Spending Your Str Fund

[pablopatito]

I was looking at buying a house for £250k. Now I'm renting for one or two years and have a large STR fund. That house is depreciating at £2k a month. So in theory, I'm making £2k a month, tax free. At the same time, I'm eating beans on toast for my tea and not going on holiday this summer. I find it a strange situation, I'm both poor and rich at the same time. The temptation to dip into my fund is overwhelming. Anyone else feel like this?

Its the same as MEWing really, isn't it, ie spending money based on an unrealised profit resulting from house price changes? Or is my STR fund realised profit (made when I sold my house), and therefore ok to spend?

[uptherebels]

I was looking at buying a house for £250k. Now I'm renting for one or two years and have a large STR fund. That house is depreciating at £2k a month. So in theory, I'm making £2k a month, tax free. At the same time, I'm eating beans on toast for my tea and not going on holiday this summer. I find it a strange situation, I'm both poor and rich at the same time. The temptation to dip into my fund is overwhelming. Anyone else feel like this?

Its the same as MEWing really, isn't it, ie spending money based on an unrealised profit resulting from house price changes? Or is my STR fund realised profit (made when I sold my house), and therefore ok to spend?

I shouldn't worry about it. The Government will be collecting all STR funds shortly.

[Mr Nice]

I was looking at buying a house for £250k. Now I'm renting for one or two years and have a large STR fund. That house is depreciating at £2k a month. So in theory, I'm making £2k a month, tax free. At the same time, I'm eating beans on toast for my tea and not going on holiday this summer. I find it a strange situation, I'm both poor and rich at the same time. The temptation to dip into my fund is overwhelming. Anyone else feel like this?

Its the same as MEWing really, isn't it, ie spending money based on an unrealised profit resulting from house price changes? Or is my STR fund realised profit (made when I sold my house), and therefore ok to spend?

MEWing is spending money LOANED to you based on the value of your house, it has to be paid back, and the gamble many took was that house prices would rise to cover it.

YOUR STR fund is made up of money that you OWN through savings, realized profits etc. It isn't something that has to be paid back, and the only gamble in having one is that you might waste it or invest it poorly and lose it.

In my opinion, you have made it this far, every bit more that you can save before giving will definitely reap rewards for you in the future.

when you do finally buy back in, it is likely going to be one of the biggest investments of your money in your life, one of your biggest financial plays, I would keep working to keep myself as far ahead of the game as possible in that position.

especially since with bad economic times on the horizon, just holding on to what you have is looking to be a lot harder than eating beans for a few more months/years.

[DementedTuna]

MEW was always a bad idea, because it is a loan. And you pay interest on a loan no matter what you're using as collatoral.

Now, with a sell-to-rent fund you have a lot more control over it, and actually gain interest on it.. you can probably spend at least the above-inflation interest you're getting off of it on making your rental life a little more enjoyable.

Don't go nuts and start eating into the capital to fund holidays or anything, but a few extra quid to avoid bean dinners can't hurt.

Edited July 18, 2008 by DementedTuna

[R K]

Holidays are sooooo last year.

Open the windows.

[Mr Nice]

also, I wouldn't think of it as you are saving 2k a month "tax free" as what that really translates into is, "I am saving 2k more a month than IF I HADN'T MADE THE BIGGEST MISTAKE OF MY LIFE BY BUYING A HOUSE"

it's not really all that hard to do better than total financial disaster. (thougt the decision and the fortitude to hold off are totally to be complimented)

Though I do understand why it's done.

but as long as your are making good savings now, and are in a fairly sustainable budget, there really is no need to eat beans every day.

like the above poster said, theres nothing wrong with a little treat here and there.

[The Bachelor of Arts]

No it's not the same as MEWing. Many MEW's do believe however that they are spending STR money. Your STR fund is your money that you have in your hand. A MEW is a loan based on the value of an underlying asset - which may change (and already is). Your STR fund won't change due to HPC.

