Have We Done The Right Thing?

[FRUSTRATED]

We sold our house in Cheshire last August, we are typical baby boomers, moved back to Cardiff and currently renting a new build two bed two bathroom appartment (£900/month) The houses we have looked at in Cardiff we consider to be considerably overpriced and in need of extensive modernisation. We have become increasingly frustrated having two purchases fall through with the associated aborted fees and we have never been in this situation without our own home, however, as our cash is not replaceable we have become extremely cautious. We have now decided to rent for the longer term and "see what happens" to the market. I agrree with most of the bears that interest rates will move up and that prices will correct downwards--but who knows when? The main factor in our decision was the fact that we have cash in the bank earning 4% net, converting that cash into property and extrapolating the value over even 5 years at 4% it is hard to believe the values calculated.

Have we done the right thing?

[Realistbear]

We did more or less the same thing. Cash in the bank getting 4.47% gross. Better than losing as much on a house! House prices are unsustainable at current levelas and therte has never been a time when markets have not corrected. IR are headed up worldwide and the Uk will eventually have to follow. The economic cycle WAS favouring buying up until about 2003 as the market was reaching its top. We are in the early stages of the down cycle now and the journey will probably be a long one to the bottom. So enjoy the freedom of renting and having your money grow rather than shrink in a depreciating house!

[BricksandMortar]

We sold our house in Cheshire last August, we are typical baby boomers, moved back to Cardiff and currently renting a new build two bed two bathroom appartment (£900/month) The houses we have looked at in Cardiff we consider to be considerably overpriced and in need of extensive modernisation. We have become increasingly frustrated having two purchases fall through with the associated aborted fees and we have never been in this situation without our own home, however, as our cash is not replaceable we have become extremely cautious. We have now decided to rent for the longer term and "see what happens" to the market. I agrree with most of the bears that interest rates will move up and that prices will correct downwards--but who knows when? The main factor in our decision was the fact that we have cash in the bank earning 4% net, converting that cash into property and extrapolating the value over even 5 years at 4% it is hard to believe the values calculated.

Have we done the right thing?

No

[frugalista]

We sold our house in Cheshire last August, we are typical baby boomers, moved back to Cardiff and currently renting a new build two bed two bathroom appartment (£900/month) The houses we have looked at in Cardiff we consider to be considerably overpriced and in need of extensive modernisation. We have become increasingly frustrated having two purchases fall through with the associated aborted fees and we have never been in this situation without our own home, however, as our cash is not replaceable we have become extremely cautious. We have now decided to rent for the longer term and "see what happens" to the market. I agrree with most of the bears that interest rates will move up and that prices will correct downwards--but who knows when? The main factor in our decision was the fact that we have cash in the bank earning 4% net, converting that cash into property and extrapolating the value over even 5 years at 4% it is hard to believe the values calculated.

Have we done the right thing?

Sounds pretty smart to me. My other half's parents have done the same thing and haven't looked back.

Forgive my nosyness. Do you mind if I ask what motivated you to sell up? Also, do you know many others in your age group who are planning the same?

frugalista

[Ferret]

No

Could you expand on that in plain English. Ta

[Time to raise the rents.]

We sold our house in Cheshire last August, we are typical baby boomers, moved back to Cardiff and currently renting a new build two bed two bathroom appartment (£900/month) The houses we have looked at in Cardiff we consider to be considerably overpriced and in need of extensive modernisation. We have become increasingly frustrated having two purchases fall through with the associated aborted fees and we have never been in this situation without our own home, however, as our cash is not replaceable we have become extremely cautious. We have now decided to rent for the longer term and "see what happens" to the market. I agrree with most of the bears that interest rates will move up and that prices will correct downwards--but who knows when? The main factor in our decision was the fact that we have cash in the bank earning 4% net, converting that cash into property and extrapolating the value over even 5 years at 4% it is hard to believe the values calculated.

