Sell and buy... sell, buy and invest... or let and buy?

DanP1

Hi all,

I have been reading many different posts and couldn't really see anything this specific - I hope I'm not breaking any rules by posting this. Thank you in advance for reading it!

Our situation...
We managed to pay out our mortgage at 35 years of age and we are not really sure what's the next step we'd like to follow. Our house is currently valued at £200k and we have savings worth £50k, divided between saving accounts and ETF investments.

We don't earn a huge amount of money but, between both of us, we manage to put each month around £600 on ETFs and around £750 into our pension pot (our goal is to retire early).

Since we have a baby, we were thinking we could move to a nicer house worth around £300k but we have looked into many options on what to do next and I believe we are a bit overwhelmed at the moment, that is why I wanted to reach out and see what others would do in our situation.

As I see it, there are a few different routes we could take from here. Below are the ones which seem more appealing/logical to us:

Option 1: Sell the house (£200k), use all the money from the sale as a deposit for the new house, pay a low-ish mortgage and continue with our investments monthly contributions, potentially lowering them a bit.

Option 2: Sell the house (£200k), use around £100k towards the deposit on the new house, and invest the remaining £100k-ish in ETFs/index funds. Most likely lowering the amount contributed towards monthly investments because mortgage payments will be higher than with option 1 (interest earnings will be higher because of the bigger pot, though!).

Option 3: Rent the house out (£1000-1200pm), use our savings as a deposit for the new house, and use the rental income towards mortgage payments (technically not paying any mortgage, or paying a low amount each month). Continue with investment contributions as currently. (I'd have to look further into how this works, should we decide to go with this option).

Option 4: Stay where we are and stay mortgage-free. Continue with investment contributions to try to retire early.


What do you think? Which option do you find more appealing, and why? Can you think of a different option that looks more appealing to you?


Of course we will contact a financial advisor before we're ready to make our move, but we wanted to see first-hand what people would do if they were on our shoes.


Thank you all for your answers.

Have a lovely rest of your day!

Dan

[Deleted User]

3) You'll find renting is never as simple and cheap as it sounds, like what if tenant stops paying and you have to spend months evicting them and repairing their damage (plus all the mandatory costs like certificates, annual checks etc etc)

Question is whether your need a bigger house e.g. having another kid or happy where you are, good schools, parks etc and not having more? Could you get a nicer house for 300k with all the above boxes ticked?

Alexland

Being young and mortgage free in a property that's not right to meet your growing needs isn't the answer and I expect you know that by putting it as the last option.

Assuming you have reasonable future career prospects then going up the property ladder with the help of a new mortgage while investing everything more than your emergency pot in your Pensions/LISAs and S&S ISAs to be tax efficient and achieve your long term objectives seems a good path. I am of the view that once your mortgage LTV is good enough to access the best interest rates there's not much point overpaying further while you still have good earnings, growing S&S ISA dividend income and suitable life, critical illness and personal accident insurance.

grumiofoundation

3) If/when you properly cost this option factor in (not at all exhaustive list) that it  will cost you £15,000 in extra SDLT (SDLT assuming England (or NI, other taxes in wales/Scotland).
You will have to pay tax on rental profits (and create CGT liability when eventually sell).
Will you be managing yourself? 

Before worrying about option 1 vs 2 (which is really a choice of different investments - mortgage = guaranteed return back vs investments = Likely more return but risk involved) decide whether you want to move, will you regret not moving in the future? 

From a non-financial point of view how much do you want to sacrifice now for a potentially* more comfortable retirement?(Obviously will depend on how much of a sacrifice it is for you to stay in current house versus say potentially working a year or 2 longer or having a cheaper lifestyle in retirement). 

*say potentially because in the event you would downside in retirement you will (probably) get more profit from the 300k house than the 200k house which would somewhat offset having invested less along the way. 

On a side note do you have stocks and shares lifetime ISAs? might want to consider looking at for retirement alongside pensions. 

DanP1

Thank you for your answer.

We don't really need a new house, but we live in a student area and now having a child we'd prefer to live in a nicer area. 

Yes, we could buy a house for £300-325k that would tick most of the boxes. Of course, it wouldn't be the best house in town. But it would be good enough for our needs.

Answering your question, moving would be a nice to have rather than a necessity. We'd just enjoy more the day-to-day life if we were living in an area with better schools, nicer parks and neighbours that aren't only students.

DanP1

grumiofoundation said:

3) If/when you properly cost this option factor in (not at all exhaustive list) that it  will cost you £15,000 in extra SDLT (SDLT assuming England (or NI, other taxes in wales/Scotland).
You will have to pay tax on rental profits (and create CGT liability when eventually sell).
Will you be managing yourself? 

