What is better for our financial future - buy a bigger property or extend our existing one?

Posted on 28 March 2008

We currently owe £40,000 on our existing property which is valued at £275,000. We could either sell and buy a larger property for £420,000 or retain the property on a buy to let basis and use the cash raised as a deposit on a similarly sized house of the same value, although we would need an additional £50,000 to realise its potential to be extended. Of the two options which one do you think would cost us the least and therefore be best for our financial future.

There is not much difference.  A buy-to-let mortgage (which you would remortgage your current one to) might have a slightly higher interest rate (about half a percent) or a one-off large fee instead (about two thousand pounds)  but you would probably get slightly more rent than you would be paying in mortgage interest anyway, so it evens out. 
 
In the scenario where you take a small mortgage on the new one,  you will have that £50,000 more debt, but 'more' property in the end, so hopefully, more equity with which to pay it off.

 

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