Moving overseas..Sell home, buy smaller and rent

Nickcole

I am moving overseas for 3-6 years with work. Not sure what to do with my house. Should I rent it out and slowly pay off some of the mortgage or should I sell it. If I sold it I would look to buy a smaller property mortgage free and then rent that out. We are not sure we want to move back into our current house. Anyone got any thoughts or experiences to pro and cons of selling up and buying smaller to rent out.

Thanks.

JenIttels

Nickcole wrote: »

I am moving overseas for 3-6 years with work. Not sure what to do with my house. Should I rent it out and slowly pay off some of the mortgage or should I sell it. If I sold it I would look to buy a smaller property mortgage free and then rent that out. We are not sure we want to move back into our current house. Anyone got any thoughts or experiences to pro and cons of selling up and buying smaller to rent out.

Thanks.

We did this but all circumstances are different. We have a small flat that we were thinking about selling even before we got the offer abroad since its too small for us. We found out we get help with housing whilst abroad, worked out our finances to see if we could afford the mortgage and all the costs overseas. We could manage it and so we decided to keep the flat and rent it out if possible (we decided this since we'd not had the place for long so the buying/selling fees were silly). We got lucky and it has been rented out to good tenants for 6 out of the 6.5 years we've been overseas.

The rent doesn't quite cover the mortgage and we pay a management company (that we trust) 15% of the rent to manage it. We also had to get it ready for renting with gas safety certs etc which had a cost associated and also we have to pay for the occasional repair (we had to have new windows installed at one point - it was a high cost but we knew the flat was probably going to need them sooner or later but normally costs are lower to re-certify, repaint etc).

We haven't bought abroad due to the flat, the terrible local market (selling is really tough) and the fact that we have no credit over here but our rent, utilities etc are fine. Luckily we've had better financial luck (promotions, jobs, lower living costs etc) than we anticipated so we've also over paid the mortgage and managed to make a real dent in it which is helping set us up for our return to the UK in a year or so when we'll need to buy a new house. That being said the flat has lost some value since we moved out just as the market started falling apart.

In summary (gosh, sorry for the wall of text), if I were you I'd try and predict finances for the coming years and err on the side that your house may not rent (this happened to one of our colleagues but they had almost no mortgage and grown up kids/friendly neighbours to check on the empty house). I would personally be wary about selling and buying at this time just because of all the fees associated with it for a place you won't live in - would it be better to sell and dump the money in savings instead?

I'm vaguely aware that this isn't much help in your specific question but I hope that it gives you some pros and cons about the situation. It all rather depends on the details about your current place, buy-to-let mortgages, rental markets, mortgages etc etc!

Good luck!

steveyg_2

I would definitely sell and buy the smaller property mortgage free and rent it out. There are of course a few variables that Jenittels alluded to, however rents now are crazy high that its even becoming a political issue with the lack of credit for mortgages and all. Vis a vis renting out your current house when you're not there means maybe hiring a management company that eats into rent income that might not even cover the mortgage before they take their cut, let alone after. So get the lump sum from the sale, buy a cheaper house, that still leaves you with the difference then you rent it out with no mortgage to pay. Happy days.

Yorkie1

For that length of time, you should change your mortgage to a Buy To Let product. The interest rates are typically higher than a residential mortgage. As a general rule, you need to have maximum 75% LTV, and the rent should be 125% cover the mortgage interest at 6% interest rate.

You'd also need to pay a management company to look after the let - probably 10%+?

So, first of all do these sums. Do they add up? If not, then selling up may well be the best thing to do.

If so, do you want to be LLs? Even if you have a management company, the ultimate responsibility for the property compliance is down to you. This post has lots of useful info:
http://forums.moneysavingexpert.com/showpost.php?p=41160642&postcount=12

Finally, look up the HMRC non-resident LL scheme re. tax on your income.

G_M

You need to consider tax.

1) you can offset the interest element of your mortgage payments against your tax liability, so this may meen keeping the larger property, with a mortgage, ismore cost-effective than a smaller, mortgage-free property. Do the maths!

2) if you are abroad you must either
* use a UK agent/friend to collect rent and deduct tax
* use a UK agent/friend to collect rent and get HMRC permission to receive rent in full (and then pay any tax later)
* collect rent yourself directly, in full, HMRC permission to receive rent in full (and then pay any tax later)
* collect rent yourself but have the tenant deduct/pay tax

See HMRC (Non Resident [= overseas] Landlord Scheme)

And lots more here.