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Sell House and Rent?
lind1234
Posts: 4 Newbie
Hi
I really need some help, we bought our house 5 years ago, we have a huge mortage and have lots of credit card debt. We are really struggling at the moment to pay the bills especially now that the interest rates have gone up again! We are lucky that we have quite abit of equity, so we are strongly considering selling up, paying off all our debts and renting but I am worried because i have never rented before and have heard alot of bad things about it. I would really appreciate your advice.
Thanks.
I really need some help, we bought our house 5 years ago, we have a huge mortage and have lots of credit card debt. We are really struggling at the moment to pay the bills especially now that the interest rates have gone up again! We are lucky that we have quite abit of equity, so we are strongly considering selling up, paying off all our debts and renting but I am worried because i have never rented before and have heard alot of bad things about it. I would really appreciate your advice.
Thanks.
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Comments
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Why not sell up & downsize & use the equity to pay towards your debts?
What you have to remember with renting is that you have no security & could have to keep moving every 6 months if landlord doesn't want to extend contract for any reason. How would you feel about having the worry of how long the roof will remain over your head & the thought of leading such a nomad existance if you do have to keep moving & finding different places to rent?
Weigh up the pro's & cons & decide whether trading down for a few years till you clear your debts might be a better option in the long term.The bigger the bargain, the better I feel.
I should mention that there's only one of me, don't confuse me with others of the same name.0 -
Thanks for the response, but we cannot downsize anymore as we only have a 2 bed terrace with 3 kids and it is very cramped already. We can get a bigger rental property for not much more than we pay for our mortgage. It is such a big decision!0
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It is a very hard decision. I know you have said you have a huge mortgage but lots of equity. If you pulled some of the equity off to pay off the credit cards and changed your mortgage over to interest only at a fixed rate rather than repayment for a couple of years until things are a little easier. you may find the payments less. Do some number crunching and ring the mortgage company or another one if they can't help. Have a fiddle about on the many mortgage websites that have mortgage calculators on them. Work out how much you need and press the interest only option as see how that comes out . You can even put in the interest rate to see how that calculates.
Get some serious figures. Interest only will take a big chunk of the payments off.
Consider everything in this, I have only suggested this was as you may lose your home anyway if you don't do something about it now.
Once you step off that property ladder you may not get back on it again. As you have said yourself you have a lot of equity, where do you think that came from ? it came from your investment in the property market.
At interest only you can see it as renting your own home. BUT it will still increase in capital value over the years as it has done so already.
If you rent you will be paying someone elses interest only mortgage and they will get the increase in capital value (like me) don't let me have it if your numbers add up.
All this said if you can't manage you could get help from many debt management programmes available. They are on this site I'm sure. That may damage your credit rating but may help you to keep your home.
Good luck and big hugs
Lizzy0 -
I'd look into re-mortgaging to get enough equity to pay of you CC bills, as the interest rates on these can be crippling if you let them get out of hand. Given that you've had your house 5 years, I'm assuming you have 20 years left on your current term, so you could go back to a 25 year repayment term to reduce your monthly payments. Interest only is also another option as suggested above.0
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Hi
I really need some help, we bought our house 5 years ago, we have a huge mortage and have lots of credit card debt. We are really struggling at the moment to pay the bills especially now that the interest rates have gone up again! We are lucky that we have quite abit of equity, so we are strongly considering selling up, paying off all our debts and renting but I am worried because i have never rented before and have heard alot of bad things about it. I would really appreciate your advice.
Thanks.
renting is fine, i rented when i was a student, same place for 3 years, landlord was bril, would even replace broken light bulbs
as long as you pay the rent on time, cant see why renting isnt secure.
if you are struggling, you don’t really have a choice. sell up and make your life easier!0 -
NOT guaranteed in today's market, property prices may not continue to rise. Past performance is no indication of future performance.At interest only you can see it as renting your own home. BUT it will still increase in capital value over the years as it has done so already.
If you rent you may be paying someone else's mortgage, but rental prices are so much lower than repayment mortgages on equivalent-value homes that by selling up and renting you may be able to cut into your debt without having to spend your equity - at the same time you would be able to earn interest on your equity towards rebuying.
It's such a hard decision and without a crystal ball it's hard to know what to suggest. I would look into what it would cost to rent a 2-bed (or even 3-bed) house in your area, see what the availability is, and see whether the cost would be significantly lower than the cost of your mortgage so you could spend the difference on paying off your debts. Look also at interest-only mortgages and see if that would save you enough to pay off your debts, but don't write off renting as dead money - look at the situation first.
For instance, say you have a take-home income of £2500 per month and your mortgage costs £1000 per month as a repayment. On interest-only that may drop to £850 per month, allowing you to put an extra £150 per month towards your debt, but you are not paying off any of the capital on your mortgage that way and need to consider how & when you will do this. You keep your £50k equity in the house and you keep the security of "owning" your own home, but this is not a guaranteed return in today's property market, and your house could lose that equity again.
