Sell, Let Out, Save....Dilema

fuzzynavel

Firstly, hello all.

This is a long one so please bear with me

My wife and I have a dilemma....

We have a 2 year old daughter and like every other parent here, we want to get her off to a good start in life.
This, to us, involves moving to an area with a good primary/high school catchment....My wife is a teacher so has the inside scoop on schools in the area. This is where the dilemma starts:

We have a large-ish 3 bed semi to sell with a decent garden. It has been down-valued at £75k (cash buyer only) due to being of a defective construction "Orlit RC4". We have an outstanding mortgage of £48k so if sold at the valuation we have £27k deposit for a new house. We are looking to buy around the £200k bracket and have also got £12k saved for fees etc so a potential pot of £39k to cover all expenses associated with moving. Saving at a rate of about £1k per month.

We have hope that we will be able to increase the value of our house by proving that it is mortgageable....after all we have a mortgage already.

I spent ages looking into this and the council did a lot of upgrades to the houses before we bought it (from private owners) and they do engineering surveys on their own properties..They have been given 15 years before the next structural survey so the council aren't particularly worried about the houses. They are still rolling out double glazing, kitchens, bathrooms, central heating etc to their own stock.

As we see it we have 4 options...

1: Sell the house for up to £75k and use the money for the deposit on the next house....i.e cut and run without much risk.

2: Keep the house. Remortgage up to the valuation (as long as the bank valuation agrees)...use the remortgage money towards the deposit on the next place and rent the house out. We have had a rental valuation and even a fully managed letting with guaranteed income will cover the remortgage value. This option carries a bit of risk as we don't know what the structural survey will show in 15 years time but if it worked out well then we could have someone else pay our mortgage for a number of years and have our £75k in our pockets if we decided to sell later on. There is always a chance that I will be able to prove that the house is mortgageable in the future.....I have had some luck but nobody will commit on paper at present...

3: Stay where we are for just under 3 years and pay the mortgage off entirely. I have talked to our mortgage provider and we have no penalties for payments...the value of payments is not capped so I have been told that if we upped our payments to £1,200 per month...(which is affordable) we could pay it off in less than 3 years. This would mean that our daughter would have to do 1 and a bit years of our local primary school....which may be acceptable as primary schools aren’t really graded by ofsted.
4: Stay where we are and put our excess cash towards savings. In 30 months (similar to point 3) we could save approx 30k...probably a little more if we had to. Our current mortgage is tracking at 0.45% above bank of England base rate....is saving a viable option compared to paying off our mortgage?
Thanks for reading this far....can you see any other options that could be open to us...or can you help me decide if one of my 4 options above is better than any of the others.....We are leaning towards number 2 to rent out the house and move this year....but I can see a combination of 3 (save cash) and then 2(rent it out) being the best for us...

I’m going to stop now.....any help much appreciated.....Oh...this is in Scotland by the way!

Fire_Fox

No bank is going to lend you the full valuation on the house, where is their security? Do you really want to be a landlord? Do you have the time to devote to learning about the reams of legislation you must comply with? Will you mind being rung at work or just after you have got into bed to be told about an 'emergency'? What will you do if you end up with tenants who simply do not pay the rent or trash the house?

When is the latest month/ year you can move by to assure your daughters place in the school of your choice? Are you prepared to move into rented to achieve this? Do you plan to have another child? Is your wife willing/ able to tutor your daughter whilst she goes to the local school? Are you willing to tighten your belts even further to pay off the mortgage quicker than three years (see Weezl74's many threads)?

How high can the interest rate rate rise before you are in financial difficulties? IMO if you can overpay the mortgage you long term you are unlikely to get a better savings rate than you pay on the mortgage. If you get made redundant, fall ill or injured and cannot work in England your savings are taken into consideration for means-tested benefits, and you are not permitted to use these to pay debts. You will need to check if the situation is the same in Scotland.

