Danny asks: “I currently have £40k in savings and wish to buy a house. However, my position at work is a little up in the air and come April next year, I may be moving work and location. Is it worth buying and renting if I move?”
Question 17 – Should I Buy A House If I May Move Soon? – Shownotes
Today’s (long) question comes from Danny:
I currently have about £40000 in savings in various forms. I’ve been looking at property for a long time but so far never been able to commit to a location or have the funds.
I’ve noticed a one bedroom flat in the studenty area for about £80000. To begin with it’s not a bad location for myself to get to work. So I could quite happily get a buy to live mortgage. Considering I can put down half the value as a deposit, I should get a decent rate.
The problem I guess is that come April its a little up in the air as to where I will be. I’ll either still be at the same place of work, or may have moved to somewhere else. What’s the likelihood and hoops I’d need to jump through to be able to change the mortgage to a buy to rent?
The property can get a rental of £475 according to the details, so about a 7% return (minus mortgage costs). If I were to rent it, it’d be either to students (post grads) or its not too far from town so maybe young professionals.
Any thoughts on the feasibility of this? My family would still be here so I’d be able to rely on them to do day to day look after any issues if I wasn’t here.
Let’s tackle this from both sides. Firstly, your question is whether it’s easy to change from a residential mortgage to a Buy-to-Let.
Can I Change From A Residential Mortgage To A Buy-To-Let?
Well, this is possible. As long as you don’t sign up to any residential mortgage when you buy that has a fixed term and over-payment charges, then you’ll simply remortgage to a BTL when you move out of the property.
Alternatively, you can perform a “consent-to-lease” on most mortgages for a fixed fee.
Regarding which providers offer the best rates, and the best flexibility, you should speak to a whole of market independent mortgage advisor (who specialises in both residential and buy to let) you can guide you through what is available.
The Bigger Question – Is It Financially Optimal?
However, there is a huge precursor to this – and it’s whether this is a good move financially, and whilst I understand your desire to get on the housing ladder, it’s important to run these figures instead of just jumping in!
You have two options that you are considering here –
- Buy now for £80,000. We’ll say that £5,000 of your savings is held for an emergency fund, and £3,000 is put aside for moving costs (furniture, decorating, legal fees, product fees on your mortgage, surveying fees, etc). That leaves you with a deposit of £32,000 on a flat of £80,000, equal to a 60% LTV. We’ll say for the ease of maths that you go interest only, and you bag yourself a deal at 2.8% interest. Therefore, in the next 6 months until April, you will pay £112 a month in interest.
- Alternatively, you could rent the house yourself on a six month contract at £475 per month, and you’ll probably end up paying another £200-£300 to a letting agent when you move in. You’ll also be earning 2% say on your £35,000 which you haven’t invested in your house, which is a little shy of around £60 per month.
So, the first option (buying) costs £3,000 upfront and then £112 per month for 6 months = £3,672 between October and April. However, we’ve need to include capital growth on the property that you own, so for the 6 months we’ll conservatively say 1.5% increase (so an annual increase of around 3%), or £1,200. Therefore, the net cost to your net worth is around £2,500.
The second option (renting) costs around £415 per month (rent less earned interest) which would therefore decrease your net worth by around £2,490.
Financially over the six months, they are about the same from a financial standpoint.
What You Need To Think About
Therefore, you need to think:
- The longer you live in the flat, the better the buying option becomes. Therefore, try to work out the likelihood that you will be there longer and build this into your maths.
- Risk – what happens if you buy and something (like the boiler) breaks? You have to pay for it. If it’s anything major in that time, then renting would take the lead as the better option.
- Are you prepared to be a landlord? If you were buying a property purely for BTL purposes, would this meet your criteria? Maybe the next 6 months could be spent researching everything about property investing and being a landlord to prepare you.
- You will be VERY under-diversified (whether it’s your home or BTL), but actively so if it is BTL
For the easy route, just rent. However, financially, the longer you are living there after April next year, the better buying becomes.
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