Sell and buy or sell and rent?

Hi askaboutmoney. Long-time lurker, first-time poster looking for some advice.

I have a tracker mortgage worth about 215 on a 3-bed semi in West Dublin, which we purchased in 2004. An estate agent just valued it at roughly E165-170, which is about E30 less than the asking prices of similar houses in the area. We have two kids.

We saw a nice 4-bed house in a good location for E260 (asking price). If we moved there, we'd happily live there forever! So, a bit of a dream house.

We have 80K in the bank (inheritance).

I'm really not sure what to do here. That E80K gives us some options. As I see it we could:
1. Sell the house, pay off the negative equity (E50K if we get E165K), use the remaining E30K to cover the deposit for the new house and take out a mortgage for roughly E230K. However, that mortgage wouldn't be a tracker and we could stand to lose our TRS. It could cost us an extra E400 per month and we'd have no savings left.

2. Sell the house, pay off the negative equity... then rent until houses like the one we like drop significantly in price. We'd have the E30K in the bank for when we feel the time is right. We'd want to rent in an area, near the kids' school, where 3-bed houses are about E200 pm more expensive than our current mortgage (which will change with ECB hikes anyway). This might be the best option, but we'd like to avoid moving house twice (into the rental and then into the eventual purchased home) if possible.

3. Rent out our current home and take out a mortgage on the new one (reluctant landlords!)... I don't like this idea at all.

4. Stay put... possibly for decades

None of these are attractive options. Are there any other options I haven't considered?

Thanks.

You seem to have answered your own question. You don't want to stay, nor be a landlord. Therefore you'd need to sell your house and clear your negative equity with the savings. It would be difficult to co-ordinate selling and buying without having to rent temporarily. Also, you should suss out mortgages first as it may be more difficult than you think to secure one.

I sold (giving up a +0.5% tracker) and moved (twice) this year. It's a lot of work. I hope to buy a house next spring/summer.

We're meeting with a mortgage broker tomorrow to apply for mortgage approval, so I suppose that will give us a better idea of our real options!

Did your bank offer you anything for coming off the tracker?

No.

The double loss of interest relief and tracker could amount to about 500+ per month. The market is also going to remain relatively stagnant over the next couple of years so your dream home or something as good will still be there.
80k will earn you 4% - so over 2 years you could lose out on almost 20k by not waiting. Also, st some stage, you'll be able to get a discount for settling your tracker.

mcaul, are you suggesting we consider staying put and waiting for a discount for settling the tracker? If our house price continues to drop, the negative equity will eat further into our E80K, meaning we may not even have enough for a deposit... if anything!

Or am I missing your point?

Did you also consider that there is a financial cost to loosing your tracker as well. As other have said in this forum I believe, a tracker can be looked at as an asset, in my case I have lost 100k on my property but I also know that should I buy it now at current market rates and with current interest rates then my lose is significantly lower when considered over the terms of the mortage as I have a resonably low tracker. I think you should consider this in making your decision and work out the total cost of the property should you choose to move and give up your tracker. As others have said, the housing market is going no where.

You also say the negitive equity will eat into your 80k, this may be true but you most likely could safely assume that same negitive equitity is also nibbling on your dream house and those nibbles are ones which will not have to be paid back + interest over 20 years etc if it does. As your interest rate is lower than the one your dream house will require should you buy and assuming both houses have the same future % drop in value then you would be saving money by staying put even if you need to use more of your 80k to clear your existing mortage.

Don't buy until you've sold. I would sell in your situation.

Ok - we were told by BoI that we'd get mortgage approval if we sell our house.

Selling and renting seems to make the most financial sense... but it'd be very difficult. For starters, we've got two kids and a house full of stuff! I've no idea where we'd store everything while renting and I don't like the thoughts of throwing/giving it all away.

It's heart vs head, I suppose. Head says rent and pick up a cheaper house in a few years... heart says we either stay put or move directly into the dream home!

I'm starting to lean towards sticking the 80K in a savings account for a couple of years, and trying to save as much as possible on top of it. Barring a major change in our employment situation (which is very possible), we should be able to save about 20K over two years. That'd give us about 100K, not counting any interest accrued. We'd also pay a further 10K off our mortgage.

