Can't decide what to do......

jane528

Really sorry in advance for the length of this post, but it's a bit complicated. :cool:

Me and DH cannot 'agree' what to do (i.e. having nightly heated arguments!) and would really appreciate any thoughts/advice on our situation. Neither of us are financial risk takers but DH is even more cautious/worried than me.

We own a house worth £200K-ish (anyones guess at the moment of course)
Have been renting it out succesfully for almost 2yrs after trying to sell it for two years before that and failing despite dropping price from £225K to £165K. (£32K residential mortgage outstanding on it plus a loan of £16k = £48K total debts)

We are in rented accomodation ourselves and have £100K out of an inheritance to put down on our next house. (we would still have £30k plus as savings)

We have a combined income of £60k pa plus £6K pa rent from our house.

We have now found our dream house, which we want to buy and have been advised by an IFA that we should purchase it by continuing to rent out our existing home and re-mortgaging it as a Buy to Let, interest only mortgage, using the cash released (£125K) plus our £100K cash and a further repayment mortgage on the new house of £120K for 15 years.


The rent money would cover the Buy to Let mortgage (we have some reserves to cover voids repairs etc) and the mortgage on the new house would be about the same as we are currently paying in rent plus loan repayments. So we could comfortably afford it, although if rates rise to 10% we might struggle like everyone else.

The hope is that in 15 years, when we would be 60/65, both houses should have increased in value, we could sell both, downsize and have cash left over for our retirement.
We also have company pensions and hopefully other savings so it wouldn't be our only retirement provision.

My DH has never so much as taken out a loan before (I owned the house when I met him) and is terrified of having a mortgage of £245K albeit with two properties with currently £255K equity. (Could be 50p tomorrow of course)

He thinks we should try to sell the house now and therefore have a mortgage of only £65K, which would give us total equity in the one house of £235K as of today, and 'put away' the £400 each month which we would save by having a lower mortgage for our retirement.
I know that house prices are certainly going to come down further but feel that at some point in the next 15 years we would be able to get more for the rental prop than we could today.

I'm worried that we won't get this opportunity again to make more money for a more comfortable retirement and I'm not happy at selling
near the bottom of the market.
I feel that property is still a good long term (15yr) investment,
he feels that there is a risk that the houses could be worth less in 15 yrs than they are now. :eek:
He is a glass half empty person, I'm a glass half full one.

I've suggested a compromise of taking out the two mortgages and then as soon as houses are selling again around here we get rid and pay off some of the mortgage on new house.

Of course all this may be academic as houses are not exactly flying off the shelves here so we may not be able to sell it anyway, in which case we would go with the IFAs plan and see what happens to housing market.

Any thoughts/advice??
I know nothing in life is guaranteed, except death and taxes, but would we be living dangerously to have the two houses or does it seem a sound long term strategy?

Thank you so much for sticking with this post, Hope it makes sense - I've even confused myself.

BitterAndTwisted

I'm with your husband: you'll be selling the rented property at the bottom (maybe) of the market but you'd be buying at the bottom as well. The future is horribly uncertain and the less debt you both have, the better imo.

sequence

Why don't you pay off all of your debt for starters ?

Keep the rental house (what's the point seling it's providing a good income ?)

Put down the remainder on a new house, everything sorted. Easy

Hammyman

jane528 wrote: »

The hope is that in 15 years, when we would be 60/65, both houses should have increased in value, we could sell both, downsize and have cash left over for our retirement.

Any thoughts/advice??

This is exactly what I'm doing. I took a 10 year interest only let to buy mortgage out on my current house to release equity as a deposit on the new one we're moving to. Some of the excess in rental income will be used to make periodic lump sum payments off one of the mortgages - whichever has the highest interest at the time. The plan is in 10 years time to sell the house we're renting out which should clear both mortgages effectively leaving us able to sell the larger one we're moving into some point down the line, downsize and use the left over money for retirement or buy another property to rent out to give us an income.

