Selling 2 properties to buy one bigger one?

Gregor23

Hi,

I know that there is no right answer to this, but i'd appreciate others opinions. My wife and i both own a flat. We live in one and rent out the other. Both have some equity in them (about £200k in total) and the rental property makes some profit.

We've just had a baby so want to buy a house (about £550k), which will be more expensive than either flat by some way.

So our choices are:

A: To keep renting one, sell one and try to stretch to get a bigger mortgage but know we have the rental property as an investment

B: Sell both and use the equity to get a bigger house and a smaller mortgage.

Any opinions?

Reaper

Whatever you do work out whether you can afford to keep 2 properties based on current interest rates. At some point rates will have to go up to counter inflation. So if you can't afford another 5% on your mortgage don't do it.

As you say there is no right answer, it depends what you think property prices and rental rates will do. Personally I am very debt-adverse (and bearish on property prices) and would sell up to get a new place with little or no mortgage, but you may feel differently.

Marco12452

Choosing option B would seem to make sense.
Your money would still be invested in property and earning through appreciation (eventually), whereas the premuim from the rented property could be outstripped by the extra interest on the larger mortgage payments if you keep one flat.
All comes down to a personal decision though, as everyones situation differs around other aspects of life too.

kidmugsy

An owner-occupied house is free of Capital Gains Tax, so you gain if house prices rise.
A smaller mortgage would be to your advantage if interest rates rise (and then probably house prices fall).

So B looks likely to be the better bet: it has the potential for being better whichever way house prices move.