Mortgage Free Dilemma - Pay off or Rent

sun8eam

Hi,

I do hope someone can help me please with my mortgage free dilemma.

I own two properties; a 2-bed maisonette and also a 3-bed terraced house. I have mortgages on both and have the intention of either selling or renting out the maisonette for a period of time.

I owe £45K on the maisonette and £155K approx on the other property.

The maisonette has an approximate value of £175-£185K, so if I sell I do have the possibility of pretty much paying off my mortgage on the other house. However, I have been advised by friends and family that it might be better for me to rent out the property as an ongoing form of income and then to subsequently make over payments to my larger mortgage in order to pay it off quickly over say the next 8-10 years. I'm in my mid-40's.

If anyone can please advise if I would be better served to get rid of my smaller house and pay off the other one and be completely free of mortgage debt or keep to it and pay off the mortgages over the longer term.

Any advice would be greatly received.

Thanks in advance!

sun8eam

[threadbanner]box[/threadbanner]

hastie

Ideally it is better to have your debt against the property you are renting out.
You usually need a buy to let mortgage to lease out the property. I would loan up your BTL property to 70% and use the ammount additional to your existing ammount owed to pay off some of your home mortgage.
The reason for this is that your BTL mortgage will be offset against the profit you make from renting out the property

kingster2069

I agree with sun8eam, I think you will be liable for Capital Gain Tax on any profit made from renting out your maisonette and rise in the value of the property. To reduce this profit you want to borrow as much as possible from the maisonette mortgage company.
The only proviso is if you mortgage rates a vastly different, you didn't mention what your second property is worth or what rate and how long the rate lasts. I would say moving some equity into your second home might help low your Loan to Value (LTV) which could help secure a better mortgage rate.
It seems a nice dilemma to me, good luck on your MF journey, seems it could be a very short one depending on what route you choose.

sun8eam

Thanks for your replies (Hastie & Kingster 2069) - much appreciated!

The maisonette is with Nationwide until November of this year @5.64% (Repayment). The 2nd property is worth £240K (approx). The loan for this is £155K with C&G, this is a tracker at a very low rate at the moment (like some lucky others) again ending this November.

The more I think about it, the more I really want to sell the smaller house and move the profits to pay off the C&G loan on the 2nd one. I don't think that I wlll be liable for CGT as the property will be covered by principal private residence relief for the period that I resided there as my main residence (10 years) plus the last three years of ownership) & then potentially claim lettings relief on the portion of the gain, which will wipe out the gain entirely, meaning there is no tax liability.

Cheers,

sun8eam