Q I have inherited my grandmotherís house (which an estate agent has valued at £160,000 at the most), while my brother also inherited another small property that she had been renting out before she died. She was blind during the last few years of her life and her friend took over all her financial affairs. Sadly he mismanaged these and a large amount of unpaid tax and other fees were due to be paid after her death. Luckily a friend stepped in and lent us the £43,000 needed to pay this off and allow us to inherit the properties. I therefore need to raise money to pay half of what we owe this friend, plus £10,0000 to £15,000 to bring the house up to a suitable condition to rent out or sell as it has been empty quite a while. Iíll also need several thousand pounds more to repair my motherís home, which is in a bad state of repair. The question is whether this money should come through a mortgage or the sale of the property? Friends and family seem to have such differing views on the matter, which makes me very anxious.
The house is up in Perth in Scotland, but I currently live and work in London and donít have plans to move back there anytime soon. Iím 26 and earn just over £20,000, so a mortgage would be a significant undertaking. However, as I understand it I could get a buy-to-let mortgage if I am receiving rental income of course. Would it be better to raise a mortgage and let it out via an agent (perhaps I should get a mortgage now since I will undoubtedly wish to get on the property ladder at some point) or should I sell and put the money in the bank where it might earn less, but could be a safer, hassle-free option?
Iím concerned that a buy-to-let might not be a wise in an area such as Perth where property prices took the biggest hit in the country in 2017. But on the other hand would it be a prudent time to sell? Maybe I should cut my losses now? Or is there some truth to the saying ďsafe as housesĒ? HD
A Apart from the potential nightmare scenario of managing a building project from nearly 500 miles away, the major flaw in your possible refurbish-to-rent plan is that you will struggle to find a buy-to-let mortgage lender willing to make you a loan. The majority of lenders will lend only on properties that are ready to be lived in. The limited number of lenders who offer mortgages on properties in need of renovation do so only to established landlords and not to novices. Your other problem is that while the renovation work is going on, youíll have no rental income coming in so you would have to find some other way of paying the monthly mortgage payments and, as you say, taking on a mortgage on your current salary would be a significant undertaking. And I suspect that, if you are paying rent in London, you are unlikely to be able to afford a mortgage on top.
So, in essence, thereís no actual decision to be made as selling the property is the only realistic option. Raising money by selling rather than mortgaging the property is also cheaper as thereís no interest to pay. Once youíve cleared your share of the debt to your friend and covered the repairs to your motherís home, you should still have a tidy sum left over. If youíre determined to become a landlord, you could use it as a deposit on a buy-to-let property. Alternatively, you could use it to buy a home of your own.