Houses will not be worth less than they are now. Historical figures show that. After the last recession in the early 90's where many houses were repossed as the interest rate rocketed from 10-15% in a day, house prices tanked. 10 years later (and before the recent madness in price rises began) they were far higher than they were pre-crash.

lincroft1710

If the rented out house couldn't achieve £165K 2 yrs ago, where do you get your figure of £200K from? If you think we're near "the bottom of the market", by 1995 house prices had dropped by about 35/40% below 1988/89 high, so there still could be a long way to go before the bottom is reached after 2007 high.

If you're after "a comfortable retirement", as alternative to property check long term guaranteed return bonds, they may or may not be suitable for you.

Is having the 2 houses sound strategy? Difficult one, I can't advise but doubt I would do it myself.

mostlycheerful

“Of course all this may be academic as houses are not exactly flying off the shelves here so we may not be able to sell it anyway…”

Well, yes indeed, most people can’t sell at all at any price at the moment so the whole idea of expanding in this manner may not be possible. A recent report said that since Jun 09 there’s been 760,000 sales and 1.1 million people who currently can’t sell at all so perhaps it would be realistic to tailor your plans to the current market conditions rather than being hopeful about being able to sell. You might be lucky and be able sell for a decent price in a reasonable time frame, sure, but if you experience what most people are at the moment then this may not be possible at all. As you are already aware.

Perhaps a wider issue to consider is that it would appear that in a sense you’re weighing up consolidation, safety, security and landed profit – your partner’s play safe position - against speculation, gambling, further development and making the most of things rather than stagnating, your optimism.

Well, in general I prefer to be safe and sound with what I’ve got rather than gambling it in the hope of making more. But that’s me. I have taken risks in the past but in general if given the choice I’d rather not. Compared to a lot of people I’m content with rather little. I live within my means and hunt for cheap food bargains and all my stuff is free off the street or cheapest second hand or if new then only the absolute cheapest that I can find. For instance, this computer that I’ve been happily using for 3 years cost £75 and the monitor, keyboard, mouse and table that it’s on were all free off the street. So I’m very very tight with my money and would prefer to have some available rather than to have already spent it and have none left. So I prefer to try to be safe and stable in my housing rather than risk being overextended or over ambitious. So relative to most people, I live a small limited lifestyle and I get my pleasure from walking in the park and reading and thinking and not from holidays, cars, restaurants, expensive electrical gadgets, clothes etc. So I would probably tend to see it from your partner’s point of view that safety is better than gambling and, by the way, I’d say that that is glass half full not half empty in the sense that being contented with what you’ve got is positive whereas always wanting more and never being satisfied is negative and is glass half empty.

Yeah, having a bit that’s safe and consolidated is better than reaching out for loads and running the risk of losing the lot. By the sounds of it you’ve got plenty and you’re doing very well so why risk it punting it out to the max. Taking on an enormous mortgage when you don’t have to sounds like being over ambitious to me. It would be such a shame if it went wrong and you knackered yourself when if you’d just played safe you can be home and dry, wouldn’t it.

Perhaps to help aid the decision making if both of you each separately draw up lists of pros and cons for each of the two scenarios of extra mortgage or not extra mortgage, so 4 lists each person, 8 lists in total, and then compare the lists it might clarify things for both of you. When evaluating the lists you can grade the variables according to their importance. When you see it all written out it can sometimes give a whole new level of understanding and activate bits of your subconscious that just general thinking and talking doesn’t access. Who knows, if you do this exercise you might in fact both convince yourselves that it would be great to reach out for a bigger success. And don’t worry about the consequences and if it goes wrong, well, at least you tried. Alternatively when you face the reality that you could end up bankrupt and losing the lot and then having to live out the rest of your life in rented accommodation if it goes wrong then that might turn you off wanting to risk overextending yourself.

Hope this helps, let us know how you get on and what you decide, could be helpful or interesting for other people faced with similar decision making. Good luck.

jane528

Thanks to everyone. Looks like we will sell house and have a much smaller mortgage on our new house.
As I bought the house 20 odd years ago for £20K I could sell for £150K and still have made a tidy profit and at least DH will sleep at night.
Now for the next problem how do we get vendors to see that their house is on at a silly price and as we are the only interested party, not part of a chain and very committed to move they should accept an offer that's only 10% below their asking price..........:cool: