In a dilemma- wwyd

[googlenut]

We have decided to rent out our house as we couldn't sell it, As we have such a lot of equity in the house we can borrow a sizeable sum and buy our dream house in our ideal location (walking distance to all kids schools until they finish). It would be an excellent buy as motivated seller and we can move fast. It could be our retirement nest egg. But we would have to watch our spending on other things, maybe go without holidays and not give our kids all the experiences we would like.
Or we could go for a cheaper property in another location. The house has everything we need and we would be happy there. But I would have to drive three kids to school for years and this property not so much of an investment. We would have loads more cash flow though.
So we are in a dilemma. Dh and I are quite risk averse but don't want to kick ourselves that we didn't take the opportunity with the first. We also have a disabled child who we don't know if will live independently so also want to invest for his future

We've literally just done this. No mortgage on our house, wanted to sell but prices are low. Got a BTL interest only mortgage on our house to raise big deposit, and another repayment mortgage to fund new/dream home. Renting out old home. Not without it's stresses sorting 2 mortgages obviously but do-able.

We've used part of the mortgage to do up the new house. That will add value for when we sell at retirement age. Plus there's still equity in the old house even though it's interest only. All to go in the "fund the Shakey's retirement plans"

Will you own both houses at the end then? We won't but it's a 10-15 year plan for retirement so will sell the dream house and downsize

We will own the dream house outright as that mortgage is repayment. The old house has a value of (at present) about £120k of which £90k is mortgaged (interest only). Sooo hopefully at the end of the mortgage term (both of them) the old house will be worth say, in a good market, £135k so we'll have £45k left after paying off the interest only mortgage PLUS the full value of the dream house.

That's our plan as well, to sell both, downsize to a 2bed bungalow/2 up two down, spend the winters in the UK and the summers in Greece (renting).

Have you decided what to do yet? :)

Have been outbid on the dream house so wasn't meant to be. Back to drawing board-seem to have been trying to move for sooo long

Good! Your numbers didn't add up.

You didn't know my numbes so how can you say they didnt add up!!!

Because you said you'd be pushed to the max to buy the new house on IO, you have a relatively low LTV in your current house which you envisage making a small rental profit on without understanding ROI or voids and you appear to have little comprehension of interest rates. That's why.

So you know more than an independent financial advisor then? We are looking at long term gain on the rental property and overpaying on the interest only next house. We have rented out a house before so I know all about void periods.

Googlenut - it's only wise to listen to financial advisors up to a point. They make their money out of you so they want you to go ahead. The numbers might stack up if all goes well but what if you struggle to get a tenant at the rent you need or your income gets cut through redundancy?

If you were already pushed to the max these could lead to serious stress and being so asset rich, cash poor that your life is miserable. Your mortgage advisor will be nowhere in sight then!

You are free to make whatever choices you like - but you'd be somewhat folly to call yourself risk adverse, then speculate on HPI when you don't understand the numbers and all the while you've got a SN child whom I'll assume you want to provide stability to.

Your choice of course, not one I'd make, but then I'm not your IFA, whom for the record, has absolutely no financial or moral obligation to give a flying Fuck about your situation the minute he gets his commission.

At the very least I would suggest you educate yourself about what happens when interest rates increase e.g., from 2% to 3% to 5% to 8%. I.e., what will this do to your payment?

Yes, of course its perfectly possible for someone in the street to be able to do arithmetic in a way an IFA might.

I don't know if I know more than an IFA but I know as much for sure and I am shocked by the numbers of people on this thread getting themselves into these deals of renting out a house to buy another just because prices are a little bit down. It's perfectly possible that house prices will keep sliding outside of the few prime areas of the UK where they are still rising.

In a few years we may have a perfect storm of rising interest rates and the government realising that the lax tax regime on renting out property is a sitting duck for much higher tax revenue. Also, if it continues that most under 35s cannot afford to buy, surely there will be a political rebellion and at least we will return to rental contracts much more favourable than ASTs such as those they have on the continent.

It's fine if you have a lot to spare but if you would be maxed out even with today's low interest rates and spectacularly lax tax on renting out property - it is not the time to get into one of these deals surely?

Most IFAs are into short termism.

If you look at the property cycles, property always doubles in value over a 10 year span, even when there has been property drops. I'm old enough to have had property in the last recession and the drops were much much worse than this time.
So if you can't sell your current house, and you have a lot of equity, then it does make sense to let for the long haul. Our rental income will be double the mortgage payment.
Mortgage interest rates are highly unlikely to rise steeply. Why would it be more sensible for people to sell now at a loss than to hold a property for long term gain. We have a lot of equity in our property because of previous gains, but we only bought it 3 years ago. But it is too small and we need to move now.

Yes we actually bought a house in 1997 for 89k and sold it in 2008 for 220k

You cannot just calculate it nominally without factoring in repayments you have made and inflation. I think the days of soaring prices are over Something has to and I think will change soon as there is effectively no 'normal' market. last year 58% of property purchases were without a mortgage so cash buyers and investors but very little standard movement up and down

Yes but 1997 - 2007 was a decade of phenomenal growth. Where are prices now compared to 2007? I'd imagine in most parts of the country they are down. So do you really think we're looking at seeing a 100% increase in prices over the next 5 years giving you another doubling in property prices for 2007 - 2017? I'd be surprised if anyone would back anything like that sort of optimistic prediction.

Interest rates can ONLY go up, payments can ONLY increase. It might not be over the next 2-3 years or even 4-5 years, but things are so unstable the only certainty is that there is no certainty.

I sold a flat in 2007 for 350k it is on the market now again for 279950. There is no way it will be worth 700 in 2017! As you say lottie those years were artificially inflated by risky lending and low interest rates

who has valued current house? has BTL mortgage provider valued it?

have you got an actual BTL mortgage offer on it?

(was doing this in 2007 - differnet times... but house fell thru so bought BTL flat with the money raised from remortgage instead... all a nitemare in the end. life got in the way....sepration/divorce/severe illness...life doesnt always work as planned.... have sold BTL not made any money at all. )

you not factoring in things like redundacy, divorce, splitting up etcetc. be careful.

an i current house not selling would that be prcie? beause if price is too high then your actual equity is maybe less than you think? equity will be up to mortgage providers analysis - also BTL based on prospective rental income as well.

doubling in next 10 years - it isnt feasible unless incomes will go up too?

More lenders tighten Interest only mortgage criteria