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Have We Done The Right Thing?


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nationwide e-savings at 4.65% is a better rate than that - and no cots for moving out. It also fell a bit in the last couple of months so the previous rates drop by the b of e has been absorbed by that rate.

You need £50k to get that rate.

What I don't get is why that rate is above their instant access ISA which is 4.55%

Edited by padders
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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?

Are you asking the right people?

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Is that a good return 4.75% gross?.

So after tax in real terms 2.75% and inflation running at 2.75% dont look good to me.

Houses going up 5% this year, up 5% last year, and maybe up 5% in 2007?.

Another thing to bear in mind, if you are unemployed (and there's lots about, and more coming) then having the equity of a STR property will be a serious liablity to claiming benefits, until of course you are down to 3k which is the average monthtly spend on council tax, and kids trainers. Until you are down to 3K you are entitled to virtually nothing at all, so the rent will have to be paid out of equity of the sold property.

Whereas if you had kept the property, then after 9 months the Government have to pay your mortgage.

And while you wait 9 months, from day 1 provided you have not been silly and have savings they will have to shell out for food, council tax, utiilities, and anything else you can get your hands on.

Its a tough unfair world, but its good to know the ropes.

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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.

TTRTR,

Thanks for this. I must say your posts continue to interest me and make me think - don't always agree with them but I think this forum is better for having you making your points. On this one, as others have said, I think you are bang on - although of course just as you've lost the opportunity to benefit from HPI, you've also lost the 'opportunity' to 'benefit' from negative HPI. However, since I'm reluctantly beginning to expect that we'll see lengthy stagnation rather than crash in many sectors of the housing market (still wouldn't care to own a 2BR BTL in a 'luxury' block though) I'm thinking that this isn't such a concern.

My capacity to live rent free at the moment means I don't have to worry too much about this but I will do soon. I'd cloudily come to the same conclusion as you above, but its useful to see someone else iterate it.

CS

Edited by Civil Servant
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