Baby arriving, need to move. Sell at a loss/break even or rent it out?

neas

They wont be able to cover their NR mortgage by selling in 1+ years time... So they wont be able to complete then. If house prices do drop they will be trapped in the 1 bedroom flat until more capital has been paid off.

Unfortunately you are on the loosing side of this Boom and Bust pattern of houses... Unfortunately should've done some more research before taking such a big leap ... Buying a 1 bedroom... leaves no room for family upgrades at all.

When making the biggest financial decision of their lives its funny how many dont do proper research and trust an 'independant'... Play with fire get burnt .

I'd suggest.... the best thing to do is to move to a 2 bedroom now... take a big hit on your mortgage now (if you can even sell the house for what you expect... as houses are dropping by 5k in my area at the moment) and get a 2nd bedroom you are willing to stay there for 6-8 years. Try to negotatiate a good price on the two bedroom.. and a higher price for your own... lend money from parents/family to help the transition.

A few problems with this:

1. You cant get 125% mortgages now. Can you provide 3.5x your combined income towards a mortgage? (Even with maternity pay/potential loss of earnigns from not working and caring for child etc)
2. Even if you put on market now... it takes up to 6 months to sell a house... especially 1 bedroom flats in this decreasing market... nobody wants to buy one and get into negative equity... on them as you are finding they leave no room for family expansions.

seraphina

It will be very, very difficult for you to get any sort of mortgage in the current climate - let alone a 100% mortgage which is what you'll probably need to move to a new house of your own.

I'd sell and rent -you'll get more house for your money. You've already said that it's cheaper to rent than to buy (you can't cover the mortgage with the proposed rent for your flat) so sell asap, move to rented, keep saving and chalk it up to experience.

WTF?_2

Gorgeous_George wrote: »

I'd suggest selling and taking a hit.

Looking back in 5 years' time, it may seem a very wise thing to have done.

It's all about taking risk. There's more risk in keeping property than selling it - IMHO.

GG

Wow GG, when did you turn bear-ish?

Pez2

It sounds like you overstretched yourself to buy your current flat, and now you want to overstretch yourself to buy an even bigger flat and keep the old flat as well. Sounds a bit risky, doesn't it?

Essentially, if you move to an interest only mortgage then you won't be paying anything off on your current flat, so assuming that the rent covers the mortgage plus costs of letting, you're still banking on either your property rising in value or your being able to save up enough to clear your mortgage debt. And it seems like you will struggle to even make enough to cover mortgage + costs, so you'd essentially by subsidising someone to live in your flat while bearing all the risks of ownership plus having to overstretch yourself to buy a new flat. Unless you can make the figures add up that you can make a significant profit from renting it out (which it doesn't sound like you can) then the huge risks involved are not worth it.

As other have pointed out, you probably won't absolutely need the second bedroom for another 12 months, so you could easily hold on and start saving like mad. However, as a pessimist about the state of the property market (and realisng that saving may not be so easy with an extra person to feed and clothe), if I were in your shoes I'd sell and rent, and keep my fingers crossed that property prices drop over the next couple of years.

It might seem a wrench to get off the property ladder now that you're on, but if you needed a 125% mortgage to get on in the first place you may have to consider that you got on before you could really afford it.

teabelly

Is there any way of making the flat into a 2 bed? Could you not just partition off a corner for the baby for a while? They don't take up much space

You are pretty much stuck where you are and could do with making the best of it for a few years until you have either paid off more of the mortgage or your local market has picked up more. 125% mortgages are a bad idea even in good times as you gamble on prices rising by 25% before you need to move. If you need to move within 3 years basically it is a lost bet.

As you only have £5k saved up then that isn't enough to cover rental short falls or pay extra mortgage costs. If you sell at a loss you'll have unsecured debt as well as being back in rented accommodation so if you want to save up for a bigger property to buy later you could have even more problems. You may be able to rent that 2 bed for £600 pcm now but as more people sell up then rents will rise and that same 2 bed could cost you £800 pcm or more. With a fixed rate mortgage you know what your payments are going to be for several years and they can't be changed.

If you found a way to rejig your flat into a 2 bed it might also get you out of the negative equity situation you are in so it is win win. Is the kitchen and lounge separate or are they one room? If separate it might be possible to combine the kitchen and living area into one room and make a bedroom out of the left over space.

