personal finance

Should I use £120,000 savings to buy a house to rent out as I expect to lose my job?


Q I am currently working but expect to lose my job. I’m not holding out much hope of finding another one as I’m almost 60 and not in the best of health.

I have savings of about £120,000 in an account that pays less than 0.5% interest.

I was wondering about using my savings to buy a house to let and living off the rent rather than earnings from a job. Do you think this is a feasible idea? I am going to be looking for a new job if I lose my current one but I just think the odds are stacked against me.
HR

A My first thought was “nice idea but not a feasible one” because I didn’t think that £120,000 would be enough to buy a rental property outright – including stamp duty land tax – and meet the other costs of becoming a landlord, such as arranging safety checks and installing the necessary safety alarms.

However, London-based Vesta Property – which describes itself as “a data-driven marketplace for buying and selling investment property” – proved me wrong, albeit not entirely mistaken.

You can, in fact, pay less than £120,000 for a flat in places such as Cwmaman, Draycott, Hartlepool and Stratford-upon-Avon, with the added bonus that the flats in those places come with a tenant in place, so you would start earning rent as soon as you picked up the keys. And the return on your investment would be a lot healthier than the meagre 0.5% paid on your savings. According to a table published by SDL Property Auctions, even the lowest average rental yield is 3.28%, while the highest is 7.29%.

Read More   Thousands of students sue Betsy DeVos, claiming she's denying them student debt forgiveness

So, on paper, it looks like a no-brainer.

But there are no guarantees that the yield will be as much as the average – there could be periods when the property is empty and you are getting no returns at all. There are also costs associated with being a landlord: the property needs to be maintained, and you may need to appoint an agent to manage it for you. The rent you receive will need to be declared to HMRC – if you have no other job, it might come within your personal allowance and be tax-free, but if your doubts about your employability prove wrong, you might end up with a bill.

You should also consider the overall state of your finances. If you still have a mortgage on your own home, for example, a better use of your savings might be to pay that off. If you are currently renting yourself, it might make more sense to buy yourself a home (if spending £120,000 would enable you to do that without taking out a mortgage). Whatever you choose to do, you might want to think about how you would manage financially without a cushion of savings to fall back on if you do lose your job.

Want expert help finding your new mortgage? Use our new online tool to search 1000s of deals from more than 80 lenders with the Guardian Mortgage Service, powered by L&C.



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.