Q- If Houses Crash- Mortgage them or Rent Them?

edited 30 November -1 at 1:00AM in Mortgages & Endowments
9 replies 1.9K views
DannyInManchesterDannyInManchester Forumite
221 Posts
edited 30 November -1 at 1:00AM in Mortgages & Endowments
One thing is certain for the future:
Everybody will need a place to live-
housing crash or none.

Here is my theory, its based only on my circumstances, and my financial situation...so this is open to debate
(once again) before it can apply to the majority of people- or indeed before its proven as a failsafe option
(although nothing ever is, is it)


HERE GOES:

1) for people WANTING a  property- but fearing a crash:

'Interest Only'-
(Rather than Renting?)

and...

2) For people OWNING a property- but fearing a crash:

 going 'Interest Only' elsewhere
(rather than Renting?)


My question on RENTING vs MORTGAGES is:

I see Renting a house as wasted money- with zero return.

BUT- with an 'Interest Only' -mortgage, although you are effectively 'Renting' your property in principle
(until you pay off the capital )
you also have much LOWER repayments than with
any rent you pay to a Landlord
(depends which area you live of course!)

You also would successfully 'avoid' paying off the capital amount on the house  
(which secures fears over loosing on negative Equity after a housing crash!)

You could say, take out a mortgage for 2 years, fix the rate, then change Lenders after this period. In theory this would- over time, reduce your payments
(assuming your house is constantly dropping in value).
You'll continue to pay a lower Interest rate than you payed before...

Surely this is a cheaper SURVIVAL route than RENTING OUT (Simply because Renting dosent EVER go towards returning your money)

With 'Interest Only'- although Your property may DROP in value- it will almost certainly rise again eventually, and probably back to where it was before (plus beyond). This could be in 2 years time, or it could happen in 10.  Whenever it does, you'll see a return on your money.

OR

If houses DONT pickup again after a crash.... stay where you are and wait......until they do.

Makes sense to me... probably not to any1 else, so
can anyone help me  please... im well and truly stuck ???
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Replies

  • paylesspayless Forumite
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    so this is open to debate
    (once again)

    perhaps should then be in the discussion forum then- along with the previous similiar threads
    BUT- with an 'Interest Only' -mortgage, although you are effectively 'Renting' your property in principle
    with rent you don't win or loss if the value of the property changes
    , so saying interest only is effectively renting is IMHO daft.
    you also have much LOWER repayments than with
    any rent you pay to a Landlord

    are you sure, an average semi in Mids, say worth £180K are renting for around £700
    a £180K loan at 5.5% interest only is £825pm
    Any posts on here are for information and discussion purposes only and shouldn't be seen as (financial) advice.
  • Interest only vs. renting:
    Prices go up, you win -- you now have equity equal to the price increase.
    Prices go down, you lose -- you now have negative equity equl to the price increase.
    Maintenance is your responsibility, rather than the landlord's.
    Fees/stamp duty/etc. are generally much higher than the cost of a lease.

    Rent is dead money -- it goes away and you never see it again. But so is interest.

    The main reason to go interest-only is if you are convinced prices are going up, and you want to maximise your exposure to the market with greater leveraging/gearing (different people use different terms, but it means the same) of your assets.
    I have five stars! This doesn't mean that I know anything about any of the things I post. I could be a raving lunatic, or a brilliant genius, or just some guy on the internet. In fact, I could be all three at the same time.

    If anything I say makes sense, then do it. If not, don't. Don't blame me or my stars if you do something stupid because I suggested it. I'm responsible for my own stupidity only. You are responsible for yours.

    Why, I don't even have five stars anymore! Aren't you glad you aren't responsible for my stupidity?
  • 'Open to debate' was me joking... ;D

    I have stated that mine are ONLY viewpoints, AND, I've opened this thread up for KIND and GENEROUS intervention, for a correct and better guidance on this... so Id appreciate that from you please.

    You can get an 'Interest Only' mortgage at a much cheaper rate than your 5.5%
    (try the woolwich, or Alliance Leicester)

    A  semi- detached property also needn't cost £180,000 either. Thats over-priced- and is more likely to crash than cheaper houses.

    I would therefore avoid buying that property If i were you.

    trick is to avoid overpriced houses now- that will be the first to crash later...


    For your mortgage Id try rates elsewhere.
    On a loan of £160,000,expect to repay about £600 a month with a cheap lender, and for a house that would CERTAINLY still cost more than that to rent out.

    You do have to use house- spotting, and Lending savvy,  as well as following the advice in the thread. :)
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  • To add to my post, i am offering something here to anybody willing to help me ..?

    If a house should fall in value by say, £20,000 from its original purchase price, say, £130.000...

