Sell or Let?

decadentlywasted

Hi everyone,

I have a dilemma regarding a property that I own. My partner and I recently bought a house with a £160k mortgage (90%). I also have a property that is in my name, with £100k of equity in it. We originally planned to let this property out and look upon it as either a top up pension fund or a means of partial retirement in 10 or so years time.

If we let my house out, the rent would cover all the bills and leave around £150 a month left over. However, looking through some figures at the weekend, if we were to sell my house and use the equity to repay part of the new mortgage, say £80k, we could save around £4000 in interest each year (5% fixed rate for 2 years). So, if we went with the letting option, my house would have to appreciate by at least £4000 a year to make it worthwhile.

Pros of letting: capital growth.
Cons of letting: responsibility, maintenance, capital growth not certain.

Pros of selling: reduce current mortgage, maybe pay off current mortgage early (by overpaying), free up money to renovate new house, financial flexibility, no landlord’s responsibilities.
Cons of selling: need a plan B to fund semi retirement!


Actually, looking at the list above, I may have answered my own question! Disregarding considerations about “Who’s putting what into the new house” and “Think about what will happen if you split up – how will the assets be divided?”, my dilemma is this: what’s the best thing to do with the equity in my house – leave it to grow or cash in and reduce the new mortgage? My reason for asking this is that originally I couldn’t see any downside to letting, but now I’m struggling to see any reason not to cash in and reduce our outgiongs. Maybe it's all to do with risk and whether I want to look long terms or short term? I feel that I may not be seeing the full picture at the moment so any comments or opinions would be welcome.

sanfrancisco

Even if you didnt reduce your ourgoings, but put the 100k from the sale just in regular savings ac's, you would get 5% per year = £5k. You say by letting you will make 150 per month = 1800 per year. Its a no brainer!!! Low risk peaceful life.

Generali

According to your figures above, you'll make £150pm less voids and maintenance if you keep it or save £333pm if you sell with no risk, no voids and no effort.

I'd sell on those figures: it's only worth keeping if you believe that your old house will rise in value by about £400 per month or so which I shouldn't think is likely unless you've got a very valuable place or it's in prime London. You may disagree of course.

dealornodeal_3

IMHO If it was me I would sell, and buy another property to rent out; once the market has re-adjusted!

RabbitMad

I've just done the figures for my place as the tenants are moving out. I'm now going to sell. Over the corse of the year i've been renting it out I will have a made 5.5% if I get 165K for the property. Had I had that money to reduce my own mortgage I'd have saved 4.5% interest.

Therefore not a lot in it but there were unquantifiable benefits from letting to buy (reduced moving costs and stress as we had both houses at once, possibly cheaper purchase price as we were proceedable, getting the house we wanted with out having to wait to sell, richer for the "experience" of being a landlord etc)

If I didn't have my own mortgage however ...

Doozergirl

Get your new mortgage paid off as soon as you can and then you'll have plenty of disposable income to start investing in whatever way you see fit.

I know that house prices have risen drastically but considering that they've come so far, I wouldn't bet on them going too much further in the medium term.

decadentlywasted

Thanks for the input - you've all said pretty much what I was thinking. I don't understand why I didn't see it from this perspective in the first place. Better late than never though I guess! I think I may have got hung up on what the house may be worth in the future and not thought about the costs involved while I'm waiting for prices to rise.

Mrs_pbradley936

You do know that you can claim tax relief on any interest you pay on a buy to let I hope. It does not matter which property the loan is secured on. That might make a difference to your plans.

decadentlywasted

At the risk of appearing ignorant, how does that work then? Presumably I wouldn't have to pay any tax on the interest part of the repayments for the house, which would increase the £150 monthly profit?

Rimo2021

decadentlywasted wrote: »

At the risk of appearing ignorant, how does that work then? Presumably I wouldn't have to pay any tax on the interest part of the repayments for the house, which would increase the £150 monthly profit?

Take the total rental income, deduct expenses (including mortgage interest and 10% wear and tear allowance, agant fees, mileage if any etc) pay tax on the remaining amount which is your profit. If it's a negative amount either sell up or else carry the loss forward on your tax return as it can be set against any future profit you might make..

Mrs_pbradley936

Rimo2021 wrote: »

Take the total rental income, deduct expenses (including mortgage interest and 10% wear and tear allowance, agant fees, mileage if any etc) pay tax on the remaining amount which is your profit. If it's a negative amount either sell up or else carry the loss forward on your tax return as it can be set against any future profit you might make..

That says it all and I have nothing to add. On the other side of the coin you should be adding your rent to your income when you declare your taxes.