Quit my job but not FI. What next workwise and investment wise?

[Shandi76]

My current employer is involved in a merger and they were offering a really nice package for people volunteering to leave, because they don't want to have to go to compulsory layoffs. I applied for a package and my application was accepted :-) This means I get 6 months salary tax free, and can move across the country to join my partner, who recently got a job in another part of the UK.

I'm not entirely sure what to do next though. I've got a lot of savings compared to most people my age (35) but nowhere near enough to support myself. I also want to change career path. I've been teaching for over a decade, but the education system is different in England than it is in Scotland and the pay rates are also lower. I'd like to get a programming job, and am happy to take a pay cut (as partner says he can pay most of the bills while I get sorted, since I supported him during his postdoc and I have given up my job to follow him). I'm not quite sure how to go about this though. A lot of employers demand commercial experience and are of the opinion that "those who can't, teach" (which isn't true of me, but not sure how to prove it). We also don't have any contacts in this new town.

The other thing I am not sure about is my investments and mortgage. I own a house with a mortgage, and thought I would be able to get consent to let out the house by paying a small administration fee (I did this the last time I moved, with no problem). But UK banks have really tightened up their lending criteria, and I was on a really sweet deal (2.5%) so they have refused me permission and I have to remortgage to a buy to let mortgage at over 5% interest and pay a large "arrangement fee" of anywhere from £1K to £4K depending which mortgage product I choose. This is complicated by the fact that most lenders now also have a minimum income requirement for buy to let mortgages, whereas previously they were only concerned about the rental income. As I currently have no income, I am worried about my ability to get a mortgage. But houses here are not selling (my cousin's house was on the market for nearly 2 years and she had to accept a low offer when she finally got one) and the rental market is strong, so the only sensible option is to rent it out rather than sell it. Also, we are only renting in the new place and the long-term plan is to move back here so we want to stay on the property ladder. I currently owe £62K on the mortgage. I can easily get my hands on £33K, to pay it down to about £30K (you must borrow at least £25,001 for most mortgages as a minimum), and add my partner to the mortgage is needed. But that would involve additional legal fees and require me to get him added to the title deeds, which would not be fair given that he has not paid anything towards the house, and it would still be my responsibility. The other option would be to also sell most of my shares (which are down about 15% on what I paid for them) and pay off the house in full. I would still have a decent EF left, but my asset allocation would be far too heavy in RE. However, this might be my only option since I currently have no income, even though I am sure I will do soon enough. But I need to remortgage or pay off the house asap for legal reasons and have tenants already keen to move in, and legally I can't let them move in until this is sorted out.

Sorry for the wall of text. Would be interested in any advice about what to do regarding my property and my job search.

[gooki]

1. To get around the experience issue, program your own applications. They don't have a new idea, you can take an existing app and simply redo it but make it better.

2. Do you have any friends or family interested in staying in your property? Maybe they could house sit for you and "donate" you some money for rent.  Assuming you can't get around renting out a property on a standard mortgage (stupidest contract clause I've ever heard off). I would pay down the house in full. Either cash plus selling some shares, or through selling all shares. You get an instant 5% roi through eliminating the mortgage, plus a few extra percentage points by avoiding the additional legal fees. it also mean you will now be earning some income on a regular bassis, which if this becomes spare income you can then feed back into the share market on regular intervals to take advantage for dollar cost averaging.

I know it's hard to let go of shares when they're down, but at least you are doing it to generate income in other areas of your life. I know it'll also be hard seeing that emergency fund reduce, but you'll gain a steady income that will allow you to build it up again, and you do have the support of your partner. And it's better than having that money sit idle not making you more money.

[Shandi76]

Thanks for the reply Gooki.

1. I  have a small portfolio of programs I have written (mostly my own versions of old arcade games or puzzle games), and I am going to be involved in an open source coding project. Hopefully that will help sharpen my skills and be good experience. Am also looking at getting into app development. My partner says I should take some time off to sharpen my skills and work on my own projects.

2. I am a bit worried about paying off the mortgage but I created a spreadsheet after you replied, and also discovered some of the money I have is more accessible than I thought. I loan money out on a peer to peer lending site, and it turns out they have recently introduced a rapid return feature whereby they will sell your loans on to another lender and charge you 1% commission for the transfer. You can't sell on any loans where the lender has ever been late with a payment, so I would have to keep the potentially bad loans, but I could get most of it back for a 1% hit. Taking that into account, and also my severance pay, I would only need to sell around 25% of my shares (£10K) in order to pay off the mortgage. I would then be left with almost no cash, but a paid off property and £30K in shares. I'm still not sure that's the best course of action though. I think I need to talk to a mortgage broker first and see what the best possible deal I could get would be.

