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    • ARCLIJ
    • By ARCLIJ 9th Sep 17, 2:58 PM
    • 2Posts
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    ARCLIJ
    Decision to sell rented property to become mortgage free or keep it
    • #1
    • 9th Sep 17, 2:58 PM
    Decision to sell rented property to become mortgage free or keep it 9th Sep 17 at 2:58 PM
    Hi

    Myself and my husband own a property and also rent out another property which we have a mortgage on. Our original plan has always been to keep the rented property as a retirement pension as my husband is self employed. We currently have 18 years left on each property and the value of the rented property has gone up which means if we sold it we could pay off the mortgage on our own home. We need to decide whether to be mortgage free or keep the rented property. Just wondering on peoples views on this?
    Many thanks
Page 1
    • ProDave
    • By ProDave 9th Sep 17, 3:48 PM
    • 270 Posts
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    ProDave
    • #2
    • 9th Sep 17, 3:48 PM
    • #2
    • 9th Sep 17, 3:48 PM
    If the rent income less expenses pays the mortgage, I would keep it, unless you have a specific need for the capital.

    Remember if you sell it, then later decide to buy another BTL you will be hit with the extra 3% stamp duty.
    • Fireflyaway
    • By Fireflyaway 9th Sep 17, 4:39 PM
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    Fireflyaway
    • #3
    • 9th Sep 17, 4:39 PM
    • #3
    • 9th Sep 17, 4:39 PM
    Do you plan to be working for the next 18 years? If so I think I'd keep both so by retirement your house is paid and you have the income you wanted. A bit of pain now will be worth the long term gains. I'd say you want as much money as possible in retirement.
    • bowlhead99
    • By bowlhead99 9th Sep 17, 5:20 PM
    • 6,690 Posts
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    bowlhead99
    • #4
    • 9th Sep 17, 5:20 PM
    • #4
    • 9th Sep 17, 5:20 PM
    Depending on the mortgage rates available for the two properties, if there is now more equity in the rental property it might be efficient to take out further mortgage on the rental to allow you to pay down some of the mortgage on the place you live in, without actually having to sell the rental place. Remember that the mortgage interest cost on the rental comes with a 'tax shield' - in that the more interest you pay, the less profits you make and so the less tax you pay on your rental business.

    So for example if it costs 5% to get a £10,000 mortgage on the rental property (costing £500 a year) and that allows you to pay off £10,000 from your home mortgage at say 4.5% (saving £450 a year), it seems a bad deal until you notice that the extra mortgage interest on the rental saves you 20% tax on the £500 which means the extra morttgage on the rental is only really costing you £400 a year which is less than you are saving off your home mortgage, so it's a good deal after all.

    Plus, if you get your home mortgage down to a lower LTV band you would face a lower interest rate on the whole remaining mortgage, not just the savings on the bit you paid off. So it may be worth considering releasing some cash from the let property by way of remortgage to get an improved deal on the home property, if one exists.

    Obviously in these times of low interest rates you sometimes find that mortgages on a BTL basis are higher by so much (relatively) that the tax saving doesn't help (e.g. 3% on a BTL mortgage less tax is still 2.4% while residential mortgages might only be 2% or less).

    Also with rates continuing to be at a low historic level it might not be massively valuable to pay off your own home mortgage. E.g. if you are on a long term rate of only a couple of percent - or can sign up to one - you could simply invest the money elsewhere instead (investment fund ISAs or pensions etc) or just not bother to release it from the rental property equity hoping for long term capital gains (albeit, taxable).
    • getmore4less
    • By getmore4less 9th Sep 17, 6:06 PM
    • 29,779 Posts
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    getmore4less
    • #5
    • 9th Sep 17, 6:06 PM
    • #5
    • 9th Sep 17, 6:06 PM
    What's the gross and net yields on the capital you can extract from the place after all costs.

    if you do sell up and become mortgage free you need to decide how to invest the money you free up to get returns better than what you have now.

    All assets in one pot is a bit of a risk especially if you need to liquidate.

    when I looked at property to be the basis of retirement you needed roughly 3 places debt free, one to live in and 2 to provide the income.

    More smaller places is better as you can get less risky cashflow.
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