Have we done the right thing?

Have you calculated this?

4% net cash minus rent cost = standing still or going backwards after inflation.

or

5.5% tax free (in lieu of a mortgage) on properties implied return + 5 to 10% HPI (being the norm over the years) = doing very nicely with a home of your own & your money staying ahead of inflation.

?????

[colonel faulkner]

[quote name='Realistbear' date='Apr 4 2006, 09:21 PM' post='3 Cash in the bank getting 4.47% gross.

RB, as long as you don't touch the capital,switch to FirstDirect @ 5.0% gross ASAP....your return will be 10% higher overnight. Even if you need access, B&B @4.85% will give you a boost.

My bill is in the post.........

[Time to raise the rents.]

Is this really one of First Directs conditions?

instant access to your money* (although no interest is paid on the full account balance in any month you make a withdrawal)

?????????????

[colonel faulkner]

Is this really one of First Directs conditions?

instant access to your money* (although no interest is paid on the full account balance in any month you make a withdrawal)

?????????????

Yeah, my STR fund is with them 'cos I won't be touching the cash until I find a house. Anyone who needs regular access to their cash should steer well clear, or you'll end up getting no interest at all(I suspect they count on a few dullards not spotting that). Interest paid monthly too........

[sign_of_the_times]

Yeah, my STR fund is with them 'cos I won't be touching the cash until I find a house. Anyone who needs regular access to their cash should steer well clear, or you'll end up getting no interest at all(I suspect they count on a few dullards not spotting that). Interest paid monthly too........

just open another similar account with another bank (ING et al) and transfer total balance on first of month, spend what you need, then xfer back to first direct at end of month (yes you'll lose a few days interest whilst the money's being transferred, but it beats losing a whole month's interest)

[Time to raise the rents.]

just open another similar account with another bank (ING et al) and transfer total balance on first of month, spend what you need, then xfer back to first direct at end of month (yes you'll lose a few days interest whilst the money's being transferred, but it beats losing a whole month's interest)

Some banks have a maximum transfer on the internet, like Barclays at £2,000 per day for a new payee & I think it's £5,000 per day for an existing payee.

Does First Direct have a restriction like that?

[sign_of_the_times]

Have you calculated this?

4% net cash minus rent cost = standing still or going backwards after inflation.

or

5.5% tax free (in lieu of a mortgage) on properties implied return + 5 to 10% HPI (being the norm over the years) = doing very nicely with a home of your own & your money staying ahead of inflation.

?????

why have you deducted rent from interest, especially when most people pay their mortgage from salary ?

dont forget interest earned on STR funds is ON TOP of salary earned.

Heads we win on that one

Some banks have a maximum transfer on the internet, like Barclays at £2,000 per day for a new payee & I think it's £5,000 per day for an existing payee.

Does First Direct have a restriction like that?

250k max

[colonel faulkner]

SOTT, TTRTR, the way FD works is ANY time you transfer ANYTHING out of their account, you get no interest for that month.

It's got nothing to do with how much you have at the start/end of the month, so transferring to/from another account would just kill your interest (literally AND metaphorically)

[Red Baron]

We sold our house in Cheshire last August, we are typical baby boomers, moved back to Cardiff and currently renting a new build two bed two bathroom appartment (£900/month) The houses we have looked at in Cardiff we consider to be considerably overpriced and in need of extensive modernisation. We have become increasingly frustrated having two purchases fall through with the associated aborted fees and we have never been in this situation without our own home, however, as our cash is not replaceable we have become extremely cautious. We have now decided to rent for the longer term and "see what happens" to the market. I agrree with most of the bears that interest rates will move up and that prices will correct downwards--but who knows when? The main factor in our decision was the fact that we have cash in the bank earning 4% net, converting that cash into property and extrapolating the value over even 5 years at 4% it is hard to believe the values calculated.

Have we done the right thing?

You have made the right decision.