I fully understand your view. I have £50k in the bank, saved from the last few years, drive a £500 old banger, get my clothes from Next, and shop for my food at Asda. I could easily live a more decadent lifestyle, but I want to keep my money as a war chest for 2010 when we are in a depression and no one has any cash spare. I'm also going overseas to work tax free for the next 10 months, so should have approx £120k by next June - would rather not, as it's a bit of a boring frontier existence, but with the economy going the way it is, I feel that it's the best plan for me in the long term. As for inflation, I've just put £40k of my money into gold bullion and will do this with my money as and when I get paid each month - purely an inflation hedge. (goldmoney.com)

As for you, I'd suggest maybe splashing out on a nice meal now and again, a decent night out etc,. as living on beans n toast must get a bit much. I'd try to keep say 80-90% of your STR fund for the rainy day when HPC has made it affordable to buy.....................just be wary of £ devaluation (see moneyweek - expecting up to a 30% fall in sterling over the next couple of years!! ) If you want to know what's going on then buy moneyweek each Friday (or subscribe online) and subscribe to Puru Saxena's money matters newsletter (you can google this one)

Good luck and well done mate.

[pablopatito]

Don't go nuts

So blowing the lots on champagne and hookers is out then, huh?

[hedgefunded]

Spend it, see the world.

You'll wish you had one day.

[hostman]

I get the same feeling with my FTB deposit. Could buy myself a nice two seater sports car

You have to resist, you'll regret it a week or two later.

[Bigtimebear]

Its the same as MEWing really, isn't it, ie spending money based on an unrealised profit resulting from house price changes? Or is my STR fund realised profit (made when I sold my house), and therefore ok to spend?

Its not the same as MEWing as you've already crystallized your house price gains by sensibly getting out before the crash.

If it makes you feel better, I bought a new mini cooper with some (but not all) of my fund ..... ooops

[LondonToManchester]

I was looking at buying a house for £250k. Now I'm renting for one or two years and have a large STR fund. That house is depreciating at £2k a month. So in theory, I'm making £2k a month, tax free. At the same time, I'm eating beans on toast for my tea and not going on holiday this summer. I find it a strange situation, I'm both poor and rich at the same time. The temptation to dip into my fund is overwhelming. Anyone else feel like this?

Its the same as MEWing really, isn't it, ie spending money based on an unrealised profit resulting from house price changes? Or is my STR fund realised profit (made when I sold my house), and therefore ok to spend?

Dude you only have 1 life don't spend it eating beans on toast!! Enjoy life mate..

[ma-ku]

Dude you only have 1 life don't spend it eating beans on toast!! Enjoy life mate..

I second this. Whilst I wouldn't recommend wasting your STR on shiney baubles and expensive restaurant meals every day. You need to live a bit mate. Life is short (my mother died aged just 44 as a potent personal example) and whatever plans you make for the future, you need to enjoy life today. I am not talking about blowing the wad on a stupid car etc , but you should eat well and see a bit of the world whilst you still have your youth and vigour. Neither has to be expensive with proper planning. As long as you are sensible, your life doesn't have to be quite as bleak as you paint it (although I am hoping you are exaggerating somewhat!).

Edited July 18, 2008 by ma-ku

[Orbital]

I think you would regret spending it if your long term goal is home ownership. You have to accept that your chosen route involves ensuring that fund stays in place!

My chosen route was to buy, and thanks to locking in to a nice low rate Im paying off nice chunks each month and will be the full owner before im 40. Actually at this rate, before then. There are people who havent bought sensibly in the last cple of years but the idea that no one could have done it is just untrue! Im sure there are plenty of careless people struggling to meet their rent too!

I think either route is valid depending on your risk profile. I like my route becuase I have certainty and I derive much utility from this. I know how much my house cost. I know how much I have to pay back. I know I can afford it. I also have got a lot out of owning my own place over the last few years. Maybe ill end up paying more (in my circumstance I dont even think I will)? But I can afford it and im not greedy (unlike evil satan like landlords and the dark overlord of MEWdom) so I dont mind.

I love knowing that the extra cash I have now is available for spending (in reality I still save most of it - some habits are hard to break!). But money just isnt a worry anymore. Its a great place to be. But it requires dicipline so I urge you to hold hold on. You'll just have to trust me that when you finally get to my position its fantastic ! You will finally get why so many people place so much value in ownership.

I guess its harder for you because until you actually buy you are always in that stressful "waiting" period of uncertainty. Actually thats why I hated renting, having got booted out on a LLs whim once I could never live somewhere without being in control of my destiny again. Just have to keep my job of course... ! But that's an issue whatever route you take imo. Actually thanks to my overpayments I can take a very long repayment holiday - can't do that with most landlords! And I love seeing the "rent" (interest) fall each time you overpay. Not many LLs drop your rent each and every month by 10-20 quids !