Conversely, you could sell your house, pay off your mortgage, put your ~£50k equity in a high-interest savings account and rent. You don't have the security of your own home anymore. To rent a house the size you need might cost only £600 per month. By doing this, you're able to put an extra £400 per month towards your debts that you couldn't previously. Your income pays for the rental, so you don't touch your equity, which is steadily earning interest. You are more financially stable, have the ability to pay off your debts more quickly and have a lump sum gaining in value towards a deposit for a future house.
I'm not saying that one or the other option is better for you as I don't know your circumstances. But I urge you to consider all the options and to get as much advice as possible. There is absolutely nothing wrong with renting. In today's market it is not dead money and while there may be some dodgy landlords (and tenants!) out there, there are also a lot of good ones, and renting does not have to be a short-term thing if you find a good situation that works for all parties.
Best of luck
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What you have to remember with renting is that you have no security & could have to keep moving every 6 months if landlord doesn't want to extend contract for any reason. How would you feel about having the worry of how long the roof will remain over your head & the thought of leading such a nomad existance if you do have to keep moving & finding different places to rent?
Renting is like anything else in that the more you take the time to learn about it the better a deal you can get.
Yes landlords do sell up and you may have to move, it's happened to me, but at the viewing you ASK about the landlord's background and what his intentions are. How long has he been a landlord, is he planning to sell, check when he purchased, if after 2000 you can find out from the land registry what he paid. All this goes into working out if the landlord can afford his debt and if he's planning to sell.
Now the landlord's plans may change but this information can help you decide if he is a good bet or not and if he is it's unlikely you will have to move after six months! It's very unlikely that every landlord you choose will ask you to leave after such a short time unless you are a bad tenant, landlords on the whole want the rent coming in, not an empty property while they change tenants. Unless we get to the point where there is panic selling in which case I would not mind the inconvenience as house prices will then be falling...
OP, if you do rent, find about all about it first, there are plenty of pitfalls but if you know what they are you are best able to avoid them and know how to fight your corner should things go wrong. It isn't a free ride for no effort but then what isIf you pulled some of the equity off to pay off the credit cards and changed your mortgage over to interest only at a fixed rate rather than repayment for a couple of years until things are a little easier. you may find the payments less.
I would be extremely wary of turning unsecured debt into secured debt on your home, doesn't Martin say that's a bad idea? You do not want to risk repossession!Once you step off that property ladder you may not get back on it again. As you have said yourself you have a lot of equity, where do you think that came from ? it came from your investment in the property market.
So a nice windfall if you cash it in time
At interest only you can see it as renting your own home. BUT it will still increase in capital value over the years as it has done so already.
So house prices only ever go up and up cos they've only ever gone up and up???!!! It would make just as much sense for you to say it was sunny all day today so it will never rain again
If you rent you will be paying someone elses interest only mortgage and they will get the increase in capital value (like me) don't let me have it if your numbers add up.
No sign of a housing or credit bubble in your view then, only investing with monthly losses in the hope of capital gains in a market that has already risen beyond logic is a bubble in my view Never mind the interest rate rises and the sub-prime lending fiasco! 0 -
Ah well all these are ideas that may not have been thought about by the OP.
Of course the housing bubble could burst and what effect on the OP would this have ? It will only have an effect if she sells and wants to buy again. It is only vitally important that she can meet the mortgage payments. As a home owner and you fix the interest rate for a few years you don't really worry what the market does. When its due to come out of its fixed term you do, we all do !!! .Its up to the OP to to weigh up the possibilities as rents go up as well so the landlords cover the cost of their payments too.
The OP problems are not really to do with investing as with keeping her home. A new investor will certainly find it hard to cover the interest payments with the rental income allowance at the moment at 125% and even 110% that market could dry up very soon. I'ts not all rosey in the rental garden at all.
Franklee
You only pulled out certain "quotes I made to suit" not the one about the debt management programme that should also be considered with all the other comments people have made.
This site is knowing that you do have choices. There is certainly no problem with renting and I certainly wouldn't discourage anyone from doing it as I am a landlady (fab one I hope) . But deep deep down wouldn't we all want to hold on to our home if we can. Not have to work ourselves up into a frenzy when the kids rip the wall paper or burn the carpet with the hair straightners, and worse worry that the house may be sold and have to move on again.
At least you have a list of options lind.
If its a re mortgage option you want you must really give great thought to what made those credit card so high in the first place. Thats part of what Martin is saying about secured loans (mortgages) your credit cards become empty and you fill them up again putting yourself in a worse situation than when you started. That must not happen again if you choose that route. If you have been living off them for food and bills there is something wrong. If it was holidays and new HD tv then it can be stopped. Only you know the answer to this.
