To Sell or Not to sell? that is the question. (Help please!)

happyjedi

Ok. I think I am going crazy with over analysis! Please can you help me sort through the following problem?

The dilemma (please bear with me)

I have a property in London. It is currently received an offer of £625K and is only a few days away from exchange. I like many watch its potential value fall as the buyer originally offered 725k but over the proceeding months slowly reduced the offer as the market declined. This was needless to say extremely PAINFUL for me to witness!

I bought the property for 605k two years ago so I am still making a profit if I sell.

The property is very nice and highly rentable. In fact, I rent out a number of rooms and in my house (it is also my main residence so I live with my lodgers) and generate enough revenue to cover the interest on my mortgage and most living costs (utilities, phone, tv license, etc.). So effectively, I am living rent / mortgage free at the moment.

This is convenient as I have recently left my job so I no longer have any other form of income.

I also currently have a good amount of savings (40k) which is currently offset against my 5.25% 2 year fixed mortgage of 510k. If I do sell and don't transfer to another property I will be hit with a 15k penalty.

My concern with not selling is not really that house prices will fall as I do belive they will rise again (even if it takes 10 years) and I will continue to generate revenue and have a roof over my head. I am concerned though that I have a huge mortgage an in the interim that interest rates could rise significantly making my mortgage very difficult to pay.

If I sell I am concerned that I will immediately not be able to puchase another property and have a lot of cash (~120k) even after the 15k penalty that will be rapidly losing value due to Inflation. On the other hand I will be completely debt free.

If I transfer to a smaller (275k) property I would have a smaller (200k) mortgage and from my investigations could still probably get tenants to cover most (but not all) of my living costs. It would of course not be nearly as nice or large a place but that is obvious if I downsize.

So my friends what are your thoughts

Option 1: Hold the current property. Let down the buyer (who has reduced their offer by 100k so there isn't much love lost on my side). Also take the risk of unafforable mortgage down the line when high interest rates kick in in 24 months (guess). Also no moving costs.

Option 2: Sell the property. Conclude the transaction and work out what to do with the money (which I still haven't done). No debt but need to work out what to do with the money so that it doesn't just slowly dissappear. I am guessing stocks or property :-)

Option 3: Sell current property and transfer mortgage to another smaller property with smaller mortgage. Still have a property in london but with lower debt obligation (more affordable). When house prices recover will not make as much profit as the original.

Please help. I have a final survey due for Friday next week and I want to decide before then. Up until now the buyer has not incurred any costs so I am keen to make any decisions before this point (you know ... good karma and all).

Thanks!! May the force be with you.

HappyJedi

silvercar

This is convenient as I have recently left my job so I no longer have any other form of income.

While this is true I can't see anyone giving you a mortgage. Lenders don't usually consider lodger income, particularly if it is your only income. I would scratch option 3 out as it doesn't look possible.

To pursue option 1 you need to ask your lender what long term fixed rates they can offer you.

With opton 2, where will you live?

happyjedi

Thanks Silvercar for the quick reply. I much appreciate you getting back.

More detail. My lender's longest fixed is 2 years. They have also agreed to a transfer is I do it within the next month (I have been with them for a long time) so this is while it is possible but the window is small.

With option 2 I would have to rent. I would probably house share to keep my overheads low being single and with no dependents this is possible.

silvercar

Personally I would stay put, but that is just my opinion:

a) I prefer to live in my own home rather than have the hassle of a potential move each year and living in someone else's home.

b) Why sell when prices are low if you are happy to wait 10 years.

If interest rates rose could you work to help pay the mortgage? Also if interest rates rose, chances are rents would go up in the long term.

socrates

This is a tough one.

Firstly I think you have would have more leverage with your lender if they did not know about your change of employment status.

At the same time if they are getting back a sizeable chunk of money that will be to their benefit. Perhaps try to negotiate something with them - probably fruitless but worth a try.

If I could (and I would) I would push the buyer and NOT exchange - tell them you can no longer afford to exchange/complete at the price agreed and leave the ball in their court.

I have a feeling staying put is still a viable option. £150k or so you will end up with is not really enough to generate an income from. Plus the £15k is steep to say the least!

Perhaps you should ask this question on the Savings Board (as if you had sold the house)

"I have just sold my house and am left with X - what should my next move be?"

Or even the mortgage part of the question on the Mortgage Board

Sooler

happyjedi wrote: »

If I sell I am concerned that I will immediately not be able to puchase another property and have a lot of cash (~120k) even after the 15k penalty that will be rapidly losing value due to Inflation.

Stay put and let inflation work for you eroding your mortgage.

happyjedi

Thank you both for getting back. It sounds like the steer is towards keeping my current place.

I definitely see the sense in what you are both saying. I will ask on the Savings board as you suggested Socrates.

My only slight nagging doubt is the question of rent. I am currently covering my mortgage but I know that a number of people mentioning that rentals have gone down recently. Also, isn't it true that over the last 8 years rentals have not increased nearly as much as property prices? If housing prices continue to fall in the short term would not the rental prices tend to drop as well?

However Silvercar you are right. I could always get a job if I had to to make ends meet. Also, I am personally capable of living a very frugal lifestyle if needs be (as is the Jedi way).

silvercar

Re-reading your first post, if your buyer hasn't yet done a survey you are more than a few days from exchange. Sounds like you buyer is stringing you along, seeing how low you will go. If you really are having second thoughts, I would put the price up:)

I'm just North of London and prices in your range seem almost steady, as do rents.

happyjedi

silvercar wrote: »

Re-reading your first post, if your buyer hasn't yet done a survey you are more than a few days from exchange. Sounds like you buyer is stringing you along, seeing how low you will go. If you really are having second thoughts, I would put the price up:)

Lol. I think he has realised that I am at my bottom an now is trying to push through before I change my mind ( he may be too late ;-) ).

So that is now 3 people saying hold. I have to admit that the majority of my friends say hold as well. Only one person is saying sell but she is someone whose opinion I respect a lot. She does however, have no debts and significant personal wealth so her situation is very different from my own.

happyjedi

Sooler wrote: »

Stay put and let inflation work for you eroding your mortgage.

Yes. If I stay in the medium to long run Inflation will surely help with the debt. Just need to make it through the high interest period in between now and then...

beecher

I'd say stay put - you're happy where you are and most of your outgoings are covered. The only issue is really rising interest rates in the future - hopefully your lender will provide 5 or 10 year fixes by the time your present deal comes to an end - you could maybe post details of the lender so as an adviser could tell you if that is likely or not?