To sell or not to sell!

Blodyn2000

Hello, 
We bought our house around 2 years ago. We only fixed our mortgage for 2 year so recently it has increased by £300. Whilst still “affordable” this is obviously a big increase and has impacted on our savings plans etc. The house isn’t exactly in the area we would like but it was where we could afford at that time. We’ve been informed of a house we could potentially rent for £500 cheaper than our mortgage in the area we really like. 

Just wondering what peoples opinions were on selling up and renting for a while to save for a bigger deposit for when a house comes up for sale in the area we want? 

Would this affect our chances of getting a mortgage again? 

Many thanks  

Jemma01

Well the difference is that the rent you'll pay is going to someone else's mortgage, and you'll have no return on that investment. In contrast, the mortgage you're paying (assuming it is a capital payment) puts your money into your house that you can later sell and benefit from (hopefully increased in price).

Also, rent is unstable, the landlord could increase the rent, making this move counterproductive. They could decide they want the property back and want to sell it or gift it to their kids.

I kinda feel you in that, the percentage increase is likely interest, and is it even worth paying a mortgage with such high interest? If I were you, I'd get a calculator out and work out how much money I could save and how much interest I suspect I'd get vs how much equity I could have on my house over the next 5 years. Quite a difficult calculation with the many variables you need like guessing the interest and inflation rates.

If you're only paying interest, there may be more compelling reasons to rent. (though property could increase in value, so far they've been up in my area steadily, nothing seems to affect that, which would be a loss for you if you rent)

It wouldn't affect your ability to get a mortgage at a later point.

RHemmings

If you move out and rent, then you will be at an advantage if house prices go down. But, you may be disadvantaged, and possibly even priced out, if house prices go up. Nobody knows what will happen with house prices. 

This sort of move may work better when people are younger and have more time to save, than if they are older. Which age group are you in? 

What are the advantages and disadvantages of the other area? Over and above really liking it. Do you have children? Or do you plan to? 

Unless you are old (like me) and mortgageable time is getting short, then a bigger deposit should make it easier to get a mortgage. Depending on how much you can save and what happens to house prices. 

Note that if you rent for a length of time, that rents can go up too. Your original plan seems to have been based on previous interest rates, which changed. Can you make a medium or long term plan based on different future rents, and check that it still works. 

These are just pros and cons. I'm not arguing one side of the decision or the other. Your decision will have to consider a lot of future unknowns. 

Herzlos

Normally I'd expect that like for like, rent will be more than a mortgage.

However if you can move somewhere you prefer, into a property you like, and get £500 a month in savings it could well be the best option.

How much equity are you actually paying off from the mortgage? If it's less than the £500 you could put into savings then you may be better off financially by renting assuming your house price doesn't increase much.

Mark_d

So your mortgage payment has increased from £1000 to £1300 and you have the option to rent for £800 in a better area?
One thing to remember is that out of your £1300 per month mortgage payment, £800 is buying equity and £500 is paying mortgage interest.  So a fairer comparison of the costs is £800 for rental vs. £500 for your current place.  So you would be paying a significant proportion more to move to the rental property in the better area.
If you sell up and move in to rental you will have to pay up to £5000 in fees for selling and removal costs.  So even in terms of day-to-day cashflow, you're  not going to be in a better position by going into rental.
When my fixed rate expires next year, I plan to improve my cashflow by remortgaging to an interest-only mortgage.  Maybe this is something you could consider?

BonaDea

I agree with @Mark_d above.  Of that £1300 per month mortgage, think of it as £800 a month you are investing for your future (in a capital asset), and £500 in 'rent' to the bank - you are renting money from them, and £500 is the cost each month.  To my mind, it would be foolish to move from that to renting property at £800 per month.  Plus, you've not only got all the costs of selling (as noted above) - thousands in estate agent's and legal fees - but then when you come to buy again in a few years (assuming you are able to, which may not be the case if house prices rise sharply) you'd have a load more costs in stamp duty, mortgage fees, legal fees, surveyors fees etc.  If you are finding £1300 pcm a bit too much of a squeeze on your income at present, why not have a chat with your bank and see if you can extend the term, or make a portion of the loan interest-only for a couple of years?  About 20 years ago I seem to remember having a mortgage that was split 50:50 between repayment and interest only for a year or two, until I was in a position to make it fully repayment and also overpay to bring me back on schedule.