[gooki]

With the balance only being only £10K then refinancing does not make sense.

With this added information, my plan of attack would be:

1. Start advertising for tenants.

2. Get a lease agreement in place and signed (so you know how much you'll actually be getting in rent). This will also state the move in date so you know a specific item you have to get your finances/mortgage sorted by.

3. Pay down the mortgage to £10,000

4. Investigate alternative finance (low or no interest only) for the remaining £10,000. Are you eligible for zero interest credit card promotions (6 to 12 months generally)? Will the rent received during the free interest period be sufficient to to repay the total amount borrowed? If not are you willing to sell down some shares during the interest free period (just remember, timing the market is gambling). Can you borrow the money from family/friends at zero or low interest?

5. Failing the other finance options I'd still weigh up selling off some shares. The market may well stay depressed for another year, so selling£10,000  now, and the re-entering the market at £1,000 (assumed rent) a month may easily cover the 15% loss. Or at the very least, the loss will be minimal.

Notes: I trust you will take the necessary legal advice before acting on any of my suggestions. If you do take the short term finance via low or zero interest credit card, you will live the life of a mustacian until the debt is repaid.

PS forgot to say, it sounds like you're doing the necessary things of the experience front - keep it up.

[catalana]

Agree with what other people are saying.

I would also investigate what the implications are of renting your house out without getting the permission from your mortgage lender.  You said that legally you cannot let the tenants move in before the permission is sorted out, but this doesn't sound correct to me.  Yes, you will be breaking your contract with the mortgage provider, but I don't think that has a bearing on your AST with your tenant.  Not sure if being in Scotland changes that however. 

My understanding is that the main risk is the mortgage provider either demands full repayment of the mortgage or comes after you for the additional fees and interest they would have earned on a BTL mortgage.

Whatever you decide I would definitely advise you to brush up on your legal rights and responsibilities as a landlord - perhaps join a local landlord association?

[Shandi76]

@gooki - Nice idea about the credit cards but I can't quite make it work. There are 0% credit card offers in the UK but mostly for balance transfers, though some also have 18 months interest free for purchases. Unfortunately the terms and conditions of my mortgage explicitly state that they will not accept a credit card payment towards the mortgage: i.e. I couldn't use the credit card to pay off the mortgage unless I got a cash advance at double digit interest rates. They never give you 0% on cash advances.

I am thinking however that the best thing to do for the remaining £10K is to get a loan from ZOPA because they let you overpay as much as you like and you can pay off the loan as early as you like with no early redemption charges.

@catalana - Thanks for the advice. I guess I should have phrased that better. I know it is not illegal to let out the house without the lenders permission, but it is breaching the contract and leaves me at risk if there is any damage to the house as it can invalidate the buildings insurance. Because I stupidly phoned them up to inquire about it, they will probably be keeping a close eye on what I do, so I might risk letting it while the mortgage isn't quite sorted, if I have to, but if it takes more than a couple of months I would expect them to start threatening me with higher charges. I'm going to be letting the house out remotely and using a property services company. The guy has his head screwed on and has good advice (and charges less than most letting agents). I've also let out a property before (4 - 6 years ago) so have some knowledge of my rights and responsibilities though I am a bit rusty, and of course had no mortgage problems then.  I might join a landlords association when I move, but the rules are slightly different in England so I don't know whether it would be worth it or not. I've registered as a landlord for my region and they also send out useful newsletters and provide advice so hopefully between that and the Property manager it will be okay.

[Shandi76]

Just an update to say that I didn't pay off the mortgage. I paid off a little over half of it, leaving me owing just under £30K.

Paying off so much got me a slightly cheaper interest rate and I also didn't have to pay any 'arrangement fee'. I'm tied into the deal for just over 3 years and there are fees if I pay it off early (3% within the next 15 months, or 2% after than but before the 39 months are up) but I am allowed to pay off up to 10% of the debt each year without incurring penalties. The interest rate is a kicker, but I decided this was the best course of action as I don't have a job yet and wanted to keep some liquidity. We also get mortgage interest relief on rental properties (we can subtract it from the rental income on tax returns) which effectively reduces the rate by 20%.

If/ when I get work then I can save like crazy so I can pay off the mortgage at the end of the deal period if it makes sense to do so.