord risks aside) increase cash flow, but out of curiosity, what are the chances of getting an IO mortgage at 56 with an income as described by the OP?

BTL mortgages are different to a residential mortgage it shouldn’t matter so much his age, income or other circumstances. LTV is higher than residential as is the interest rate but his age and income wouldn’t prevent him getting the mortgage.

[trowelhead]

BoRED S2upid said:

65 or 70k BTL interest only mortgage keep the payments down to say £175 a month £300 in the bank to boost your pension don’t bother redecorating until change of tenancy. Works well for pensioners throughout the country.

Living next door could work for or against you though yes you can keep an eye on it and them but they know where to come if there’s an emergency at 2am.

That's what i'd do.

You could always overpay it (thus turning it into a custom capital repayment mortgage in effect), buy with IO you retain the flexibility of using the income if needed.

OP - don't redecorate until they move. Don't go mad, paint and carpets. Do you feel you would get a higher rent when redecorated?

Look into rent guarantee insurance (pays out if they dont pay) and boiler insurance etc. For a few quid a month protects you from two of the big costs

Plus the control over your neighbour is a big plus.

[Sir Bagalot]

red_slr said:

The current tenants might seem alright but you never know plus in a year they will be gone and you could end up with a nightmare.

Indeed. And if you're the LL you can then evict the bad tenants. If you're not the LL you're stuck with them

[Saleen836]

And if your tennants know you are only next door, be prepared for the possibility of constant..."this is broken/ that light doesn't work/the toilet wont flush/etc"

[trowelhead]

Saleen836 said:

And if your tennants know you are only next door, be prepared for the possibility of constant..."this is broken/ that light doesn't work/the toilet wont flush/etc"

People really overstate the "hassle" from tenants. I have a couple i've barely heard from in years

Plus if it's a problem, he can go via an agent and not be involved at all - they need not even know he exists for 10% of the rent monthly.