All being well your fund (+mortgage if you need it and can get one) will get you your house. But it won't if you spend it so hang in!!!

By the way, you can eat well on a tight budget. Ironically this often mean eating healthy fresh produce. In my local market you can buy a week's worth of potatos for the price of one pre-made jacket potato and cheese in a nice sweaty plastic box from my local supermarket - Mmmmmm . Of course you then have to cook. Gasp. But as many "celeb" cooks have shown recently you can kncok up a top meal for a famliy in 10 mins for a few quid. Sad that many people refuse to even think this is possible, let alone try.

But yeah who needs a holiday? Already this year, thanks to the great free stuff in London, Ive been to the exhibition road music festival, outdoor theatre by the NT, etc etc and much more on the way. Get your £8 Ben and Jerry festival tickets? Beats the £45 some festivals are charging! Try looking at moneysavingexpert.com - its all about saving money without having to live on beans (although there is a thrift forum if you like that kinda thing).

You only live once - so dont screw it up!

Best of luck with your goal

Edited July 18, 2008 by Orbital

[pablopatito]

Its not the same as MEWing as you've already crystallized your house price gains by sensibly getting out before the crash.

The similarity as I see is it is that you're transferring something that is traditionally seen as an asset (a house), into expenditure (a flat screen telly). So I see my STR fund as a capital asset exactly the same way as my house was. Also, MEWing results in paying 6% interest, but STR-spending results in forgoing 6% interest on the savings - so there's a similar price to be paid for both. I know its not logical, but I have a psychological problem with spending my STR fund because I didn't "earn" that money.

Furthermore, I'm not sure I have actually gained, because my STR fund doesn't (yet) make up for the increase in house prices between 1995 (when I bought my house), and 2008 (when I sold my house) - I'm still down on the deal.

Anyway, I didn't start the thread seeking advice, I was really just interested in what other people we're doing, and the whole psychology of the thing.

[Minos]

The similarity as I see is it is that you're transferring something that is traditionally seen as an asset (a house), into expenditure (a flat screen telly). So I see my STR fund as a capital asset exactly the same way as my house was. Also, MEWing results in paying 6% interest, but STR-spending results in forgoing 6% interest on the savings - so there's a similar price to be paid for both. I know its not logical, but I have a psychological problem with spending my STR fund because I didn't "earn" that money.

Furthermore, I'm not sure I have actually gained, because my STR fund doesn't (yet) make up for the increase in house prices between 1995 (when I bought my house), and 2008 (when I sold my house) - I'm still down on the deal.

Anyway, I didn't start the thread seeking advice, I was really just interested in what other people we're doing, and the whole psychology of the thing.

Choose life. Choose a job. Choose a career. Choose a family. Choose a ******ing big television, Choose washing machines, cars, compact disc players, and electrical tin openers. Choose good health, low cholesterol and dental insurance. Choose fixed-interest mortgage repayments. Choose a starter home. Choose your friends. Choose leisure wear and matching luggage. Choose a three piece suite on hire purchase in a range of ******ing fabrics. Choose DIY and wondering who the ****** you are on a Sunday morning. Choose sitting on that couch watching mind-numbing spirit-crushing game shows, stuffing ******ing junk food into your mouth. Choose rotting away at the end of it all, pissing your last in a miserable home, nothing more than an embarrassment to the selfish, ******ed-up brats you have spawned to replace yourself. Choose your future. Choose life .

Sound like you?

[lets get it right]

I was looking at buying a house for £250k. Now I'm renting for one or two years and have a large STR fund. That house is depreciating at £2k a month. So in theory, I'm making £2k a month, tax free. At the same time, I'm eating beans on toast for my tea and not going on holiday this summer. I find it a strange situation, I'm both poor and rich at the same time. The temptation to dip into my fund is overwhelming. Anyone else feel like this?

Its the same as MEWing really, isn't it, ie spending money based on an unrealised profit resulting from house price changes? Or is my STR fund realised profit (made when I sold my house), and therefore ok to spend?

It is okay to spend. Please spend it all.

The less people there are around with STR pots the better - when the time comes to buy back into the market.

A world cruise and a new Porsche would be a good start.

