Should I sell? need your expert advice...

SallySugar

Hi there,
I wondered if all you lovely people could help me make a decision?

We currently are living in a 3 bed semi worth £145k with a £110 repayment mortgage on it (tracker base rate +0.34%). We also have a second property worth £175k with a £100k interest only mortgage (tracker base rate +0.34%) which we are renting out.

On the 2nd property we are renting it out for £550 pcm, the current mortgage is due to end in July and we will have to move it to a BTL mortgage or SVR with current lender Lloyds. approx £625pcm repayment.

Within the next years we are looking to move to a family home and can go up to about £250k. We are currently overpaying mortgage and saving up to £1k per month in investments.

With the current high house prices and increasing interest rates do you think we would be better of selling 2nd property (as would be taking a loss on rent) now and putting the equity into our residential home? Would we also be better off buying bigger residential house now or later?

Thanks for any advice you can offer

Sally

Lipstick_2

Hi Sally, see if you can get the BTL assessed by a number of letting agents as things are at a critical time.

Ask yourself the following questions:
1) Are you getting the right rental income?
2) Could you get a better BTL interest rate?

Being in the mortgage broker market full time, we guide our clients about quandaries like these all the time.

I'm sure that it will be a lot clearer for you when you get the answers to these questions

Hope this helps.

Lipstick

meanmachine_2

You need to investigate what rate you can get on a BTL mortgage.

I'm sure it would be less than the SVR.

It's a question of whether you envisage future capital gains in your area, whether the tenants are a hassle, and what money you're making after tax, agency fees, maintenance, repairs and so on.

There could also be CGT implications to selling.

If you're actually making a loss and need the money for something else, you've already answered your question.

SallySugar

Thanks Lipstick, we are seeing a mortgage adviser on weds this week to see what BTL rates are available. There is not much scope to increase the rent as there are a number of similar rental properties in this area and this is the going rate.

We are wondering if this is the best time to release the equity from property number 2 and I'm not sure of the best way to do this.

Lipstick_2

Sally, looking at your situation, it would seem that you have been in a break even situation for a while and you have been saved by the escalation of your property value.

As interest rates start to increase and property prices slow, the risk ratio is getting worse for you.

Will you have a capital gains tax liability if you sell?

My gut feeling tells me to sell but it's your shout.

Lipstick

SallySugar

Thanks again Lipstick, the property has been rented out for 1.5yrs and in the beginning we were making a slight gain on the rent but the capital gain in that time has been approx 15k. The 2nd property was my residential home and I have already taken out some of the equity when I moved into the one I am now in so if I sold at the moment I would not be liable for CGT. My gut feel is to sell the rented one but am grateful for others opinions.

Thanks again

Sally