Being mortgage free is amazing: it frees you to work part-time, to save for a dream (home), to return to study, to add to your pension pot and retire early ... Conversely a huge mortgage - or two - may tie you to a job you loathe, will increase your outgoings (heating, council tax) and risks negative equity. Is the £200K property affordable now or likely to become affordable in the near future (e.g. promotion)? Budget planner often used on this website:
http://www.makesenseofcards.com/soacalc.html

fuzzynavel

Hi,

thanks for the reply Fire Fox

I knew about the LTV rating that the banks place on remortgage but forgot while I was typing my questions. We are only likely to get about 80 -85% LTV from what I remember.

We currently have no intention of playing landlord, this is why we are going the fully guaranteed income route for the first year, maybe 2, so that we can get a feel for how it all works. We are aware that we will have to get registered as landlords, improve fire safety in the house etc so there will be a small outlay to start with to do this. This should also mean that we have no day to day dealings with the property so we will have to let go to a large extent. My In laws do this at the moment with the company that we are thinking of going with so I have no worries about the arrangement.

Wife is planning to do chartered teaching course in September for the next 3 years. we have already accounted for the finance for this so that it stays out of this equation for the house buying. Her salary will rise substantially over the next 3 years as she completes modules. I have no doubt that she will complete the whole course as she is quite driven and single minded when she gets an idea in her head.

Another child has been discussed and will happen if it happens...no precautions if you know what I mean....at which point we will deal with it.

In regard to tutoring our Daughter we are both degree educated in different sciences so I would like to think that we could embrace this choice if required....

Interest rates are not too much of a problem at this time. We are living well within our means and with the discussions that I have had with the bank we can either arrange a direct debit for over payment or we can phone up and pay extra as and when we want.
When we move our mortgage will be huge compared to what we are used to but we are still playing safe.

My wife is on about £31k at the moment £33k by the end of summer. I am on £24k. My wife will go up approx £10k over the next 3 years with the chartered teaching programme.

At current earnings we estimate (with the help of a mortgage advisor)should be able to borrow just over £250k depending on the lender and lots of other factors. We are playing pretty safe and not getting carried away with this.

Paying off the mortgage is very tempting but it is only currently about £250 per month....maybe we should overpay while interest is low and try and clear off a load of capital....It is the risk of our defective house that is worrying us at the moment but there is also the temptation of possibly getting the information to make the house mortgageable which could raise the value significantly and increase the payout...

choices, choices!!

Forgot to mention.....we have no real debt. Wife paid off her credit card last month....I have approx £1k on 2 credit cards....both 0%....never defaulted. paying off about £100 per month or more when I can(on top of regular savings)......will probably just get rid of the debt from savings at some point but it is not doing us any harm at the moment....The moment that the debt becomes bad for our move it will get paid in full.

Up at 05:30 so better go to bed....thanks again to all who can help us.

Fire_Fox

Overall it sounds like you have covered most of the bases! :T The only 'wild card' that I can see is the unknown timing of child number two; I suspect you have considered the implications of your wife having a difficult pregnancy or sick baby?And discussed whether she intends to continue her studies and return to work, the cost of additional childcare? Are you willing to become a stay at home dad if needs be? If so you should be able to manage to buy the new property with your wife's (potential) income alone.

This article probably won't tell you anything you don't already know, but might help crystallise your views one way or the other:
http://www.moneysavingexpert.com/cards/pay-off-debts

fuzzynavel

Fire_Fox wrote: »

Overall it sounds like you have covered most of the bases! :T The only 'wild card' that I can see is the unknown timing of child number two; I suspect you have considered the implications of your wife having a difficult pregnancy or sick baby?And discussed whether she intends to continue her studies and return to work, the cost of additional childcare? Are you willing to become a stay at home dad if needs be? If so you should be able to manage to buy the new property with your wife's (potential) income alone.

This article probably won't tell you anything you don't already know, but might help crystallise your views one way or the other:

Thanks for your assistance Fire Fox.. I guess that you have already noticed that we are generally pretty careful..(possibly boring in the lack of risk! )..
In terms of nursery....our Daughter is already there 5 days a week full time....some may say that is cruel but she gets more varied attention there than we could hope to give by ourselves....there is also the point about contact with other kids as we have found that she (and they) pick things up from each other.

