Advice - To sell or not to sell?

Lubielu

Hi there

I'm interested to see what others would do in our situation!

We own a small 2-bed flat in SW London, which we rented to friends a year ago when we couldn't sell it for a decent price. I'm now getting phone calls from local agents saying now is the time to sell. All sales talk I'm sure, but it's tempting. So we're weighing up our options.

The problem is, the rent doesn't quite cover the mortgage repayments every month so we're having to top up by £200 each month out of our own pockets. Add to that maintenance costs and income tax, and we're wondering if it wouldn't be better to sell even if it's still at a loss compared to what we paid.

As far as we can tell, our options are:

1. Continue to take the pain, and eventually our LTV ratio will improve giving us a better interest rate and/or rents could increase. Once the flat is able to break even or make a small profit, we would feel a bit more comfortable.

2. Sell, potentially at a loss compared to what we paid, but at least we have no more costs going forward and can focus on savings, pension etc.

3. Overpay the mortgage to get to option 1 that much quicker. But as the property is not really increasing in value (0.3% in February according to Nationwide data) is this just good money after bad?

We're currently in the 75-80% LTV bracket and have a 2.99% lifetime tracker mortgage.

What would you do in our situation....?

Thanks!

geoffky

i would overpay..until your good rate turns out to be a bad one and then look at the market..

Mallotum_X

Do you want an investment flat in London?

Do you want to wait and hope house prices increase or at least dont fall?

Do you want any equity in the flat out for something else?

Impossible to give advise really on what to do, it all depends on what you want to achieve and who you want to believe on the economy. Some would say cut your losses and sell, others will say prices will soar again soon, depending on what you think will happen, and how much of a chance you are prepared to take will give different answers on what to do.

Lubielu

We originally thought we'd keep it as an investment flat, but a year of topping up the mortgage (and the prospect of paying the taxman on the rent we receive) has made us question our judgment on that!

Oh and also, if we keep it for another 2 years we'll have to pay capital gains tax on any rise in capital value that we do manage to achieve...

We don't need to get our equity out immediately, e.g. to buy another property, but it is frustrating to be topping up when we could use the money to save for our future as a family.

Thanks!

Doozergirl

When, not if, interest rates rise, it's going to hurt. And I think when interest rates rise, there will be an attempt by more than a few people to offload their spare houses and prices will inevitably dip.

If it isn't working for you now on a very nice interest rate, it could really hurt a lot going forward.

Lubielu

Doozergirl wrote: »

When, not if, interest rates rise, it's going to hurt. And I think when interest rates rise, there will be an attempt by more than a few people to offload their spare houses and prices will inevitably dip.

If it isn't working for you now on a very nice interest rate, it could really hurt a lot going forward.

That's true... Not many certainties where selling houses are concerned but you're right that interest rates can only go up. I hadn't thought of it like that. So the gap between the rent and the mortgage can only get bigger... unless there's a hike in rental income which seems unlikely to cover the shortfall. Too many 2-bed flats for sale and rent in our area!

Jenniefour

Estate agents calling saying now is the time to sell - have you spoken to them about why they think this? Sounds like they're just touting for business - even in London flats are much harder to shift than a year ago. And if you decide to sell now might be worth considering taking a hit to try and sell at a price that obviously undercuts the local competition.

Had you thought of turning it into a BTL by getting a BTL mortgage (interest only) and keeping hold of it in the much longer term? Looks like you have enough equity to do that, if you wanted to. And this would reduce or eliminate your top up.

Very difficult to predict where the outer London market is going but the area where I am (Ealing/Acton) properties across the board are getting hard to sell now, with all the cuts now starting to bite and the mortgage squeeze.

Difficult call and hope you find a solution that works for you.

brit1234

I would put it up for sale now before rates rise and prices fall further. If you wait longer you won't get as much and you will be paying more in mortgage deficit.

What harm can it do to test the market now.

MrsAmanda_2

Hrmn, it's a toughie isn't it? We're in a similar situation with a flat in SE London. We currently live in SW London and are looking to move. To be fair to the estate agents (and I don't often say that), properties here (SW12) do seem to be shifting fairly swiftly so they might be right.

If, as is likely, interest rate hikes mean you'll be paying more on the mortgage, can you afford to take the hit?

If it were me, I'd definitely test the water and see if there's much interest. You don't have to sell if you don't want to.

Oh, and remember with the Capital Gains issue that there are personal and rental allowances before you have to start showering the taxman with your hard earned £.

Lubielu

Duplicate post!

Lubielu

Jenniefour wrote: »

Had you thought of turning it into a BTL by getting a BTL mortgage (interest only) and keeping hold of it in the much longer term? Looks like you have enough equity to do that, if you wanted to. And this would reduce or eliminate your top up.
QUOTE]

Hi Jenniefour, yes we've looked into that but we would need max 75% LTV and we're just over that. We might be able to get there in about a year's time, if we keep on the repayment mortgage and make some overpayments. But that won't guarantee we fall below 75% as the market could drop in the meantime...

Could we get our current lender (HSBC) to agree to us going interest only while keeping our current residential mortgage? Or am I dreaming?! I know we'd have to ensure we were saving enough to ensure we could repay the capital over time and I have read the discussions on MSE about the perils of IO mortgages. Any views from those with experience of making this switch would be appreciated.

EAs visiting the property to give valuations tomorrow - will bear in mind to ask them why they think the market is going up, against the evidence of Nationwide data etc.!

Thanks for all the advice.