House prices are expected to rise to record levels in the coming year, exceeding their 2007 peak. Experts have suggested that the average cost of a home will reach £233,000 in 2014, which is 0.7 per cent higher than before the credit crunch. This puts potential investors in an optimum position, with mounting equity and the various opportunities offered by low mortgage interest rates.In the current financial state, there are two viable options.
The more cautious amongst us may opt to remortgage at a lower rate. Providing repayments are kept at their existing level in order to enable you to overpay each month, debt should rapidly decline, providing huge savings.
Most lenders will offer the flexibility to pay off a loan more quickly than intended. However, it is important to check contract details before overpaying. Most will allow payment of 10 per cent more per year, although a small minority of lenders impose strict penalties which negate savings. Overpaying is an option most suited to those with a lifetime tracker or standard variable rate.
One issue to consider with the option of overpaying is that lenders always want to retain profit margins and some may automatically reduce your monthly payments if you overpay rather than shortening the mortgage term. This will generate more interest for them, but will not help the investor.
However, for the more adventurous amongst us, the time is right to take advantage of low interest rates to raise money from your home in order to buy another property in order to rent it out.
The Telegraph found that the release of £100,000 equity from your primary residence via a low cost mortgage at, for example, 1.64 per cent, could be used to buy a property worth around £300,000. That equates to a three bed ex-local authority property in Peckham, south east London. Similar homes rent at £420 a week, or £1,820 monthly.
It was found that with an interest only buy to let mortgage charging a fixed rate of 2.64 per cent for two years, monthly interest costs would be a mere £440, providing the investor with a profit of £1,300 each month once the mortgage is considered. Mortgage interest is tax deductible, and with the potential that your investment will rise in value, buy to let seems the most attractive way to take advantage of the current housing market.
Another rise. Risking always pays off big time if you succeed of course. I guess these conditions are proper enough to try something different and invest some more.