Best return on £150,000 savings

vinuela13

My husband thinks he has come up with a "cunning plan"
I would welcome and appreciate any thoughts on this.
We currently have an offset mortgage outstanding amount of £58,000.We pay monthly interest on approx £45,500 because we have £12,500 savings linked to our mortgage account
Our house is valued at £200,000.
We are currently paying around about £250.00 a month interest only payments on our mortgage.
My husband thinks if we sell our house for £200,000,then pay off the outstanding mortgage leaving us with approx £155,000 if we invest this amount of money in a high interest savings account the return that we would get on this amount would be sufficient for us to rent a property in our area.
I hope this makes sense and if anybody has any thoughts on this matter I would really appreciate to hear it
Thanks in advance

Toto

Would it not make more sense to buy another property for around £155,000 so you can live rent/mortgage free and use the surplus monthly funds to put into regular saver accounts?

vinuela13

Toto wrote: »

Would it not make more sense to buy another property for around £155,000 so you can live rent/mortgage free and use the surplus monthly funds to put into regular saver accounts?

Hi Toto
Thanks for your reply.
We had actually considered another property but this would mean downsizing and at the moment that would be difficult .
My OH seems to thinks that we would get around about £500 a month interest on savings of £155,000 and in the area where we live we could probably rent a 3 bedroomed house for about £500-£700.

EdInvestor

Sounds a bit like the "STR" idea (sell to rent).This scheme has been advocated for some years by people who think the property market is bound to crash.You sell your home, put the proceeds in the bank, rent another place using the interest and wait for prices to fall.

Then you go in and buy a new property at a lower price thus making a killing.

Unfortunately there's a slight flaw with this cunning plan.

vinuela13

EdInvestor wrote: »

Then you go in and buy a new property at a lower price thus making a killing.

Yeah I think that was something my OH had thought of.
He mentioned the idea of sitting on the money and then maybe buying something at auction.
I suppose this could be regarded as not being so nice,because basically if we wait for a property to be sold at auction this could be a repossession and therefore somebody elses misfortune.
Is this so bad?

Jonbvn

diddlyidi wrote: »

Yeah I think that was something my OH had thought of.
He mentioned the idea of sitting on the money and then maybe buying something at auction.
I suppose this could be regarded as not being so nice,because basically if we wait for a property to be sold at auction this could be a repossession and therefore somebody elses misfortune.
Is this so bad?

I do not think anybody would consider buying property via an auction as bad.

The problems you may have if you sell rent are as follows:

1. What happens if your rent is more than the interest?
2. What happens if house prices increase?
3. In the long term, inflation will reduce the value of your capital. Rents will usually increase with inflation.
4. In rented accommodation, you can be kicked out at short notice.

you decide?

munk

Thought you might find this useful:

http://uk.reuters.com/article/personalFinanceNews/idUKNOA12259920071011?feedType=RSS&feedName=personalFinanceNews

May not be the best time to sell in the next few months, though of course it depends what the market's like in your area. I guess there's nothing to stop you setting a 'reserve' price anyway and not accepting anything less than that price

Primrose

Well, I don't know whether it's a cunning plan or not and whether you would make money on it or end up burning your fingers. What I do know is that if you go ahead you're going to subject yourselves to a long period of living in an unsettled and uncertain environment, not knowing whether you've done the right thing or not, putting up with a lot of inconvenience in the meantime and possibly finding that you've sold and the housing market is still going up. Frankly if my husband came up with this idea I would kick it into touch. Our house is primarily our home and not an investment. If you really want to save yourselves all the hassle and expense, why not give yourselves two years of intense saving and use it to reduce your mortgage further. Any hardships you cause yourselves surely couldn't be worse than all the chaos of moving house and then possibly finding you've settled for the wrong option.