Sell up & no mortgage or stay put and build equity

[BG2015]

Me and DP and DS live in a 4 bed/3 storey house. My eldest son now lives with his dad (he's 19 and is closer to his job). He probably won't ever live here again. I own the house. I've been here just over 3 years.

My younger son is in Y11 and thinking of going into the RAF after A levels. So in another 3 years there could potentially be just me and my DP in a 4 bed house.

I owe £90k on my house (similar properties are going for £200k) I could buy a 2 bed terrace for about £100-120k in my area. I also plan to retire in 10 years and would use my equity to invest and add to my pension.

So am I best staying put and building up my equity and sell in 10 years (closing off bedrooms) or sell up, and reduce living costs and then put extra money into savings/investments to go towards my pension?

I do need to do a few cosmetic bits to the house beforehand I could sell it too.

We are two adults in a 4 bed house, with ds at home at present but he has just finished his MA. When he leaves home, and we move back to UK, we'll still be in a 4 bed house, as I see no reason to downsize. I have plans for the space.

If you downsize and then discover you made a mistake, you'll have to spend more to size up again.

Whilst your son may plan to go into the RAF, it takes some time for the recruitment processes and joining dates to go through, so he may be around for longer than you envisage post A level.

DH and I also thought we would downsize from a 4 bedroom house once both our sons had left. We looked at a few new build houses and discovered that they were very small and couldn't imagine there would be enough room to comfortably live in. You don't just lose a bedroom or two, the kitchen and living spaces are smaller. With older houses you often have an odd layout or a downstairs bathroom to contend with.
When we fully costed a move we decided we will probably stay where we are, at least for the time being, the benefits of moving were not quite what we had imagined.

The pension issue is important. Remember that while you can pay into one the government matches it with tax relief. But t I presume the downsizing idea assumes you will have enough pension to cover your living costs ?
You say you want to stay and keep the equity but do you know how much that is likely to be? Where we are house prices are unlikely to rise much . Also remember the golden rule In a rising market buy down and in a falling market buy up .
If you end up with extra space in a few years time could you perhaps take in a lodger or a student or do Air B&B and pay extra into your pension ?

Also worth considering that you could, if in a good school & good job area with good rental prices, rent out your house and move to a cheaper area to rent a smaller house.

Thank you all for your thoughts.

I bought my house for £170k in May 2015,the exact same house opposite sold in January for £190k so house prices have risen in my area.

I am going to downsize, whether it be in 5 or 10 years time - I need the equity to fill a gap in my pension. I can buy a 2 bed terrace for £100-20k (current prices). My parents currently live in a lovely terrace that I could easily live in myself, so I'm happy to downsize to that.

My parents are also on my mind. I currently live about 5 miles away from them, they are in their mid 70's and fit & well but I know that this is going to change at some point in the future so a move closer to them (in the small town I grew up in) could be a possibility.

Don't want a lodger - I did that for a year and although served a purpose is not something I want to do again.

Where I live isn't really Airbnb material or close to a university, so renting out isn't practical either.

You'll build equity wherever you live, and it's all relative anyway. If your house goes up in price usually the surrounding area will too. Say in 10 years it's worth 50k more, smaller houses might also have up in price. You've got three years to think about it and there's a possibility your son could change his mind about the RAF.
It sounds like you want to move. Being mortgage free will take a lot of pressure off and as you said you can then concentrate on your pension as well as be closer to parents. could be good for you all.

You could consider taking in a lodger? We're about to let out two rooms in our much too large house (now DCs have moved out) and that will bring in a good amount each month. If you can bear the idea, that is.

Shit, sorry, just saw your post up-thread about lodgers. Ignore me.

So your plan is to downsize to a smaller house bought outright, and cash in equity. However the equity you can turn into cash is only "future" equity, ie gains in value and debt paid off from about now (because your current equity is similar to value of downsized house) and 10 years' time. So your question is, should you carry on paying your mortgage and hope that the debt you pay off plus extra equity on the 90k "extra" house you keep for 10 years will outweigh your mortgage payments for the next 10 years. The alternative is sell now and save 10 years of mortgage payments, Have I got that right?

