Sell and rent or not?

[lavendersun]

So, we live in a lovely old house that we have spent a lot of money on (at least £25k more than we will get back at present), we still need to spend a bit more, another £6-7.5k on a bathroom, 3 windows, new floor tiles, bricking up a door, on top of that the whole place could probably do with another lick of paint and half of the perimeter fencing would do with new fence posts at least (20 posts perhaps). All if we were staying here.

We know that we will have to move in a couple of years with work.

I am considering putting it on the market now and moving into rented accommodation. The house is lovely but not in an ideal place (a bit too rural tbh), on a road that is too busy to allow bike riding etc..

We could rent somewhere this size for just over half of what this house costs us per month with general maintenance but without improvements. The plan would be to move somewhere for 18 months for DD's last primary years and then move to the new job location to get her settled into the last term or so of primary at the school she will stay on at secondary for.

DH has asked me to produce the sums. Half of our mortgage payments are interest still. He is concerned that we will have to start again with a new mortgage, paying shed loads of interest for the first five years, which I sort of agree with.

Most of me thinks that we could save money by renting and not paying to maintain/improve a property and we would be free to move when we had to.

Without this house I reckon we could save at least £40k in 18 months to add to the equity we bank from it.

Has anyone done anything like this? I agree it seems slightly mad to 'throw away 6 years of mortgage interest payments' but we would save so much money in other ways, and, make sure we moved somewhere where we could ride and walk from.

For me it isn't just the money thing, it is a lifestyle move as well.

Its unusual that your mortgage payments are so much higher than rental for a similar house.

If you have already spent more on the house than it is worth, it certainly doesnt seem worth spending more on it and £40k is alot of money, especially if you can put it towards your new property's deposit and reduce the mortgage there.

I dont understand the mortgage interest comment - mortgage payments are the same over ie 20 years (assuming no interest rate change). So you would be paying the same interest/repayment mix now as you would be in 20 years??

I can't work out the rental market either tbh. Rent is definitely 75% ish of our mortgage amount without the general old house maintenance.

I spoke to our bank yesterday to clarify the interest position. Ours is a simple repayment mortgage, apparently they are front loaded with interest so that you pay the interest first, or more of it. The mortgage is six years old and the interest % in each payment has reduced gradually. I don't know what it was at the beginning without looking for the statements but last year it was 75% of each payment, this year it is 56%, next year it will reduce again. I presume that is normal as we don't have anything special.

I also thought that rents were currently higher than mortgages - it was the other way round five years ago and will be again.

but if it works for you, why not? Make sure you get a place with the 18 month tenancy you want, negotiate with the landlord. Sell yourself as good tenants in that you have plenty of income to pay the rent, don't smoke, have managed a house before and preferably don't have pets.

What about DH's concern that we spent five years paying 80% of our mortgage payments towards interest and that if we give up this mortgage to rent we will have to start again in mortgage terms whereas if we stay here we can just take this mortgage with us - do you think that is a valid enough point to stay here?

I am not sure I do, my reasons being that we won't have to worry about maintenance, moving into rented accommodation is less stressful in my experience as the chain is shorter and we can rent for a couple of weeks before we have to move, we could move somewhere with a bit of life and we could save quite a bit of money. Also, we will be in a good place to buy again when we need to move job wise with nothing to sell.

I think you are getting confused about mortgage interest.

No matter what you do, you do not 'throw the mortgage IRs' away - you borrow money, you pay back some capital and IRs month in, month out.

You have a bog standard repayment mortgage; nothing special. The mortgage interest has not been thrown away.

What matters to you is how much (and how fast) you can sell your house for and what the outstanding mortgage. Be very vareful here - the mortgage market is a lot tougher, demanding lower LTVs and lower PEs ration than 6 years ago. And you cannot fib about the 'E' bit of Pe now.

House transaction costs - removals, mortgage fees, stamp duty are pretty high + chunk in the UK. Don't move too often!

here, we have a really good income, I am not worried about getting a mortgage at all.