On the flipside, our house would fall further into negative equity.

As I see it - and please correct me if I'm looking at this wrong - we'd be gambling that our house would not fall in value by more than 30K over two years (ie - the amount that we save in that time plus the amount paid off our mortgage). If our savings offset the drop in value, we'll be in exactly the same position as we are now... except, hopefully, our dream house would be more affordable. Rather than paying about 250K for it, we'd be paying about 220K or so (hopefully less if the % drop in value is proportionate).

In the meantime, we'll have money in the bank, which gives us some support in case we fall into crisis. Whereas if we bought the dream home now, we'd be stretched to our limit every month and would have no savings to help us if something bad happened.

Does that make sense? And does it seem like a safe enough gamble?

Lothaar said:

For starters, we've got two kids and a house full of stuff! I've no idea where we'd store everything while renting and I don't like the thoughts of throwing/giving it all away.

?

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What kind of stuff, if you haven't used it in a year throw it out. You can't stay in a house just because it's difficult to get rid of stuff? In any case there are storage facilities, I'm sure I heard an ad for something called elephant storage ?

Bronte said:

What kind of stuff, if you haven't used it in a year throw it out.

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Beds, three-piece suite, kitchen table with chairs, piano, dressing table, big cupboard/press unit thing for crockery and cooking equipment... all the usual stuff that fills a home. We use this stuff every day and couldn't fit it in an already-furnished rental home.

Thanks for the tip on Elephant Storage - I'll check them out.

Hi Lothaar,

Are there many houses for sale where you have found your "dream" home? If there aren't and you can afford it I would say sell and buy. Life is short and 260k is IMO small money for a dream house. You never know what's around the corner, by this I mean banks being able to lend etc.

Firefly.

Hi Firefly. There aren't many houses in that location - I've only seen three for sale in the past five years or so. It's a small enough estate... and it's the estate itself, rather than just the immediate surrounding area, that we like so much.

This is definitely a consideration. What if we pass and never get another shot?

There's actually a three-bed for sale a few doors down from the four-bed. Asking price is 220K, but it's been on the market at that price since last September. I'd say it'll go for a fair bit less, if it goes. Thing is - it's a complete kip! It needs new bathrooms and kitchen as well as lashings of general TLC. BUT... I think the attic could be converted, which means it could become a four-bed!

I'm going to check that out. The problem with the four-bed is we'd never be able to save and wouldn't be able to handle any crises that may occur. If we got a cheaper mortgage, we could save and fix up the three-bed.

Really leaning towards that... but we still have to sell our house So - a long way to go.

Selling and renting

Hi Loothar

Just to let you know that it is possible to sell and rent. We sold our house (not in negative equity) last month and are renting a house that came unfurnished. It was hard enough to find (South Dublin), but we preferred to pay a bit extra in rent and have our own furniture, rather than rent and pay for storage. We have two kids under 3.

It was stressful moving, luckily we have great grandparents that took them for a weekend while we did the main work. Still have lots of stuff in boxes, but its great to be able to look at houses knowing that we are in a position to make a bid if we want to (haven't found our dream house yet!).

I'm not commenting on your financial situation as we were lucky enough to have some equity in our house, although we did make the difficult decision to give up a great tracker (that still hurts ). We needed more space, a better commute and an area with better schools and that's what we're aiming for when we purchase. It took us a year to sell our house, but house prices (in the bracket that we're looking at) have come down more than 100K since we put it up for sale last summer.

C

Lothaar said:

Beds, three-piece suite, kitchen table with chairs, piano, dressing table, big cupboard/press unit thing for crockery and cooking equipment... all the usual stuff that fills a home. We use this stuff every day and couldn't fit it in an already-furnished rental home.

Thanks for the tip on Elephant Storage - I'll check them out.

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Depending on whether you purchased at the cheaper end of the market, it might work out better to sell the stuff rather than pay for it to be stored. You have to do the figures on this. Also some landlords rent unfurnished and others would be willing to accommodate you, or you could rent a house with a large garage/store etc.