housing transition trap?

docrob900

I’m facing what ChatGPT calls a 'capital-preserving housing transition dilemma': I need to sell my current home and pay off the mortgage completely, to fund a new one that I hope to pay cash for, but I’m concerned that renting in the interim, whilst I find the right place, will erode the equity I’ve built. I can't be the only one to experience this; what do people do in the transition period?

GDB2222

Most people sell and purchase at the same time. Is there a reason you can’t do that?

You are taking a risk, because house prices could rise while you are renting. There’s no way to invest the sale proceeds to keep pace with house prices. Apart from that, you will paying roughly 5% in rent, and you can only earn roughly half of that in interest, after tax. 

grumpy_codger

docrob900 said:

...a 'capital-preserving housing transition dilemma'... I’m concerned that renting in the interim, whilst I find the right place, will erode the equity I’ve built. I can't be the only one to experience this; what do people do in the transition period?

I don't see any 'dilemma' in your post.

And what do you mean by the 'trap'? Is it that house prices go  up while you are sitting on your cash? I think ATM your savings in a bank grow faster than house prices.

GDB2222

grumpy_codger said:

docrob900 said:

...a 'capital-preserving housing transition dilemma'... I’m concerned that renting in the interim, whilst I find the right place, will erode the equity I’ve built. I can't be the only one to experience this; what do people do in the transition period?

I don't see any 'dilemma' in your post.

And what do you mean by the 'trap'? Is it that house prices go  up while you are sitting on your cash? I think ATM your savings in a bank grow faster than house prices.

That’s a gamble a hedge fund might take, but it is not a great idea for private individuals. 

grumpy_codger

GDB2222 said:

grumpy_codger said:

docrob900 said:

...a 'capital-preserving housing transition dilemma'... I’m concerned that renting in the interim, whilst I find the right place, will erode the equity I’ve built. I can't be the only one to experience this; what do people do in the transition period?

I don't see any 'dilemma' in your post.

And what do you mean by the 'trap'? Is it that house prices go  up while you are sitting on your cash? I think ATM your savings in a bank grow faster than house prices.

That’s a gamble a hedge fund might take, but it is not a great idea for private individuals. 

Possibly it's a gamble if we are talking about years, not months. I think the OP means the latter - finding "the right place".

To avoid chains and to move stresslessly I've bought my new house before selling the old one - is it the same gamble in reverse?

docrob900

No, nothing like that. If I sell, and don't have a new place to buy quickly, I still need to live somewhere. That costs money, and reduces the amount I then have to buy a new place when one becomes available. That gap may be months or years, eroding the money I get from selling the house. That's the trap and the dilemma.

docrob900

GDB2222 said:

Most people sell and purchase at the same time. Is there a reason you can’t do that?

You are taking a risk, because house prices could rise while you are renting. There’s no way to invest the sale proceeds to keep pace with house prices. Apart from that, you will paying roughly 5% in rent, and you can only earn roughly half of that in interest, after tax. 

'Most people sell and purchase at the same time', but what if there isn't one to purchase at the time of selling? Or are you saying, 'wait till you find the right place, then sell'? My worry is that if I get an offer accepted, I might not be able to sell my own quickly enough that the new house wouldn't fall through because of the delay.

born_again

docrob900 said:

No, nothing like that. If I sell, and don't have a new place to buy quickly, I still need to live somewhere. That costs money, and reduces the amount I then have to buy a new place when one becomes available. That gap may be months or years, eroding the money I get from selling the house. That's the trap and the dilemma.

You do what millions of people do each year, they sell theirs, buy the new one. It creates a chain & sale & purchase all go through together.
So you move out & move to new house on same day.

Just shows how poor the likes of ChatGPT are, if it does not understand how most house sales/purchases are handled in the UK.


capital-preserving housing transition dilemma 🤣

grumpy_codger

docrob900 said:

No, nothing like that. If I sell, and don't have a new place to buy quickly, I still need to live somewhere. That costs money, and reduces the amount I then have to buy a new place when one becomes available. That gap may be months or years, eroding the money I get from selling the house. That's the trap and the dilemma.

Again, you need primary school maths for this, not chat GPT. 

Savings (and mortgage) interest and rents aren't the same, but are comparable. Recently many landlords were selling their properties because BTL business became almost unprofitable (rent vs mortgage payments). 

For how much can you rent, say, a £300K house in your area? In good savings accounts you can get about £1K p.m. interest (before tax if any) on £300K. 

If you spend your cash on a house and own it, you in fact pay a hidden 'rent' - in form of the interest that you could have earned if you had that cash in a savings account.

docrob900

born_again said:

docrob900 said:

No, nothing like that. If I sell, and don't have a new place to buy quickly, I still need to live somewhere. That costs money, and reduces the amount I then have to buy a new place when one becomes available. That gap may be months or years, eroding the money I get from selling the house. That's the trap and the dilemma.

You do what millions of people do each year, they sell theirs, buy the new one. It creates a chain & sale & purchase all go through together.
So you move out & move to new house on same day.

Just shows how poor the likes of ChatGPT are, if it does not understand how most house sales/purchases are handled in the UK.


capital-preserving housing transition dilemma 🤣

They do, of course, but my question has been about what happens in the gap between selling and buying if the selling stage takes a lot longer than anticipated. GPT did understand how house sales work; but it also understood the question I was asking.

user1977

What you do is anticipate that possibility and budget for it accordingly.