Enjoy the freedom that renting brings and wait until house prices correct. Everything about the UK and global economy, the prospect for IR rises worldwide, conspires to bring about substantial drops in house prices.

It's simply a waiting game.

[sign_of_the_times]

SOTT, TTRTR, the way FD works is ANY time you transfer ANYTHING out of their account, you get no interest for that month.

It's got nothing to do with how much you have at the start/end of the month, so transferring to/from another account would just kill your interest (literally AND metaphorically)

I'm agreeing with you Colonel. What I'm saying is have the other account handy so you still get a healthy return that month (e.g. 4.5% with ING)

Then transfer it back to FD at the end of the month and start earning 5% again

No penalties for transferring IN

[TWT]

We sold our house in Cheshire last August, we are typical baby boomers, moved back to Cardiff and currently renting a new build two bed two bathroom appartment (£900/month) The houses we have looked at in Cardiff we consider to be considerably overpriced and in need of extensive modernisation. We have become increasingly frustrated having two purchases fall through with the associated aborted fees and we have never been in this situation without our own home, however, as our cash is not replaceable we have become extremely cautious. We have now decided to rent for the longer term and "see what happens" to the market. I agrree with most of the bears that interest rates will move up and that prices will correct downwards--but who knows when? The main factor in our decision was the fact that we have cash in the bank earning 4% net, converting that cash into property and extrapolating the value over even 5 years at 4% it is hard to believe the values calculated.

Have we done the right thing?

I think you did, perhaps you could have done better but com on it is like shares, on can not set at the very each time...

Be patient and have a though for the ones who bought you house!

[Time to raise the rents.]

why have you deducted rent from interest, especially when most people pay their mortgage from salary ?

dont forget interest earned on STR funds is ON TOP of salary earned.

Heads we win on that one

250k max

Are you serious? This is a fundamental principle of housing.

Here's the position: You're a long term owner, paid off a lot of mortgage and have well over 50% equity following price rises etc. You are both paying interest on your mortgage and receiving an implied return on the equity equivalent to the interest you would pay if you were 100% borrowed.

So say you are paying £300 per month in interest, in actual fact, that property may be worth in total to you, say £600 per month because of the implied return.

So if you sell and walk away with your 50% equity to earn interest on, you'll no longer pay the mortgage (-£300), but you'll now be receiving say £250 from the bank in interest. But you no longer have a home to live in, so you must immediately apply that interest to your housing expense.

Say it costs £600 to rent a similar place to where you lived, you now pay £350 from your salary (you used to pay £300 on your mortgage) and £250 from your interest. You have sold, but your expenses haven't changed at all. However now you've also lost the opportunity to benefit from HPI.

So rent must be minused off any STR return to give a true picture of the new position. An STR may benefit from renting a cheaper place than they owned BTW.

Edited April 4, 2006 by Time to raise the rents.

[colonel faulkner]

I'm agreeing with you Colonel. What I'm saying is have the other account handy so you still get a healthy return that month (e.g. 4.5% with ING)

Then transfer it back to FD at the end of the month and start earning 5% again

No penalties for transferring IN

Sorry, I still don't 'get' what your 2nd account does for you.........suppose I had ten grand on April 1st, tell me what you would do with it, and when, over the next 2 months.

Pardon my ignorance.....

[TWT]

We sold our house in Cheshire last August, we are typical baby boomers, moved back to Cardiff and currently renting a new build two bed two bathroom appartment (£900/month) The houses we have looked at in Cardiff we consider to be considerably overpriced and in need of extensive modernisation. We have become increasingly frustrated having two purchases fall through with the associated aborted fees and we have never been in this situation without our own home, however, as our cash is not replaceable we have become extremely cautious. We have now decided to rent for the longer term and "see what happens" to the market. I agrree with most of the bears that interest rates will move up and that prices will correct downwards--but who knows when? The main factor in our decision was the fact that we have cash in the bank earning 4% net, converting that cash into property and extrapolating the value over even 5 years at 4% it is hard to believe the values calculated.

