Jumping off the property ladder- are we mad to even consider it?

JonnyBGood_2

Sorry if this question has been asked before but I'm new round here. Here's the thing. We bought our house for 35K ten years ago. Now on market for 150K. So if we sell for 140K we have approx 100K profit- which we have been intending all along to put towards buying somewhere new in the area we're moving to.Thing is, with prices in freefall, have begun to think that maybe banking the 100K profit, then using the monthly interest on that investment to pay rent in the new area, may be a better option- at least until prices look to be bottoming out then we could consider jumping back on the ladder and getting more for our money/ a safer investment.Now I knew nothing about savings rates until an hour ago as I've never had any savings to speak of... but a quick look about seems to tell me we could expect 6K yearly on a 100K investment, ie £500 per month- enough to cover rental bills on a three bedroom house.Is this a viable option to beat the credit crunch or is there some obvious hitch I am failing to take into account? All thoughts appreciated!

m00m00

why not look on rightmove in the area you intend to rent in, to get some kind of feel for rental prices in the area. (rightmove also does rentals)

500 is certainly viable for a 3 bed in my city, but probably not in many others

looking in my postcode area, I can see 26 3 bed or greater for under 500.

not sure how many of those I'd want to live in personally though, nice houses, not such great areas.

JonnyBGood_2

Good point m00m00. £500 is maybe on the optimistic side. Looking at Rightmove we might be looking nearer £650 rental for something decent in the leafier parts of the postcode in question... still, with £500 of that coming in from our interest, we'd only need to find £150 a month out of our wages, as against £300 currently for mortgage- so still better off!Am I talking myself into this or can anyone else talk me out of it??

PasturesNew

JonnyBGood wrote: »

Sorry if this question has been asked before but I'm new round here. Here's the thing. We bought our house for 35K ten years ago. Now on market for 150K. So if we sell for 140K we have approx 100K profit- which we have been intending all along to put towards buying somewhere new in the area we're moving to.Thing is, with prices in freefall, have begun to think that maybe banking the 100K profit, then using the monthly interest on that investment to pay rent in the new area, may be a better option- at least until prices look to be bottoming out then we could consider jumping back on the ladder and getting more for our money/ a safer investment.Now I knew nothing about savings rates until an hour ago as I've never had any savings to speak of... but a quick look about seems to tell me we could expect 6K yearly on a 100K investment, ie £500 per month- enough to cover rental bills on a three bedroom house.Is this a viable option to beat the credit crunch or is there some obvious hitch I am failing to take into account? All thoughts appreciated!

If you were planning on moving, then now is a good time to bite the bullet.

If you check out Martin's links at the top you'll find the best/top savings rates.

I did this about 10 months ago (my, how time flies).

You can get 6.5% on a number of online bank accounts at the moment (more if you're prepared to faff about).

However, you will need to split that £100k up. You shouldn't keep more than £35k in any one bank, again, this is explained in Martin's savings pages. But the bottom line is: IF something bad should happen to a bank (which it won't) then your money over £35k could simply vanish forever. So it needs to be split in case of a black swan event taking down a bank (which it won't I'll add again). But as you know this, it'd be reckless not to split the money, especially as with "only" £100k you can get 6.5% in about 3 banks easily enough.

Top tip though: open up the accounts now and put a few quid in them, it's a nightmare trying to create bank accounts after you've moved and/or are moving. Much easier to set them up now ready.

However, you say use the interest to pay your rent. Mentally you can, but you should not be touching your savings. Let them add up - and add to them as much as you can. Just pretend the £100k doesn't exist.

You will pay interest on your savings, but there's nothing you can do about that. It's still a nice little sum clunking into your bank.

Good luck!

BiggaThanBen

PasturesNew wrote: »

You shouldn't keep more than £35k in any one bank

"one financial institution" would be a safer option .. e.g. don't put £35K in HSBC and 1st Direct at the same time, if there are big problems with HSBC you will only get £35K back

PasturesNew

BiggaThanBen wrote: »

"one financial institution" would be a safer option .. e.g. don't put £35K in HSBC and 1st Direct at the same time, if there are big problems with HSBC you will only get £35K back

That's all explained on Martin's appropriate page, along with a handy colour coded chart of which banks are owned by each other.

http://www.moneysavingexpert.com/savings/safe-savings

mrstinchcombe

I hate the word "profit" when it comes to house prices.

House prices will go down, but surely not £500 plus which you propose throwing away on rent! It may seem like a good idea now, especially as you have done so well to make a "profit", but why would you wat to rent??

Davesnave

mrstinchcombe wrote: »

I hate the word "profit" when it comes to house prices.

House prices will go down, but surely not £500 plus which you propose throwing away on rent! It may seem like a good idea now, especially as you have done so well to make a "profit", but why would you wat to rent??

Why shouldn't people make a profit on houses, especially if it is their main residence and they are willing to go through the inconvenience of renting for a time? People make profits on gold, paintings or even fast cars, so what's fundamentally wrong about investing in bricks & mortar? For many people it's the one large investment they have.

Let's assume that the OP wants to trade up to a £200k house next time. A drop of 10% this year would make that house £180k in 12 months and, meanwhile, he may have paid perhaps £100 - £200 extra a month by renting (assuming he uses his £500 a month interest.) It's not hard to see why this would still be a good deal!

Of course some people are predicting a drop of more than 10% per annum, but others say less. Some say the downturn will last a year, others say 4 years. Nobody knows, but renting in the immediate future looks safer than it has been for many a year.

TTMCMschine

50% drop within 18 months says I.

People just haven't grasped yet how bad the credit markets are, what bad shape banks are really in, & how quickly its all going to unravel.

The government should just let it happen instead of poking their noses in, they're going to make it 10 times worse.

panichousebuyer

TTMCMschine wrote: »

50% drop within 18 months says I.

People just haven't grasped yet how bad the credit markets are, what bad shape banks are really in, & how quickly its all going to unravel.

The government should just let it happen instead of poking their noses in, they're going to make it 10 times worse.

Surely not a 50% drop that is quite a lot!

natman

Johnny Be good Hi -

I really think i understandt your dilema and a dilema i am going through right now.
We bought house for £45k and was valued last year, to cut a long story short, we too may be in receipt of 100k if all went well.
We were thinking of selling, placing teh money into savings, and using the intrest to support the rent.
I have opened up various savings accounts in preperation for this -which offer monthly interest payments, in case I do use the money for rent.......................but.

I thinks with all this negative talk at the minute, no matter where you are in relation to a house, lts of people are feeling anxious.
Our thoughts were to test drive a 'better area' without over committing, so it really wasnt based on making money or losing money, but just using what we had in savings to test out an area.
I agree with how house prices will decrease some what, and buying at present is risky unless you get a cracking deal.

But yeah, open up some savings accounts, look if you want the accounts to pay monthly interest, check rent prices in an area and go fo it...dont know if this helps