If you change to interest only then do you have the income between you to support the 2 mortgages? On normal criteria you probably won't get a second residential mortgage unless you are earning at least £60k between you. A BTL will require a 15% deposit so again it wouldn't pay off your current mortgage balance of £134k. You'd need a valuation of £160k and rental of £600 pcm wouldn't cover it so again you'd be stuck.

In your shoes I'd probably see if I could make it a 2 bed in any way shape or form as that would kill two birds and give you options. If not then stay put and save like !!!!!!y to chop down as much of the outstanding mortgage as possible and put aside as much money as possible. Keep the £5k to one side as a slush fund if you suffer loss of job etc to make sure the mortgage is paid. Do not miss even a single mortgage payment even if it means living on beans on toast! You may be stuck for a couple of years. When your fixed deal is coming to an end then re-assess the situation as paying off early redemption charges is just money down the drain.

slipthru

I would think the best thing to do would be try to sell the flat now as prices are likely to fall even more in the not so distant future and rent.

carolt

Sell now.

Rent.

Don't borrow more than the value of a property again - bloody stupid thing to do.

takesonetoknowone

Thanks for the replies.

terryw

takesonetoknowone wrote: »

Hi, i'm a long time lurker, first time poster...this one's a real quandary...

We purchased our 1 bedroom flat in Aberdeen for £132,000 in February 2007 using the Northern Rock Together (125%) mortgage deal fixed rate for 3 years. The flat was valued at £115,000 and at the time it was necessary to pay 10-15% over the asking price to secure a flat.

Now we are expecting a baby later this year and are looking to sell our flat and purchase a 2 bedroom flat/semi outside the city centre for £130 - 140k

We've had the flat valued by one estate agent who told us the flat is now valued "in excess of £130,000" We asked our mortgage advisor if we could expect the flat to sell for 10-15% over this £130,000 valuation price as was the norm last year and we were told "that was last year...you bought at the top of the market...i wouldn't expect you to get much more than £130,000 for the property £140,000 would be exceptional".

Our Northern Rock mortgage currently stands at £134,000 (at 6.29%, a poor rate in February 2007 but we're told its "quite good now and you should stick with northern rock to avoid the exit fees") and should go through with selling we understand that we'll need 5% deposit on our next purchase as we can only get a 95% mortgage if we sell up.

So £134k mortgage.
£2.5k solicitors fees for selling
£2k buying fees for the next property
£1.5k stamp duty
Total £140k and then we need to raise plus 5% deposit on the next property we purchase ~£7.5k We currently have ~£5k in savings to put towards a deposit (measly i know) which means we really are hoping to get around £142.5k for our flat to be comfortable.

It seems unlikely that we're going to get much more than we paid for our flat after selling fees so i'm now thinking of the following options:

1. Current mortgage repayments are ~£830 per month. We could rent the flat at £600 per month. Could we switch to an interest only mortgage and avoid northern rocks exit fee? Doing this would mean we would could then rent a 2 bed flat/semi out of town property for ~£600 a month.
2. Sell the property at a small loss/break even. Take out a personal loan :eek: to cover the 5% deposit, stamp duty, solicitors buying fees to buy a 2 bed.
3. As above but then rent to attempt to save money for a deposit in the future (my least preffered option as i'd like to avoid getting off the ladder after getting on it)

Which is the most sensible option? Are we in a good position to sell? I very much suspect all signs point to no.

The northern rock mortgage we have has £104k secured against the property and £30k unsecured loan, can this be used to our advantage in any way?

What ever you decide to do....DO NOT RENT OUT THE FLAT. If you get a bad tenant (and there are loads around) who does not pay the rent you are even further in bother and you will expend fortunes in obtaining possession.

dwsjarcmcd

I think you have come to a sensible conclusion, particularly as you are likely to have a reduced income for a while and then the costs of a baby and all that goes with that. Taking risks on further borrowings doesn't seem sensible.

The only other thing you could do is test the market. You may be right and that the distinct economy in Aberdeen has bucked the trend. Put the flat on the market, see what you get and if it's not enough, don't sell and revert to your current plan. At least you'll know.

David