Obviously difficult pregnancy/sick baby should be taken into consideration but hopefully it will never happen....you never know what contingency is needed until you get to the situation anyway so hard to plan for. I am pretty lucky in that I can take work home for a day or so if need be.....being a teacher is a little harder to get time off during term time.(they get 13 weeks to play with anyway so I don't think they need any more!!).

As far as we see....there is no point stretching ourselves to breaking point to get a dream home if we can't enjoy it once we are there.....We are more than happy to have somewhere nice, in a good area that can accomodate us and any extra additions in the future whilst giving us the ability to be free with our income occasionally.

I am definately leaning towards paying off the mortgage after reading some of the other threads on here and then deciding what to do in a couple of years....All I need to do now is see what my wife thinks...

LilacPixie

I have no idea what it's like trying to get into primary school in Edinburgh but up here it is difficult unless you either live in the area, have siblings already at the school or your child is in the nursery class linked to the school. We hve opted for the final option. We put DD to the nurery of the schoo we wnt her to go to even athough it is not our current catchment area for 3 reasons, It's a good school, it's in the area we want to live (if i ever actually get on the market) and its very close to my parents who actully do a portion of our childcare.

Could you look at something similar while overpaying/saving to clear your current mortgage and ultimatly move to a bigger house??

DVardysShadow

Live in the house for as long as you can. Then sell it.

You are doing well putting away £1000/month, but that is against your current mortgage. I doubt you will be able to mortgage again so favourably and of course, lots more goes in interest. So you are between 3 and 4. Do 4 if you can find a higher interest rate than your mortgage rate.

poppysarah

Schools improve as much by getting good pupils as by having good teachers.
Shame your teacher wife thinks so poorly of her local colleagues.

fuzzynavel

poppysarah wrote: »

Schools improve as much by getting good pupils as by having good teachers.
Shame your teacher wife thinks so poorly of her local colleagues.

You are entirely right.....The schools around us don't have exactly great results and we can't afford a decent sized house in the catchment of the school where my wife works as that one appears pretty decent.

To put you in the picture we are in a majority council area and we do not really interact with any neighbours apart from the ones either side of us who are mostly ok...The ones across the road are apparently involved in drugs...multiple police visits and council visits.....Another seems to be involved in stolen goods.....lots of other stuff going on that we don't want to be involved with.
The people here have difficulty in staying out of the dole queue and don't exactly appear to be role models for their dirt bike riding, drug dealing offspring...

Am I a snob....possibly....Realistic...definately...

If there is one thing I have learned from my wife being a teacher it is the following...No matter how good the teachers are, if the kid doesn't want to learn then nobody can force him/her to learn. A lot of it is down to the parents and if they have no interest in learning then the kids have no interest. Kids with no interest will disrupt the good kids and prevent them from learning....In summary...bad parents destroy the system....Not the ability of the teachers.

fuzzynavel

LilacPixie wrote: »

I have no idea what it's like trying to get into primary school in Edinburgh but up here it is difficult unless you either live in the area, have siblings already at the school or your child is in the nursery class linked to the school. We hve opted for the final option. We put DD to the nurery of the schoo we wnt her to go to even athough it is not our current catchment area for 3 reasons, It's a good school, it's in the area we want to live (if i ever actually get on the market) and its very close to my parents who actully do a portion of our childcare.

Could you look at something similar while overpaying/saving to clear your current mortgage and ultimatly move to a bigger house??

I think the rules are much the same all over Scotland....you can apply to put your child to a school outside of your normal catchment but there is no guarantee that you will get accepted. Even Nursery schools have set catchment areas and there will tend to be 2 or 3 primaries per high school so I guess the chances are slightly better in getting the primary feeder for the high school of choice.
We don't have any family nearby ( 2 hours drive is closest in Montrose) so we are kind of on our own...

over paying definately seems the way to go as avings accounts can't compete with getting rid of interest on a mortgage at the moment.