Q My wife and I (both mid-40s with two primary school aged kids) currently own a home in south-east London which is valued at about £575,000 and has a £250,000 mortgage on it. We also still own and rent out our previous home which has a £100,000 buy-to-let interest-only mortgage and gives us an annual rental income of £18,500. I’d estimate that the rental property is worth somewhere between £475,000 and £550,000. Its value is a little vague as very few similar properties have sold since we bought it off plan in 2003 so we have nothing to compare it with. However, it’s in a prime location popular with buy-to-let investors.
My wife is very keen to sell up both properties and buy something mortgage free. Her job is very stressful and from time to time she dreams of packing it all in and becoming an artist. This would probably mean moving far from our current area, which I really don’t want to do. However, I think the rental income, plus our equity, means we should either remortgage both to the max and buy something bigger, or else increase our BTL mortgage and pay off our home mortgage for lower monthly repayments.
We’ve worked hard to reduce our borrowing over the years, while increasing value, which I don’t want to throw away. What are the pitfalls of my approaches, and what would you suggest?
A I suggest that you start by looking at hard facts before coming to a conclusion that you don’t find favour with a certain course of action. For example, you say that your wife’s idea of selling both your properties and buying one mortgage free “would probably mean moving far from our current area” but I can’t see why you think that. If you sold both properties and paid off the mortgages on them you would be left with £700,000 to play with which seems ample to buy somewhere in your current area (given that your current home is valued at £575,000). You could also achieve your wife’s dream of being mortgage free – and minimise the disruption of moving house – by selling just your rental property and using the £375,000 (left after clearing the £100,000 mortgage) to pay off the £250,000 mortgage on your home. What you would do with the remaining £125,000 in cash is up to you.
I am totally flummoxed as to why – when your wife is aspiring to be mortgage free – you think that remortgaging both properties “to the max” would help her achieve that aspiration. I am also struggling to get my head around the concept of increasing a mortgage to achieve lower monthly repayments. Increasing your mortgage seems to be in complete contradiction of your desire not to throw away your hard work in reducing your borrowing over the years. So I’m stumped and I suspect that your wife might be too so maybe it’s time for the two of you to have a chat about what you want out of life and how to achieve it.