Before worrying about option 1 vs 2 (which is really a choice of different investments - mortgage = guaranteed return back vs investments = Likely more return but risk involved) decide whether you want to move, will you regret not moving in the future? 

From a non-financial point of view how much do you want to sacrifice now for a potentially* more comfortable retirement?(Obviously will depend on how much of a sacrifice it is for you to stay in current house versus say potentially working a year or 2 longer or having a cheaper lifestyle in retirement). 

*say potentially because in the event you would downside in retirement you will (probably) get more profit from the 300k house than the 200k house which would somewhat offset having invested less along the way. 

On a side note do you have stocks and shares lifetime ISAs? might want to consider looking at for retirement alongside pensions. 

That is exactly what I have been reading everywhere. People do always say how much of a hassle is to rent out a property and how it can eventually end up eating your profits.

I am potentially less inclined on this option (3), but I didn't want to disregard it because having "a piece of land that is mine" has always been very appealing to me for one basic reason: if life treats me badly, I can always return to my (own-outright) house and live with a basic income. 

I completely agree with what you said, and this is more or less at the point we are stuck at currently. We believe the best option would be option 2 for all the various reasons. But still wanted to hear what people thought about different options.

Yes, our ETF investments are in stock and share ISA. In order to be as tax efficient as possible, we might end up opening a Junior stock and share ISA for our son too.

Thanks again for your answer.

Albermarle

Moving to a nicer area/bigger home/bigger garden would bring immediate advantages to your quality of life .
Plans for early retirement at some indeterminate point in future , may never come to fruition. It is not unheard of for unexpected life events to push all kinds of long term plans off course. 
As this is a investments/MSE forum , investing for the future is always encouraged but you also need to live for the here and now as well. 

Option 2: Sell the house (£200k), use around £100k towards the deposit on the new house, and invest the remaining £100k-ish in ETFs/index funds. Most likely lowering the amount contributed towards monthly investments because mortgage payments will be higher than with option 1 (interest earnings will be higher because of the bigger pot, though!).

When discussing financial matters it is best to be clear .

ETF/index funds do not earn interest . They give investment returns ( a mixture of capital growth and dividends usually ) which can easily turn negative for extended periods . It has not happened for quite some years but will do one day . They are not a one way bet .

grumiofoundation

DanP1 said:

Yes, our ETF investments are in stock and share ISA. In order to be as tax efficient as possible, we might end up opening a Junior stock and share ISA for our son too.

Thanks again for your answer.

Stocks and shares lifetime ISA (LISA) is a separate product from ISA. 

25% bonus on deposits up to £4000 per year (so max. £1000 bonus). Can deposit up to age 50, but need to open before 40 (so even if you don’t think useful now but might be in future probably be worth opening with small deposit now). 

Accessible tax free all in one go at 60. Pay a penalty if withdraw before 60. 

https://www.gov.uk/lifetime-isaq

Alexland

DanP1 said:

Yes, our ETF investments are in stock and share ISA. In order to be as tax efficient as possible, we might end up opening a Junior stock and share ISA for our son too.

We have settled on holding a long established quality focused investment trust that produces reliable smoothed dividends and some capital growth in our S&S ISAs as it's reassuring to know the growing income (around 1% each quarter) is available to pay our mortgage and bills in the event we ever lost our jobs. We then hold global tracker funds and ETFs in our pensions/LISAs. For the S&S Junior ISA have a look at Fidelity as they have no platform charges on child accounts if you stick to traditional funds.

DanP1

Albermarle said:
When discussing financial matters it is best to be clear .

ETF/index funds do not earn interest . They give investment returns ( a mixture of capital growth and dividends usually ) which can easily turn negative for extended periods . It has not happened for quite some years but will do one day . They are not a one way bet .

You are correct, apologies. I used very wrong wording. Thank you for clarifying the point for everybody.

DanP1

grumiofoundation said:

DanP1 said:

Yes, our ETF investments are in stock and share ISA. In order to be as tax efficient as possible, we might end up opening a Junior stock and share ISA for our son too.

Thanks again for your answer.

Stocks and shares lifetime ISA (LISA) is a separate product from ISA. 

25% bonus on deposits up to £4000 per year (so max. £1000 bonus). Can deposit up to age 50, but need to open before 40 (so even if you don’t think useful now but might be in future probably be worth opening with small deposit now). 

Accessible tax free all in one go at 60. Pay a penalty if withdraw before 60. 

Thank you for this, I will have a look at it as haven't contemplated it in my plans. Thanks!