Sell Buy to Let to Pay Off Own Mortgage??

Doorman76

Hi,

I'm in the lucky position to have a Buy to Let that has some equity.

With interest rates probably going to rise over the next year I am considering selling my BTL and with the money from the sale paying off my own mortgage.

The BTL currently brings in about £450 a month profit so it is good earner but this will be eroded by any future interest rate rises.

Not sure if I should sell now and be mortgage free or ride out the next X number of years until the housing market starts to pick up.

Is anyone else in a similar position?

Cheers

sarahevie

yes - we have had this debate frequently over the past 18 months.

I've had mine 4 years (since I moved out of it). We also get £500 a month profit so not to be sniffed at, although ours has also cost us a fair bit. £1500 new boiler last month etc.

Everytime we say there can't be anything else major goes, something does:rotfl:

We are currently only paying 2% interest as we came to the end of our fixed rate 2years ago, so we know this can't last forever, as you say that will definitely eat into the 'profit.'

Unfortunately we don't have that much equity in ours. Currently owe £145000 on the mortgage, one down the street (identical row of Victorian terraces) sold for £191,000 just before christmas.

On the plus side hardly any capital gains tax to pay as I purchased for £185000. Whilst we are on SVR there's also no ERC to pay the lender.

We are keeping ours as it was always a long term pension investment it would pay for itself if base hit 4/5%. We have also recently put in new kitchen, bathroom, boiler and we want to reap the benefits of those.

After selling costs we reckon we'd have £40,000 which would make a nice dent on our £120,000 resi mortgage but not enough to make us get rid of it just yet.

adwat

It's a difficult question, if you feel secure in your earning capacity then look to the long term - expect to see a dip in prices and then the normal recovery. If you're worried about the amount of debt in relation to a possible drop in income and increased rates then now is the best time to sell and reduce your overall debt burden. Are you comfortably within your financial limits or financially stretched at the moment? Everyone's attitude to risk is different, but the fact that you have entered into a BTL situation probably means you are not that risk averse at heart. The potential rewards are greater if you hang onto any property - as long as you can ride out any short term dip in the asset price. I know I'm stating the obvious, but I hope my ramblings at least make sense and possibly help you in some way.

Doorman76

I'm a bit closer to mortgage free which makes me tempted.

BTL mortgage of £67K and an est. value of £120K.

My own mortgage is £82K

As we lived in the house before we rented it I don't think we are liable for any CGT.
Between the years we lived in the house, the last 3 years before the sale being exempt and £40K Letting Relief I think we should be in the clear.

getmore4less

Look at the yields on the money you could get from the property.

Gross/net yield on the total before debt will give an idea of what the place generates against other investments

Net on your equity an idea of how much more this is worth against lower debt.

Doorman76

Thanks adwat.

Your ramblings have helped

Currently overpaying our residential mortgage by £800 a month so we are in a position to be able to cope with any rate increases.

If interest rates stayed at their current level we could prob pay off our mortgage in 5 years. It will just be a bit disheartening to see that MF date get further away with each rate increase.

sarahevie

you will definitely be liable for capital gains tax, but you get some relief for having lived their previously. I would speak to an accountant.

Worth finding out from a professional as it will have an impact on your calculations

Cyril

I am going to keep mine to supplement my pension income.

I was debating whether to keep it until the equity was sufficient to pay off my other mortgage but in a macabre way I almost want to forget about it so I have to work harder to clear the other mortgage on my own, if I do this I will still have an asset.

dimbo61

If you are overpaying you own mortgage by £800 a month then keep the BTL and if rates do rise then cut back on the overpaymnets but unless you are losing money every month on the rent/mortgage and the property needs thousands spending on it now is not a good time to sell.