Have we done the right thing?

ohh sorry press the wrong button..

So yes I repeat, I think you did well. Like shares selling at the very top is a bit idealistic. So just be patient now and think about the ones who bought your house....

[FRUSTRATED]

Sounds pretty smart to me. My other half's parents have done the same thing and haven't looked back.

Forgive my nosyness. Do you mind if I ask what motivated you to sell up? Also, do you know many others in your age group who are planning the same?

frugalista

Made redundant with very good termination package, originally from South Wales where all our family lives, thought it would be easy to find a house and downsize a bit. all our previous moves have been initiated by my job. I do not know any others who have done the same.

[Time to raise the rents.]

Sorry, I still don't 'get' what your 2nd account does for you.........suppose I had ten grand on April 1st, tell me what you would do with it, and when, over the next 2 months.

Pardon my ignorance.....

Wanting to make a withdrawal of £500 say, you would pay the entire 10k to ING on April 1st, deduct the 500, leaving the 9.5k in ING until say April 28th when you'd send it back to FD, getting it in the a/c before May 1st.

So your earned interest in April at the reduced ING rate. Then continued as usual in FD in May.

[frugalista]

Are you serious? This is a fundamental principle of housing.

TTRTR is correct on this one.

BTW I was suprised at the level of rent. £900 seems a lot for Cardiff. I am paying about £900 for a very large 2-bed apartment in a posh part of Boston which is itself one of the most expensive cities in the US.

I'd expect to get an extremely high spec flat for £900 in Cardiff.

frugalista

[colonel faulkner]

Wanting to make a withdrawal of £500 say, you would pay the entire 10k to ING on April 1st, deduct the 500, leaving the 9.5k in ING until say April 28th when you'd send it back to FD, getting it in the a/c before May 1st.

So your earned interest in April at the reduced ING rate. Then continued as usual in FD in May.

So why not keep 500 quid aside & pay the rest to FD straight away?

OK, so what I'm saying is that with FD you can't really touch your remaining 9.5K again. But you already knew that!

My FD account only 'saw' one deposit (my STR fund) and it will only see one withdrawal, for the entire amount, the day after interest is paid. I think that's the best use for FD, if there's any possibility you'll need to get at it for other things, accept 4.85 with B&B instead.......

[Time to raise the rents.]

So why not keep 500 quid aside & pay the rest to FD straight away?

OK, so what I'm saying is that with FD you can't really touch your remaining 9.5K again. But you already knew that!

My FD account only 'saw' one deposit (my STR fund) and it will only see one withdrawal, for the entire amount, the day after interest is paid. I think that's the best use for FD, if there's any possibility you'll need to get at it for other things, accept 4.85 with B&B instead.......

Thinking about it for my own ING account. I'd like to open one of these & put the vast majority of it on for the 5% & leave a bit for coming & going on the ING account.

But the discussed strategy is a way to make sure the FD policy doesn't sting as much if a withdrawal is needed at some point.

[colonel faulkner]

Thinking about it for my own ING account. I'd like to open one of these & put the vast majority of it on for the 5% & leave a bit for coming & going on the ING account.

But the discussed strategy is a way to make sure the FD policy doesn't sting as much if a withdrawal is needed at some point.

Oh, so keep it in 'reserve' (ING) until you're sure you don't need it, then let it go to FD. Sure, I can see that.

I would still suggest you use Bradford & Bingley (4.85) NOT ING(4.5) though, FWIW.

BTW, totally agree with your post on how to calculate whether your STR position is better than owning/BTLing. Using that principle for my situation, I am better off renting as long as HPI is <3% (which, in the Midlands, it still is). I think a spreadsheet should be created for folks to access from this site (I know you or LJ posted a link to a good one, some time ago, which I stiil look at once in a while).