Should I downsize to clear mortgage....or would I miss out on future property price rise?

(9 Posts)
deepest Wed 21-May-14 20:33:09

Our home is our main pension vehicle. Currently property worth 1m have �160K left on mortgage - thinking of selling up and downsizing to clear mortgage so that I can be a SAHM to 4 kids thru tricky teenage years and exams - also worried about potential interest rate rises......but would we miss out financially in the long term to any future property price rises? No sure how the trade off of mortage interest vs price rise on 1m house vs increase on 750k hs? Other option is that we use the move to buy family house for 450 and then a buy to let with the rest of the equity....what should we do for financial security?

bochead Sun 25-May-14 12:17:06

I don't predict good things for the housing market so chose to do this last year. Moved to a cheaper part of the country and cleared the mortgage totally. You can lose your existing home at any time while the bank still owns it if you have a run of bad luck. Once your house is paid off it's yours forever.

Your home is worth 1m now - will it still be in 5 years time, given that house prices can and do fall at times? We are at the top of yet another bubble. If you own your family home outright the machinations of the market become so much less of a concern. The IMF and other respected bodies have stated that house prices need to come down and that an interest rate rise will impact the market.

If you look at how compound interest works and it just seems to make sense to be as debt free as you can possibly manage right now given the volatility on a global scale of the financial world.

I personally feel that our current government has done a lot of tinkering round the edges and kicking the can down the road, eventually the music will stop. Interest rates will go up, nobody can say their job is 100% secure and accident and illness can hit at any time.

I think greed gets people into horrible trouble, and that security for your family is most important. If you are debt free that gives you tremendous freedom to really ensure your kids fly.

The money you would have been spending on the mortgage could always go into a pension fund, a cheap BTL up north, a small business start up etc.

If I had your options I'd go for a family home owned outright + a couple of cheap BTL's in Wales (yields are as high as 10% in Cardiff unlike London & the SE and the market not as volatile) with no mortgages on them. Security is more my priority for old age than being "rich" iyswim. That would give you pretty much cast iron security. I might even invest some in gold, farmland or utilities just to diversify a bit, and spread my risk.

DadDadDad Mon 02-Jun-14 12:51:58

Effectively, you are saying that you have �250k [assuming your alternative is to downsize to �750k] of your pension fund invested all in one asset class (worse than that, all in one asset; worse than that, an asset that you are also relying on to provide your home and provides no income stream) - and �160k of that is leveraged (the mortgage). That single asset could go up or it could go down.

An objective investor would want to diversify their portfolio across a range of assets and possibly de-leverage depending on what interest rate they were paying.

So, I'm not advising you, just giving you a different way to think about it.

Tallandgracefulmum Tue 17-Jun-14 23:52:36

I would. We downsized our requirements to be mortgage free. You could sell and split the money if its enough and reinvest half and purchase a property for half.

Apatite1 Tue 15-Jul-14 12:12:53

Like Daddaddad, I get nervous when I hear people's only or main retirement vehicle is their house. As you know, values can go up or down so I too would secure this amount early by downsizing and going mortgage free. The alternative is too risky. If my pension and other investments were enough to sustain a loss on the house, I'd keep it. I agree with bochead though, house prices are likely to drop.

tricot39 Thu 31-Jul-14 21:25:25

I don't think it is possible to say whether house prices will go down or up. It is more complicated and depend heavily on where the property is.

If you are in the South East, could you really just sell your current house and buy somewhere cheaper in a place you would be happy to live and be OK with the local school options? It sounds great on paper but in practice could you stomach it? Could you move away from family and friends? Then there is the expense of moving. Would you not be better off paying off your mortgage as fast as possible? If you worked for a few more years and minimised your spending then you could surely make a massive dent in your mortgage without the expense of moving (which must be about £30-50k in your price bracket?).

I also agree that once you have dealt with your mortgage issues you need to get a better pension plan.

Good luck

minkah Fri 08-Aug-14 06:35:43

Where do you live? Location, location, location....

Property prices are not going down in London, for example.

minkah Fri 08-Aug-14 06:36:30

Just noticed I'm almost on a zombie trail..sorry!

deepest Fri 08-Aug-14 13:00:38

I am in Beaconsfield -- so hotspot ---

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