propert or savings/investment?

investmentnewbie

Hi there, As my username suggests, I don't really have a clue about what I'm about to ask. So answers to any of the questions, or pointers as to a better board to post this on would be much appreciated.

My wife and I are planning to go abroad (Asia) for at least 6 months starting January 2008. We plan to give up our jobs, and not work while abroad as we have saved enough to last for this time. However, if possible, we would like to arrange things so that we can stay away for longer, or perhaps set up home somewhere else in the UK on our return. We own a home, currently worth about £155k, with a mortgage of £74k. Our monthly mortgage payments are £500, but these will rise to about £600 when our 2 year discount expires in February.

We are basically trying to decide what to do with our home while we are away. Here are our options:

a) let our home while we are away. Current rental would be about £650 per month. This would only just cover the mortgage, thus not leaving us any kind of income to live on if we decided to stay away for longer.
b) sell our home and buy a studio flat outright which we could let out. Current rental would be about £350 PCM. This would take away any worries about mortgage payments (especially given interest rate trends), and would enable us to stay on the property ladder. Also likely to give us a modest monthly income while we are away.
c) sell our home and invest the money we have made (about £80k), possibly living off the interest if we stayed away longer than 6 months.
d) something else!

Any thoughts as to which of the above plans would be 1) most long-term "secure", 2) net the largest monthly income, 3) be the most tax-effective?

Option b or c seem most likely plans. From what I can tell, if we were to stick the £80k house profit into a basic 6% savings account, this would net about £5k over the year. Does that sound right? Would this be any use as a monthly income though? Presumably we wouldn't pay tax as it would be below the personal allowance. Are there other types of investment that would be more sensible for us?

One additional factor is that we both have student loans, amounting to to £14k between the two of us. Our salaries have never been such that we've needed to start repaying these, and received wisdom seems to be to pay of these cheap debts only when forced to. Presumably having savings would not trigger the need to repay? As far as I can tell, only income is taken into account.

Thanks in advance!

Note: in my ignorance I may post this elsewhere. Apologies for cross-posting. If you have thoughts on only part of the above, I'd love to hear them.

isofa

I can't comment specifically, but it looks like the house market, for the moment has peaked, so potentially if you sold now and brought back later you may well have played the market well.

However I personally would keep a property (of some type) because you never know what the market will do, you might sell now, stay away for much longer than planned and return to find prices higher than before, making it much harder to buy, and mortgages are going to be tougher to arrange for a while too, in my opinion.

As you are planning to return, I'd definitely keep some sort of property here. But this doesn't count in the most tax efficient means, or compare against other investments. But it does make it "secure" in the fact you always have a property to return too, if property goes up or down, it's doesn't directly matter, because you do at least have somewhere to return to, but obviously if the values fall, there'd be better ways of "investing".