Do I take offer or rent

pillowcase_2

Hi we are moving abroad permantly and we haved recieved an offer on our flat, at 115k, we bought it too years ago for 95K, the mortgage is 90K so after fees we should clear 20K.

However the problem is we don't know if we should sell it or rent it.

I have spoken to a letting agency and we can get about 550/month rental income, after fees and certificates and insurance I think we will get about 450/month. The mortgage is 400/month and I have consent to let. The problem we are facing is at the minute it seems a no brainer to rent out the property, but we are on a tracker mortgage paying 2% at the moment so if rates rise the mortgage wont be covered with the rent so I would have to top up the mortgage. There is also the issue of the stress of managing a property from Australia. Any thought? thanks for your time

BitterAndTwisted

Becoming a professional landlord when you have no experience or understanding of the HUGE amount of LL&T legislation is risky. Doing the same when you don't even live in the same country and have no plans to return is madness in my opinion.

Having bought the property only two years ago and looking at making £20k profit in the current economic climate is a miracle! Sell the property and take your profit to Australia while you can.

HappyMJ

Whilst it may look like it's profitable to rent it out it isn't. Have you taken into accounts voids? Wear and tear? Regular re-decorating? If you aren't near the property to be able to do-it-yourself you'll have to pay a labourer. Sell, take the money to Australia and put it in a high inerest savings account. Australian interest rates are quite high so you'll get a decent safe income that way. £20,000 converted to AUD will be $35,000 and when invested in lets say ing direct @ 6.25% http://www.ingdirect.com.au/savings/savings_products/savings_maximiser.htm will earn you $182 per month converted back into pounds is much higher than £50.

myhouse_2

As HappyMJ says, there WILL be maintenance costs. Make sure you add £100 per month maintenance costs into your calculation - more if it an old house.

theartfullodger

Chances are your lender will increase the interest rate when you tell them you are renting: Oh, thinking about not bothering?? Then they really really really will sting you when they find out (they will!!).

And you need to pay tax on your UK income from rent (etc etc..) and the letting agent will withold tax @ (IIRC) 22% before remitting any surplus to you whilst abroad (Google non-resident landlord & HMRC if you want details..).

Given you are thinking about renting does that mean you are confident property prices won't drop whilst you are away?>? Wow, wish i had your confidence...

Welcome to the fun world of being a Landlord.

Cheers!

Lodger

Chris55_2

This is definitely a "no-brainer"! Sell it now and you get 20K in real money. The only risk you will be exposed to depends on what you do with it. If you rent you risk: voids, repairs, increase in the mortgage rate, reduction in the rental rate, decrease in the value of the property. You might have good tenants, but you might have really bad ones - suppose you had to take them to court to evict them? All this risk for a few thousand pounds a year max?

pillowcase_2

Thanks for your comments bitterandtwisted myhouse and happy MJ.

If you had read the original post the artful dodger you will have seen that I have recieved consent to let so I have already told the lender. I won't be subject to income tax for four years as I am moving to Australia on a temporary visa, and you are only subject to pay tax on your Australian earnings and not worldwide earnings on this visa in Australia. The rental income would be my only earnings in the UK so would be just below the income tax threshold.

I have spoken to the freeholder of the property and he recommended the estate agent he uses for his lettings, he live in New Zealand and the estate agent does everything with regards to managing the property,from gas certificates to recommending refurbs.

Edit: Thanks for that saving link MJ, I will probably keep the money in the UK for a few years though as I wont need it in Australia initially and the exchange rates are at an all time low at the minute
Yes I don't know what will happen to the property prices or interest rates but I am looking into keep it for 15 years plus if i don't sell it now, so I more worried about interest rates than the value in the near term.

nollag2006

What an exciting opportunity for you pillowcase. It sounds like a wonderful chance.

As for you (very pleasent) dilemma, the options are to sell up now and to crystallise the gain made over the past few years or to step off the housing ladder in the UK, and take a gamble that prices will not have risen by the time you have returned.

On that basis, my sense is that you should retain the property in the UK and let it out on a fully managed basis through a reputable agent. I know this is what I did when I had an overseas assignment a few years back. It was a great feeling to have someone else paying my mortgage during that time, and to see the flat had also risen in value.

You have obtained your CTL, so the mortgage should be fine, but you should budget for worst case of 2% rises over the next few years. Even assuming you can get an inflation linked rental increase, this may still leave you with negative cash flow. This is something you need to budget for.

Some good guidance on the tax implications here:
http://www.hmrc.gov.uk/cnr/nr_landlords.htm

You can apply (as I did) to have your rental income paid gross to you, without a tax deduction, so long as your tax affairs are in good order. Simply a matter of completing a form: http://www.hmrc.gov.uk/cnr/nrl1.pdf

You will need to complete an annual tax return for the UK, but the amount of tax payable should be negligible once you deduct allowable expenses, such as the EA’s management fees, repairs, mortgage interest, and any travel costs back to the UK to inspect the property

You might get a more informed opinion of the pros and cons of this move if you post over on www.landlordzone.co.uk

On balance though, my sense is that you are far better off staying in the market, rather than trying to second guess the direction of property prices over the next few years, which is something that has eluded even the greatest minds on here !

Hope this helps

poppysarah

£20k profit or a load of hassle? Take it and run.

You knew you wanted to sell when you put it on for sale.

bitsandpieces

£20k in the bank could get you around £800/year interest for doing almost no work and at very low risk. If you do make £50/month surplus from renting after paying your mortgage (your numbers do seem very tight - have you budgeted for repairs, voids etc?) this will earn you £600/year for much more work and much more risk. I know you will also be making capital repayments to the mortgage, but there's the risk that you will end up needing to 'top up'.

It only seems worth hanging onto the property if you expect the capital value to rise or want to stay in the UK housing market. If you do this, make sure you will be able to deal (financially and in terms of time commitments etc.) with expensive repairs, a nightmare tenant, long voids etc.

new_home_owner_3

here are the reasons you should sell

1. if interest rates go up slightly you wont be making any money and may be paying more than you mortgage.
2. your mortgage company have give you consent to let, but it depends how long your tracker is for, they usually only give you consent for the amount of time for your current deal, but if its a lifetime tracker they will make you change to a btl mortgage after 2 to 3 years.
3. if they do make you change to a btl mortgage at the moment with the amount of equity you have in your property, you wouldnt get one has you need at least 25% ltv and the rates are over 6 percent, ideally you need 40 percent and the rates are still high on these. Infact some of the fees on the btl mortgages are upto 3.5 percent of the amount you borrow.

Now if you was on a fix rate for five years and returning to the uk i would say give it a go renting whilst your away in australia, then you could come back and move in safely knowing your mortgage wont go up.

if i was you i would take the cash and put it in a savings bond, no one knows whether houses are going up or down, but by just looking at your figures, if the lending criteia stays the same for btl mortgages, it will be impossible for you to get q btl mortgage.