Stuff the house, you might die tomorrow. Think of that leggy blonde half your age sitting next to you in the Porsche. You're on your way to the coast for a very dirty weekend.

Go on, you know you want to.

Regards

Jiminy Cricket

[OMG]

Anyway, I didn't start the thread seeking advice, I was really just interested in what other people we're doing, and the whole psychology of the thing.

My Mrs calls our STR pot 'house price vouchers' and I think that's a good way to look at the money. The money is not there for spending on anything other than our next home, we've been pretty good so far.

[Minos]

My Mrs calls our STR pot 'house price vouchers' and I think that's a good way to look at the money. The money is not there for spending on anything other than our next home, we've been pretty good so far.

You have a pet name for a bank account? OMG.

[Doom Lord]

So in theory, I'm making £2k a month, tax free. At the same time, I'm eating beans on toast for my tea and not going on holiday this summer.

Errrm....And the interest payments...Lets say the house you want to buy last month was £250000 Then

£250,000 mortgage 100% IO 25 years @ 6% = £1250 per month

Last months drop of 2% (Halifax) = £5000

£245,000 mortgage 100% IO 25 years @ 6% = £1225 per month

The 2% drop as a percentage of the mortgage interest = £25 per month

multiply over 25 years = £7500 saved on interest payments

Plus £5000

Means you saved £12500 in Capital in interest last month.

Obvioulsy you need to minus your rent from this to get a more accurate picture

[stormtreader]

Dude you only have 1 life don't spend it eating beans on toast!! Enjoy life mate..

Id have to agree with this.

An extra £40 or £50 per month wont set your savings goal back that far, you need to have something a little nicer sometimes just to save yourself from the tempation of blowing the lot on a binge-buy. And heck, you dont HAVE to spend it, if you dont feel you need that lift this month, put it into the fund as well.

At least give yourself the get-out clause for when you need it.

[Mr Nice]

The similarity as I see is it is that you're transferring something that is traditionally seen as an asset (a house), into expenditure (a flat screen telly). So I see my STR fund as a capital asset exactly the same way as my house was. Also, MEWing results in paying 6% interest, but STR-spending results in forgoing 6% interest on the savings - so there's a similar price to be paid for both. I know its not logical, but I have a psychological problem with spending my STR fund because I didn't "earn" that money.

Furthermore, I'm not sure I have actually gained, because my STR fund doesn't (yet) make up for the increase in house prices between 1995 (when I bought my house), and 2008 (when I sold my house) - I'm still down on the deal.

Anyway, I didn't start the thread seeking advice, I was really just interested in what other people we're doing, and the whole psychology of the thing.

while I see where you are coming from, you would have to change a few little things.

if you have a house (fully paid off) worth 100k, it IS an asset like 100k in the bank.

also say capital appreciation was at %6 along with interest rates you are getting on your savings was %6 so they were both growing equally.

when you MEW 10k to buy a car, you are really taking on a loan to tranfer one asset into another.

so you still have 100k in assets (90k in equity and 10k in car) but you are out the %6 on that 10k in capital appreciation, AND you have to pay interest on the loan for it.

with an STR fund you are only out the 10k opportunity cost of the 10k for the car from savings rates.

so you would be about 600 bucks in the whole with MEWING vs paying from an STR.

I guess I take back what I said earlier, they aren't all that different from each other, with keeping the money in the house you risk falling prices and you get no guarantee on appreciation.

with the money in an STR fund (say bonds) you risk losing money to inflation, but have a guaranteed appreciation rate.

and if I have Gordon'd up my numbers, I blame American sub-prime and Austrailian value wine.

Edited July 18, 2008 by Mr Nice

[Guest X-QUORK]

Spent our STR fund on a new business...the jury's still out on whether that was a good move. Certainly could've picked a better time considering the macro economic climate.

Hey ho, he who dares etc.

[OMG]

You have a pet name for a bank account? OMG.

No don't be silly.

We've a name for each individual £20 note.

[Nationalist]

The STR fund must not be spent; the whole point is to jump off the housing ladder and then jump back on at a higher rung thanks to a combination of price falls and interest gained on the fund. Since no-one will have timed the STR exactly right, and selling involves some expense you have already dropped a demi-rung just by STRing - you need to make this up, eg by waiting 6 months.

....mood music.... scene: chap lounging in hammock... voiceover: "What's this man doing? He's making money by watching other people's houses fall in value."