Selling up to rent

wood_pigeon

Hi all.

Kicking around an idea; wondered if some of the learned folks here would be able to cast an eye over it, see if I'm thinking straight.

I have a house with mortgage. Identical house 5 doors down has just come on market. One a few doors up has just sold.

Price of the one 5 doors down would provide equity of about 65000, should mine sell for the same asking price or 5 grand below.

I could sell, settle my current mortgage and other unsecured debts, and rent. I could probs rent somewhere real nice around here, and have plenty spare at the end of the month to save. Currently, there is not a great deal spare at the end of the month, but without mortgage and credit card payments, even after rent, there would be loads spare.

Am I missing somthing here? Anyone else ever considered anything similar?

Any advice gratefully recieved.

Wood Pigeon.

mrsrwallace

someone had a similar thread on here a while back, one of the points i recall someone advising them was that think to the future when you're older and not working. If you sold your house now would you be abe to afford to rent for the rest of your life? At least if you maintain the payments for the duration of the mortgage the house will be paid off and yours so you'd have somewhere to live.
Hard call, will be others along I'm sure who have done this who can advise you better.

G_M

Assuming you can rent somehwere for less than your currnt mortgage repayments, and are happy to rent as opposed to own, then fine, that is a personal lifestyle choice.

You will have more available cash now to enjoy life, but will not have the security of a long term investment (ie home ownership).

As an alternative, to free up some montly cash, have you considered switching to an interest only mortgage, perhaps just till the credit cards are paid off?

Kynthia

Are you thinking of doing this long term or short term?

If short term, while house prices are not rising significantly then it might not be a bad idea. However will any savings be lost when you have to pay again to get onto the market as you will have lost your equity. Would downsizing or buying somewhere cheaper be a better way of releasing equity?

If long term then you get to use your equity that would otherwise be stuck in your home. You have flexibility to move, don't risk being tied down by negative equity or a place you can't sell. If you got made redundant to could pack up and go wherever there are jobs. However what if rents shoot up and are more than mortgage repayments in the future? Will you be able to afford rent during your retirement when most are living in their mortgage free homes?

Mickygg

I personally wouldn't. I see my home as my home, whether it increases in value by 50% or loses the same. Renting has issues, you can be kicked out at any time and may never be able to settle anywhere long term.

SuzieSue

How old are you? Is your current house too big for you? Could you downsize?

Brallaqueen

If it benefits you, I don't see why not.

Will a rented house be in as good, or better condition than the one you own? LL are legally responsible for repairs but see the hundreds of threads on this very board to prepare yourself for the very real possiblities.

Do you need security of tenure at all?

HappyMJ

Easy decision to make for me....With interest rates as low as they are then buying (at the right price) is the better option. i.e A house in my area could be purchased for about £30,000 deposit (plus fees and charges) and £120,000 mortgage..Total £150,000. The interest would be £400 a month at 4%. Or I could invest the £30,000 into ISA's paying around 3% earning £75 a month and rent the same house for £600 a month. I would be better off by £125 by buying but would have to pay for stamp duty and legal costs when buying it and ongoing costs would be at least buildings insurance, boiler and central heating maintenance and any other repairs.

Interest rates will rise and rents will rise but it's a gamble....which one will increase by more and do you have the commitment to keep increasing your savings without having a debt to pay off. I felt when I had a mortgage tha it had to be paid off as soon as possible so put every penny I had towards it. When I didn't have the mortgage debt I felt I had money to go out more often and never saved it.

chewmylegoff

wood_pigeon wrote: »

Hi all.

Kicking around an idea; wondered if some of the learned folks here would be able to cast an eye over it, see if I'm thinking straight.

I have a house with mortgage. Identical house 5 doors down has just come on market. One a few doors up has just sold.

Price of the one 5 doors down would provide equity of about 65000, should mine sell for the same asking price or 5 grand below.

I could sell, settle my current mortgage and other unsecured debts, and rent. I could probs rent somewhere real nice around here, and have plenty spare at the end of the month to save. Currently, there is not a great deal spare at the end of the month, but without mortgage and credit card payments, even after rent, there would be loads spare.

Am I missing somthing here? Anyone else ever considered anything similar?

Any advice gratefully recieved.

Wood Pigeon.

at a very basic level, the simplest comparison to make is the rent you would be paying versus the interest element of your current mortgage payments.

what is your mortgage interest rate? could you remortgage to a cheaper deal to save money that way instead? you may be able to release some equity this way to pay off unsecured debts as well, although obviously then your mortgage will be larger, but it's likely to be cheaper to pay off a mortgage than a credit card.

alternatively, can you balance transfer the credit cards to a 0% deal?

for me, selling my home to rent would be somewhere down the list of ways to save money, especially if there were less inconvenient ways to do the same thing. i did sell to rent in 2007 but it wasn't an economically driven decision, it was a lifestyle choice because i wanted to stop living with my sister and move back into a house shared with friends in a different area.

wood_pigeon

Thanks to all for the relplies, please do keep them coming, excellent food for thought.

To flesh out a little and perhaps address a couple of questions...

I'm 40 next year, and have been in my current house for 12 years. Its about 1.5 times the value as when I bought it. We've added to the mortgage here and there to fund some home improvements. Even so, I think I have about 72% ltv.

The big issue for me each month is credit card debt. Without it, we'd be v comfortably off. Its built up over the 14 or so years I've been married, and its an uncomfortable amount to shell out each month. Getting rid of it is a really tempting prospect. Rough calculations tell me that I'd be able to save (ie. put money away, savings account isa etc) in the region of 1000 a month without it, possibly more. In 5 years, that'd be 60 grand or more if done dilligently and intelligently. Unanswerable question....will the house go up by that much in the same timescale?

I'm deffo not just a 'live for the moment' chap. I have a pretty good job, and so does the Mrs; currently 10% of my annual income is put into a pension, this should be a fair bit of a pot by the time I'm 60 (my target retirement date). However, I'm constantly troubled that a lot of my monthly income is eaten up by credit cards, and that money is just supporting the shareholders of MBNA and barclays. My income has gone up a lot in the last 2 years (33 - 40% gross); the cards would be shredded if paid off, there would be no need to build up debt again. However, thanks to zero % deals running out, payments have gone up, eating away at the increase in income.

To answer a specific question, repayment mortgage rate fixed at 6.06. One more year to go before it plummets to svr.:)

Thanks once again for your thoughts, as I say, please keep them coming, it's genuinely helpful. I particularly didn't think of a interest only mortgage.....dunno a lot about these I'll certainly look into it.

Cheers,

WP.

cwcw

Generally speaking, consider the interest payments of the mortgage as a fair comparison to the rent, not the total monthly repayments. Mortgage repayments above the interest are effectively paying yourself, in equity, similar to putting it into a savings account but with greater risk/reward. If renting costs the same, or more than, the interest repayments on a mortgage, and you can comfortably afford the remaining repayment, then surely a mortgage is better than rent.

If it's the same, and you rent, then if you're saving the equivalent of the capital repayments each month (and also bear in mind mortgages are front loaded) then you're not really losing much unless house prices take off, but at least mortgage repayments force you into "saving" - paying into equity. You're also wasting time in a way, as you will get nearer retirement age and reduce the potential mortgage term available.

All that said, I'm renting right now, in between selling and buying, as the inconvenience and slightly higher rent Vs interest repayments for 6 months to a year will be worthwhile for me when I land the right house at the right price.