I suppose I just don't want to spend any more money here that I won't get back but if I stay here I will want to do the rest of the work.

I do get DH's concern that the interest is front loaded and that we have paid a lot more interest in the first 6 years than we would in the next 6.

We have moved a lot, this six year stint is the longest we have done.

No. The IR is not front loaded. You pay the full IR on the sum owned + some capital repayment. As the capital owned is reduced, more of your monthly repayment goes on paying back the capital, which reduces quicker, which reduces the IR owned, which increases the capital paid back, which ....

I think you've got wires crossed with endowments ( a total scam).

No. You do not have a really good income. 1400/month is too small for the mortgage sums you are talking about.

Try the HSBC/First direct mortgage calculator. That's give a reasonably honest opinion of how much you can borrow.

here - I am confused about interest. "Which" tells me that

In the early years, most of your mortgage payment goes towards repaying the interest, with a small part allocated against the capital. Over time, the balance switches, so you're paying off an increasing amount of the capital each month. As a result, you may find that you don't pay off much capital for the first few years.

I think what DH is saying is that if we took this £200,000 mortgage with us when we move in two years we would be reducing the capital owed by a big % each year, whereas if we ditch this mortgage, rent and take out another one for £200,000 in two years then we will repay that £200,000 plus interest - I have just worked it out on a mortgage calculator to be £200k over 15 years at 4% (random). Monthly payment £1479, total payable £266k.

But we won't be maintaining/improving an old house and could save money (although not £66k).

So, it looks like it would pay us to stay here even though we won't get the money back that we continue to spend - so complicated.

Our income is not £1400 a month here - it is big enough for a mortgage four times the amount we would like.

But would you need another one of 200k if you had saved 40k?

We are actually planning to buy a "forever" house when we move so we would probably increase our mortgage, maybe by £100k for the right house.

DH is separating the financials from the fact that I/we don't really want to live here for a couple more years.

I want the sums to tell me that there isn't really a lot of difference I suppose.

You are confused.

You will always pay the interest on the a loan.

With a repayment, you tend to have a fixed payment over the mortgage term. Initially, most of the payment will be IR with a bit of debt paid off. As you pay off more debt, the amount you owe is reduced, so you pay off more debt.

Say, 100k mortgage, 10% IR. Fixed mortgage repayment of 2k month.
Ill keep the maths easy and do it by year.
Year 1: Debt owed 100k, 10K IR due, mortgage payments 24k.
Year 2: Debt owed 86k, 8.6K IR due, mortgage payments 24k.
Year 3: Debt owed: 71k, 7.1k IR due, mortgage payments 24k.
etc.
Banks tweak the payment so the capital repayments balance out more.

IT IS ALWAYS WORTH PAYING OFF DEBT ASAP.

Sorry lavender. Two threads posted at the same time. Same 'sell or rent' topic. Incomes mixed!

www.drcalculator.com/mortgage/uk/

Are you telling me that it isn't more expensive to take out a new mortgage rather than 'porting' or whatever it is called an old mortgage.

IT IS ALWAYS WORTH PAYING OFF DEBT ASAP.

Within reason here, within reason, I like to live a full life!

Renting can be a lot cheaper than buying. esp. if you will only be in a rea for a short (less than 4 years) time.

Maintenance can be a lot more than people think. You should allow for 100/month over the long to medium term.

If you can ditch a car - say by renting somewhere walkable to walk - the savings can be impressive.

Depends on the mortgage and bank.

Some are good. Some are bad. None are the same.

here, I would love to spend £100 a month on maintenance tbh. I pay nearly that for the gardening season to the man who looks after my too big garden.

We are not trying to economise/change our lifestyle, don't want to get rid of anything - I am just trying to work out whether it is completely silly financially to sell now and rent.

We will be here for less than four years now but as we have been here for six already and don't need to move yet I am not sure how relevant that is.

The driver for the move is for a secondary school although one that can be joined now or in year 6, and work, which happens to require a move at the end of DD's primary age.

I would just like to do it early, but only if that isn't completely silly in mortgage terms.