To let or to sell - that is the question!

VictorMeldew

Friends and family keep telling me that I should let my house instead of selling it, and I'm not sure what to do. My wife and I have just had a baby, and we want to move to a better area in the not too distant future. My house is probably worth around £130'000 and I'm looking to buy up to the value of £250'000.

If I let, I'd probably get around £600pcm judging by the rental prices in the area. I am currently not paying any interest on my mortgage because I have offset it with the amount in my mortgage current account (Intelligent Finance).

The question I have is - is it worth me letting when I could pay off a huge chunk from my next mortgage, and therefore pay less interest and pay it off sooner. Or do I let, and in 25 years, end up with two houses, one of which I could continue to let and so use towards my pension.

I cannot get my head around which option is the best! Any help is welcome!

tomstickland

So you have enough funds to pay off the current mortgage?

VictorMeldew

Yes - I can pay off the current mortgage. That was another question actually - would I need to pay off the current mortgage before I could get another?

Zammo

The simple answer to that is no.

tomstickland

Ok, just thinking about the interest rate thing, ignoring capital gains and any tax advantages etc


I've thought about this quite a bit now LOL and I can see why you've been pondering.
edited extensively!

A key question is what profit can you make by selling the current house. ie: what is the difference between its value and the mortgage? This is free money you can put into the system.

If you don't sell the current house then you can't release this difference. However, if you BTL the current house and you make enough to cover the BTL mortgage, then that looks after itself in terms of monthly cost, and you can put your savings into the new house and then only need to pay on that mortgage.

The key question then is whether the BTL monthly profit (if any) exceeds the cost of the extra borrowing you had to do to buy new house.

eg: house worth £120, has mortgage of £60K.

Keep current house with stand alone BTL mortgage, buy £250K house, put down £60K deposit from savings. Total borrowing on new house£190K. BTL looks after itself.

Sell current house and end up £60K better off. Total of £120K deposit for new house. Total borrowing on new house £130K.

Does BTL monthly profit exceed the monthly cost of borrowing £60K?

maryjane01

You can change your current mortgage to a buy to let mortgage, then get a new regular mortgage for your new house. My partner has done it! He kept his old house, and we are buying our new house on a 100% mortgage! The number of lenders lending 100% to a non first time buyer is few, but our broker found us a mortgage through RBS with no higher lending charge. Although with the equity the OP has I am sure he wouldn't need a 100% mortgage. Also, you can offset the rental income against interest being paid so you don't pay tax on that proportion. I would say keep the house as long as you can afford the mortgage repayments on the new place!. One other consideration is when you sell a second property you will have to pay capital gains tax, so that is a major consideration if you would plan on selling the additional property anytime soon.

VictorMeldew

Cheers for that - will have to work that out. I think my current mortgage monthly payment is only about £200. I bought about 5 years ago before the prices went mental! I've got about 20k to pay off, but this is offset by the 20k in my current account so I don't pay any interest!

Unfortunately, I can't use the 20k as a deposit towards my next house because my mortgage lender don't do buy to let mortgages.

The other major factor in my view is the hassle factor. Unless you think letting is by far the better option financialy, I think I'll go for the easy option and sell up.

VictorMeldew

Thanks MaryJane our posts got crossed because I was changing a nappy! If I did it that way, I'd have 20k deposit off my next house. I'd have to get a BTL mortgage for the remaining 20k, but I'm sure that would be less than the £600pcm rent I could get. Does it make any difference to the tax situation because I'm self employed? Assuming it rents well, I'd only be selling up when I retire in around 30 years. Will have to look into the capital gains tax situation. I'm still undecided as to what to do - I'm tempted just to sell up, but I know I'll regret this in 10 years!