You need proper financial advice and you need to make your own judgement on what the housing market will do. It depends how much your mortgage payments are and where you are in the life of your mortgage apart from anything else. But off the top of my head and obviously not proper financial advice, unless your mortgage costs are exceptionally low I would think saving all the interest on the £90k and going mortgage free for the next 10 years would be the better bet. Remember any equity gains in the first £120k of your house are irrelevant because your future smaller house will go up in price by a similar amount.

fish your summary is spot on.

My mortgage has another 16 years to run and I want to retire at 60 in 10 years time so if I decide to stay here I need to start paying off more on my mortgage. My current fixed rate finishes in 2020.

I currently pay £600 a month (I over pay by £34 a month just to round it up to the £600). I do think I need to seriously think about downsizing in the next 5 years.

Sell. Move. Put the cash you would have paid off your mortgage with into your pension, attracting tax relief for the next 10 years.

My issue with downsizing is as Staysafe says above, If you retained a large downstairs living area but a smaller upstairs, then fine, but going by my Mum's two bed terrace, dh and I would go mad within weeks as it is so small.

I don’t know the ins and outs of tax relief on pensions so can’t advise in that respect.

However I personally think you should stay for the moment but probably review your mortgage. If you moved in 2015 you might be able to renew your rate now if you had a 3 year fixed deal. I’m guessing your actual mortgage is around £150k? In which case you’re paying around 4.5% which is really high given current interest rates. Assuming you don’t have a really long fixed rate deal (still might be worth reviewing and might be worth paying the penalty to change mortgages) you should be able to get a much better mortgage rate which could half your monthly payments. You could carry on paying £600 but would be paying a much bigger chunk off your mortgage.

If prices continue to rise in your area your current house will increase in value more in 5-10 years than a cheaper house, if they increase by the same percentage. Then in 5-10 years you can sell and won’t have to pay capital gains tax as it’s your primary residence. As you wouldn’t have to pay tax anyway that may negate the tax efficiency of pensions savings in this case, plus you would hopefully have the increase in value.

If it’s gone up £20k in 3 years and could be worth another £30-40k in 5 years or so you can sell and cash in on that. If you move to a smaller house now even if it goes up in value you won’t be planning to sell it so won’t realise the gain. Plus it won’t go up by as much.

I think you would be financially better off remortgaging and sitting tight for a few years and it means you also have the space for your sons if you need it for the moment.

It is very much a judgement call isn't it? Looking at your figures Sunny OP will be paying £36k in mortgage payments in the next 5 years. It's a lot to pay out in the hope of gaining a percentage of a potential £30-40k. Some of it will take off the capital (hopefully lots) but the interest payments are still going to be a significant chunk.

If the alternative were renting, obviously it's different, but the difference between paying out £600 pcm for 5 years, and living rent and mortgage free for 5 years, really adds up.

sunny no I took out a mortgage of £106k in 2015 for five years at a fixed rate of 2.55% - I now owe just over £90k.

My fixed rate ends in May 2020.my parents live in a terraced house with 2 large bedrooms and a very small box room, an upstairs bathroom and a small utility room/wc downstairs. It also has a hallway. I could easily live in my parents house - it's really nice.

A similar house in their street is up for sale for £120k. We live in North Staffordshire/Staffs Moorlands.

In a few years time I could be mortgage free and adding more money into my pension, not to mention smaller utility bills and council tax.

It's definitely something to look into.

In an ideal world you'd buy a smaller house near your parents now and rent it out untill your youngest flys the nest - then move into small house and rent out the big one!

Can't afford to buy another house. Don't earn enough!

I would definitely do the downsizing option as you never know what could happen in the next few years.

After being on the property ladder for over 30 years(my idea was to retire at 60 to Spain and with the Equity buy a property).
When I unexpectedly became too ill to carry on working I did not have enough equity at that time to buy another property outright.
I have been in Housing Association rented accommodation ever since.

So if your gut feeling is telling you for whatever reasons(i.e. your parents health and welfare) to downsize then I would definitely do that OP.

It is what will give you peace of mind in the long run

Sorry I was assuming interest only on the mortgage but it’s obviously repayment, ignore!