I think me and Franklee just have different point of views, I say the equity in your home is from an investment he says its a windfall. I do actually think the market will go up and up and up....over the l o n g term meaning years. A long term investment. But we will have to give it to the government to look after us in our care home anyway.
I would like to know what you decide if you can let us know.
I wish you the very best of luck in what you decide. Just to let you know I have done it and it was the best thing I did, I was also able to buy several BTL properties with my remortgage. In a couple of years my home has gone up way over the money I borrowed from it. But But But as Franklee says just because it was sunny today it might not be tomorrow.0 -
Of course the housing bubble could burst and what effect on the OP would this have ?
She would still have the debts but would no longer have the equity to bail her outIt will only have an effect if she sells and wants to buy again.
Had she remortgaged onto interest only moving her unsecured debts onto the mortgage as you suggested she would then be in a very vulnerable position. Due to the house price drops and having put those other debts on the mortgage she may not have enough equity left to be able to remortgage again when that fixed deal runs out. Therefore she will be stuck on the lender's standard variable rate which is typically 2% higher than the more attractive deals. She would stand a good chance of being repossessed.It is only vitally important that she can meet the mortgage payments. As a home owner and you fix the interest rate for a few years you don't really worry what the market does. When its due to come out of its fixed term you do, we all do !!!
If the housing market hits a rough patch, which all this sub prime stuff seems to indicate it will, then lenders will be stricter about who they lend to. That will also contribute to making getting a new fixed deal harder, given the OP's debts and the points above.Its up to the OP to to weigh up the possibilities as rents go up as well so the landlords cover the cost of their payments too.
Rents have not been going up anywhere near as fast as either house prices or mortgage interest rates. The market round here is awash with rental properties so landlords do not have the pricing power to cover the cost of their payments. I even negotiated a small reduction in rent last time round for being a good tenant and signing up for a new fixed term.The OP problems are not really to do with investing as with keeping her home. A new investor will certainly find it hard to cover the interest payments with the rental income allowance at the moment at 125% and even 110% that market could dry up very soon. I'ts not all rosey in the rental garden at all.
Gross rental yields round here are typically 4% to 4.5%! Relevant to the OP as renting is a good deal nowadays. But if the BTL market dries up, and I agree that it will, who will keep the housing market going?Franklee You only pulled out certain "quotes I made to suit" not the one about the debt management programme that should also be considered with all the other comments people have made.
I am not in a position to comment on debt management programmes, I have heard variable things about some of the options and would suggest the DFW board for more information.But deep deep down wouldn't we all want to hold on to our home if we can. Not have to work ourselves up into a frenzy when the kids rip the wall paper or burn the carpet with the hair straightners, and worse worry that the house may be sold and have to move on again.
The emotional side is too personal for strangers to weigh up. Only the OP can weigh these points up against the stress to her of being in debt. The OP has to start from where she is now, which is "struggling at the moment to pay the bills especially now that the interest rates have gone up again". How would she feel if that were still the case but her equity was gone? Out on the high wire with no safety net.At least you have a list of options lind. If its a re mortgage option you want you must really give great thought to what made those credit card so high in the first place. Thats part of what Martin is saying about secured loans (mortgages) your credit cards become empty and you fill them up again putting yourself in a worse situation than when you started.
And also the point is the differences in collection of secured and unsecured debt and what the lender can do if you don't pay.I think me and Franklee just have different point of views, I say the equity in your home is from an investment he says its a windfall. I do actually think the market will go up and up and up....over the l o n g term meaning years. A long term investment. But we will have to give it to the government to look after us in our care home anyway.
What good is a long term recovery in the housing market to the OP if she gets reposessed in the short term? If there is a drop in house prices no one is saying the housing market won't recover eventually, meanwhile those that overpaid will have to sit tight in their starter homes, possibly with negative equity, and watch while the rest of us buy better houses for less. Then when the market recovers the better homes will go up in value more than the starter homes.I wish you the very best of luck in what you decide. Just to let you know I have done it and it was the best thing I did, I was also able to buy several BTL properties with my remortgage. In a couple of years my home has gone up way over the money I borrowed from it. But But But as Franklee says just because it was sunny today it might not be tomorrow.
Ah now that's interesting, if the house market looks like tanking will you be selling your BTL properties? Only many landlords say they are in it for the long term yet should the OP rent you said she would worry that the house may be sold and she'd have to move on again! So maybe the BTL's aren't such a long term investment after all? If many landlords think like that then the effect on house prices is obvious.
Oh and just to let you know I have cashed in my considerable equity and am now renting with the interest from the banked cash covering the rent :eek:0 -
Great stuff franklee poppy100
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