Blodyn2000

Thanks for the responses. They’ve been really helpful. Lots to think about. 

We’ve recently only fixed again for 2 years so will be looking to review again the end of next year so will reassess then I think. 

House prices where we are don’t seem to be moving much and at the moment I think we’d only get back what we paid for it. 

We’re both in our early 40s and have 2 children. 

Thanks again for all the responses 👍🏻

ReadySteadyPop

Jemma01 said:

Well the difference is that the rent you'll pay is going to someone else's mortgage, and you'll have no return on that investment. In contrast, the mortgage you're paying (assuming it is a capital payment) puts your money into your house that you can later sell and benefit from (hopefully increased in price).

Also, rent is unstable, the landlord could increase the rent, making this move counterproductive. They could decide they want the property back and want to sell it or gift it to their kids.

I kinda feel you in that, the percentage increase is likely interest, and is it even worth paying a mortgage with such high interest? If I were you, I'd get a calculator out and work out how much money I could save and how much interest I suspect I'd get vs how much equity I could have on my house over the next 5 years. Quite a difficult calculation with the many variables you need like guessing the interest and inflation rates.

If you're only paying interest, there may be more compelling reasons to rent. (though property could increase in value, so far they've been up in my area steadily, nothing seems to affect that, which would be a loss for you if you rent)

It wouldn't affect your ability to get a mortgage at a later point.

The "return" on the rent is a place to live that you presumably like and all repair costs covered, rent is a "cost" where mortgage is a "debt". "Putting money into a house" relies on a future buyer to give you the money back, you might not get all the money back, it isn`t like a savings account. £500 per month invested well would probably give you a better return eventually than property.

ReadySteadyPop

Blodyn2000 said:

Hello, 
We bought our house around 2 years ago. We only fixed our mortgage for 2 year so recently it has increased by £300. Whilst still “affordable” this is obviously a big increase and has impacted on our savings plans etc. The house isn’t exactly in the area we would like but it was where we could afford at that time. We’ve been informed of a house we could potentially rent for £500 cheaper than our mortgage in the area we really like. 

Just wondering what peoples opinions were on selling up and renting for a while to save for a bigger deposit for when a house comes up for sale in the area we want? 

Would this affect our chances of getting a mortgage again? 

Many thanks  

It seems that the timing wasn`t on your side, if the rental had been available before you took on a mortgage you would be better off now, but the question now is how much loss would you be looking at by selling, is it worth it? £500 is a big saving to make monthly over maintaining mortgage debt though.

BarelySentientAI

ReadySteadyPop said:

Jemma01 said:

Well the difference is that the rent you'll pay is going to someone else's mortgage, and you'll have no return on that investment. In contrast, the mortgage you're paying (assuming it is a capital payment) puts your money into your house that you can later sell and benefit from (hopefully increased in price).

Also, rent is unstable, the landlord could increase the rent, making this move counterproductive. They could decide they want the property back and want to sell it or gift it to their kids.

I kinda feel you in that, the percentage increase is likely interest, and is it even worth paying a mortgage with such high interest? If I were you, I'd get a calculator out and work out how much money I could save and how much interest I suspect I'd get vs how much equity I could have on my house over the next 5 years. Quite a difficult calculation with the many variables you need like guessing the interest and inflation rates.

If you're only paying interest, there may be more compelling reasons to rent. (though property could increase in value, so far they've been up in my area steadily, nothing seems to affect that, which would be a loss for you if you rent)

It wouldn't affect your ability to get a mortgage at a later point.

The "return" on the rent is a place to live that you presumably like and all repair costs covered, rent is a "cost" where mortgage is a "debt". "Putting money into a house" relies on a future buyer to give you the money back, you might not get all the money back, it isn`t like a savings account. £500 per month invested well would probably give you a better return eventually than property.

Putting money into a house buys you a physical thing.

Putting money into rent buys your landlord a physical thing.

There are valid reasons for both things, but the choice for most people (as in this thread) isn't a direct "buy a house or invest in savings".

RAS

So if you move now, there will be an early redemption penalty to pay?

Wait 18 months are that's not an issue, so it might be a good idea to think about it then?

Do also think about the boring bits like, have your kids settled into school? At what stage are they in their school lives? What's the commuting, working situation like?