UK Landlord Forum / Life

Someone asked a good question on the guardian website. The gist of it is...

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I have a house worth 305k, with an outstanding mortgage balance of 70k. We want to sell, and rent for a few years while house prices fall, and then buy something bigger.

With the money we make from our sale, we want to invest, and earn interested on it to pay our rent, which will be about 1.5k per month. Is it a good idea?

This is the response:

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No, I do not think it's a good idea. Assuming you sell your home for £305,000, after selling costs of, let's say, £5,000, and clearing your £70,000 mortgage, you would be left with £230,000. For this to pay the monthly rent of £1,500 you would need to find an investment paying an after-tax return of 7.85% - or 9.8% before basic rate tax. Without taking risks with your capital, which you shouldn't given both the timescale and the need for a regular income, the best rate you could get at the moment is 6.31% before tax. This would provide a monthly income after-tax of just under £970, which is well short of the £1,500 you would need to pay the rent.

But even if your sums did add up, I'm still not convinced that gambling on house prices is a sensible thing to do where your family home is concerned. I also feel it is wishful thinking to assume that house prices will fall sufficiently for you to buy a bigger property with the money you make from selling your home. For example, to buy a property now selling at £400,000 for £300,000, prices would have to fall by a further 25%, and I haven't yet seen a house price prediction as gloomy as that.

Full Q&A here