    Also, you have a 90%  Interest Only mortgage on it -as from the time you originally mortgaged it- when it was worth £130,000

    How does this affect your monthly repayments to the Lender? Assuming you dont change Lenders that is..
    Do your new repayments reflect favourably on a house worth £20,000 less on the market.. and also considering you owe the Lender this much money back?

    Any help is welcome..

    Thanks
    Be ALERT - The world needs more LERTS
  • paylesspayless Forumite
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    'Open to debate' was me joking...  

    I do not offer a debate- however I am constantly challenged with my viewpoints in a hostile way.

    Pleae note:

    I have stated that mine are ONLY viewpoints, AND, I've opened this thread up for KIND and GENEROUS intervention, for a correct and better guidance on this... so Id appreciate that from you please  

    A bit confused by your remarks - I have been away for a while, comments surrounding your other posts do seem varied.
    What I meant is that this appears to be a discussion point rather than actually asking/ offering any guidance or advice. On this board we did not generally get people just starting threads for discussion, but rather requests from people who want guidance.

    For reasons I have previously made clear - I stay away from the discussion forum, and as such will stay away in future from similiar threads placed on this forum .

    However
    You can get an 'Interest Only' mortgage at a much cheaper rate than your 5.5%
    (try the woolwich, or Alliance Leicester)

    I am well aware of the rates available. Of course some variable & fixed  rates can be obtained below 5.5%, but that seemed like a fair mid point to compare, especially as  we might be talking about a low/ no  deposit mortgage  ( as comparing with capital required on a  rental) , also rates could still rise , short term incentives do come to an end at some point, and they may not be always renewable at similiar  competitive rates. - especially if prices fall, and you end up in neg equity.
    A  semi- detached property also needn't cost £180,000 either. Thats over-priced- and is more likely to crash than cheaper houses.

    The average House priice in W Mids is £153K,( source Halifax)  and my guess is that for an average  semi I am not far out. Whether the average semi is the best used for comparison with renting is of course anything, but they are renting in the region that I stated in the W Mids.
    I would therefore avoid buying that property If i were you.

    I never said I was about to buy one- at that price or otherwise
    trick is to avoid overpriced houses now- that will be the first to crash later...

    How do you calculate what is over priced? compared with what is underpriced.
    Are you suggesting only buying smaller properties that might not be hit by as high % drop?


    ---
    Re last post

    The interest to the lender is no way effected by the property value after the start of the mortgage. Although it may effect access to further extra borrowing, new/ swap rates.
    Any posts on here are for information and discussion purposes only and shouldn't be seen as (financial) advice.
  • Thank You for you reply :)

    In theory therefore, could you re-mortgage with your existing lender to the lower
    (post house depreciation) value, and repay the new lower payment... and add any negative equity you owe to your  mortgage?

    My question is this, would these monthly payments on a 90% Interest Only mortgage this way, beat Renting? Assuming that once your property rises again
    (post crash) you will regain your equity loss- plus more???

    If this is so, it goes a step further into proving my idea is a valid one, and worth considering...


    However I do need Help on this 1st please...?

    Thanks

    DIM
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  • lisyloolisyloo Forumite
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    In theory therefore, could you re-mortgage with your existing lender to the lower
    (post house depreciation) value, and repay the new lower payment... and add any negative equity you owe to your mortgage?

    Danny - negative equity is defined as
    mortgage - house value

    Therefore if you add it to the house value e.g.

    house value + (mortgage - house value)

    then you get back to where you started e.g.
    original mortgage

    All you have done by remortgaging is gone from an orignal 90% LTV to a 100% + LTV which might incurr fees.

    It has no merit unless you can get a massively better rate but that is unlikely at 100% + LTV.
  • paylesspayless Forumite
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    Lost on your request

    if prices fell, you may have diificulty swapping lenders, and would not surprise me if "existing) lenders put some sort of system into place to stop offering really good renewal deals to existing customers in neg equity

    Unless you have the cash to repay the difference any replacement ( same or new lender) mortgage on same property would need to be same amount.

    If talking about a new property- you may get 100%+ loans - but at a higher rate.
    (post crash) you will regain your equity loss- plus more
    whilst IMHO prices would recover sooner or later if wehad a crash ( not saying we will) that does not justify holding a lower priced asset, if you had choice to buy in at a lower price later.
    Any posts on here are for information and discussion purposes only and shouldn't be seen as (financial) advice.
  • Interesting what youre saying there guys.

    Thanks for the help on it.  ;)

    My idea of Staying with a mortgage (interest only) for fear of a crash, and remortgaging with a current lender each time a drop in value occurs was an idea I had bubbling around, which I will review carefully, although my objective is to GAIN later rather than now with the house.. by having cheaper monthly payments now, than RENTAL ones...

    (because with renting you dont gain at all- you DO possibly save on fees, although would your rent amount be cheaper than your mortgage?)


    Thats all i know on it though. :)
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