Should I sell or Rent?

nodebtdave

Hi

I have a property worth around £180,000 with a mortgage of £80,000. I am seriously thinking of selling up after Christmas and going into renting for a year or two. With my savings I will then have £110,000 to invest. (All my debts, credit cards, car loans are now paid off thanks to this site). I really believe that house prices will have to come do soon or later, My main aim is to save as much as possible (up to £6000 per year plus interest from the £110,000, and then jump back in when the prices fall hopefully with a very small mortgage or none at all (mortgage free wanabee), Obviously there is a risk that house prices will continue to rise. I would be really grateful for other people’s views on this

Gorgeous_George

It's a gamble.

I'd consider doing so if I didn't love my home. I've put a lot of work into it and selling would make excellent financial sense. I'd have 175-200K more in the bank and IF prices fall I could buy again more cheaply. If the rise, I may never own my own house again.

That said, I think the risk is worth taking - but I'm not.



GG

lypsey

Hello Dave

I did exactly the same as you and with similar amounts of money. If you are a careful person and don't go out and buy a new Porsche then I would think you are making a good investment.

I am 40 years old and have had a mortgage since I was 19. I actually feel far more relaxed than ever. No DEBT , no house maintance , no house insurance , regular gas and electric services with no cost because the landlord picks the tab up. I am in a very large house that I could never afford to buy in the country. Also the interest pays for a large chunk of my rent , so I continue to save hard .What more could you ask for

PS I continue to pay my endowment , which is fully paid in a few years time . I am never sure if this is the right thing to do but.....

Good luck

november

Forgive a stupid question but I'm not sure how that works.

I am in a similar situation having a £55K mortgage on a house now worth £155K. However to rent a house like mine here would cost me at least £270 a month more than I pay in mortgage and I estimate I don't pay that much in house maintenance, buildings insurance etc. Strangely enough I originally bought as the only way of getting a secure affordable home in an area I didn't mind living in.

So I suppose what I am saying is it also depends on the rental prices in the area.

Not something I would consider now as its still a family home but in the future I'd be interested in hearing how it would work particularly as we may consider moving once the teenagers have fled the nest.

nodebtdave

Hi

Thank you all for your feedback, In my area I could rent out a property the same as mine for between £650 and £700 per month, as my mortgage payments, buliding insurance, and mortgage insurance are about £670 per month there is not a lot between them. I should be able to get 5% interest on £110,000 (= £5500 per year) with savings should be able to save £10,000 per year minimum. The gamble is of course will house prices fall????, if they drop 10% in the next year i.e £18,000 the house I live in now would be worth £162,000, I would then have £120,000 in the bank, this would mean I would only need a new mortgage of £42,000 (nearly cutting the mortgage I have now in half).

Maybe this is a pie in sky idea, so all feedback is most welcome

Dave

leftieM

It seems that you are asking people if they think there will be a crash next year. Noone can say, that's the problem. As GG pointed out it is a gamble if you sell to rent in the hope of a crash. Only hindsight will tell whether it was the right move or not. The STR option is very tempting - to pull out the equity and have the hard cash and no mortgage - but it may take a few years until you feel that you have made money by your decision.
Have you looked on the housepricecrash website? If you want to believe that prices will fall they will tell you what you want to hear!
There is no doubt though - if prices rise by 15% in a year (or a month if you live here :eek: ) then they can fall by 15% in that time. The thing no-one can say is whether they will or not.
Good luck with your decision. Maybe you'll pick up Buck Palace for a fiver in 2 years time

linda.b_4

I think it depends on how much of a gambler you are. also take into account the fact you may have to move around for a few years. The first house we rented was put on the market 3 months after we moved in so we ended up having to find somewhere else, lo and behold the same thing happened at the next place, after assurances from the letting agent that they did not not intend selling the property, I was not very happy as I was pregnant at the time and we ended up scraping to buy, just to have the security of stable roots. That was 12 years ago so we consider ourselves lucky to have been "pushed" onto the property ladder.

franklee

nodebtdave, Well I did this and never looked back. You are thinking right in your sums, many people forget to take into account the interest they would get on the "equity" they have in their homes which can be quite a good income. Personally I think we are pretty near the peak. In fact we did peak where I am in 2004, with a dip in prices in 2005 but a recovery in 2006 due to the interest rate cut in August 2005. Frankly I think that cut was a mistake, even Mervyn King voted against it, the only time ever the governor of the Bank of England has been on the losing side on a vote. Of course rates are going up again now so we shall have to see. I think house prices have more chance of going down than up and if they do go up it won't be by huge amounts. But then I may be wrong

mrsS_2

please remember to take the tax off your 5% interest received-it makes quite a difference to the figures.

I think if you are thinking of moving anyway in a couple of years then you may as well give it a go-as said above if prices continue to rise then you have a problem but if they go down you will be in a fantastic position!

ICanDoIt_2

lypsey wrote:

I actually feel far more relaxed than ever. No DEBT , no house maintance , no house insurance , regular gas and electric services with no cost because the landlord picks the tab up. I am in a very large house that I could never afford to buy in the country. Also the interest pays for a large chunk of my rent , so I continue to save hard .What more could you ask for

I'm joing the STR crew, and look forward to these benfits too! The move I have planned also allows me to not use my car for work and have a massive improvement in quality of life in the move I've got lined up. I would never be able to afford the place I'm going to rent, (it's valued at £200k+) but the rent is just £20 more than my mortagage and the associated cover. I've just spent today since 5am till 10mins ago finishing some of those little jobs I should've got right in the first place!! :doh:

Good look nodebtdave on your venture if you choose to do it!

HugoSP

The only problem here is that rents tend to go up every year. I am a landlord renting out 3 propertiesand hoping to add one or two more to my portfolio over the next few years.

Playing the market like this in the short term is fine if you are prepared to take the risk of property going up in price whilst you are waiting for a fall in the market.

However I do feel that those people making decisions comparing rent to morgage payments need to look at the bigger picture.

1) Rents usually go up year on year, they rarely if ever come down - mortgages payments rise and fall with interest rates. My reckoning is that in 10 years time my morgage payments on rented property will have fallen in real terms due to inflation. Such reductions may be compounded or reduced by prevailing interest rates. I have never reduced rents to tenants and have increased them this year and maybe doing so next.

2) As, in the long term, a £500 monthly mortgage payment will represent a lesser part of our income, then it makes sense that according to supply and demand, affordability will push prices up.

3) The only thing likely to affect this in the long term is a sustained additional cost in property ownership. Although we talk about rising interest rates, there are other factors that I think will be introduced to encourage property ownership for both homeowners and landlords. Plus, interest rates won't stay high - there isn't the long term economic growth to sustain them.

4) In addition - to take it to the extreme, if rafts of people choose to rent, won't that have a supply and demand effect on the rental market?

...well those are my views