Recently married - should we keep our properties

Victim_Of_Fate

Hi all, this is my first post on MSE, as I was finding it really hard to find the information I was looking for, though I am sure it must be a fairly common conundrum. Apologies if this is a subject that has been done to death by the regulars on this forum.

My girlfriend and I both owned and lived in our own flats in London, splitting our time between the two. When we got engaged, we put both flats up for rent on a short-term basis with consent-to-let from our respective mortgage providers, and are using the rental income to rent a slightly larger flat, but the plan has always been to eventually buy a house.

Shortly after this we got married. In general, are we better off in the long-term:

Keeping both flats and renting out with a BTL mortgage and trying to buy a third property outright (the rental income would likely barely cover the mortgage on either flat, but we would now own three properties in London, and would presumably benefit from any increase in house prices). If we went this route, how would we go about getting a deposit for a house - would this have to be our savings, or would people normally do this via the equity on their existing properties?

Keep one flat and rent out with a BTL mortgage and use the sale of the other as a deposit for a house?

Just sell both properties and buy a house using the money.

Neither of us know much about property, and the third option would probably be the easiest, but we don't want to do this and end up kicking ourselves for selling property which we could have profited from down the line.

Does it completely depend on the properties and mortgages we have, or is there a general rule of thumb in situations like these?

Thanks for any help, and sorry if this seems like a stupid or impossible question.

Crashy_Time

Try selling them, see if you can get a buyer at a price you like, if not keep them, but be prepared for London to be hit hard if interest rates rise or Brexit goes "bad", or if people in general just start waking up to the fact that property is a credit driven Ponzi scheme (they already are) If renting them out be aware that tax rules have changed for landlords.

Victim_Of_Fate

Thanks Crashy Time. If we sold them, it would give us the money to buy a nice family home in the suburbs, but I think we are both conscious of the fact that we could wake up in 20 years time and regret selling two flats in inner London. Obviously, nobody knows where the market will go over that time, but I just wanted to see if there was a general consensus of opinion on a knowledgeable forum like this of either "What are you, crazy?! Don't sell property in London if you can find a way to keep it!" or "What are you, crazy?! Don't stretch yourselves to three properties unless you can make a profit on the rental income after tax!"

economic

last year i sold my kilburn flat (zone 2) to buy in highgate (zone 3). i dont regret it so far but its only been a year. i was considering letting out the kilburn flat however the numbers just didnt seem to work. and i wasnt too confident on the area gentrifying so i sold.

i would only consider buying a btl if the income numbers worked. otherwise its just a punt on capital appreciation which is never guaranteed.

Crashy_Time

Victim_Of_Fate wrote: »

Thanks Crashy Time. If we sold them, it would give us the money to buy a nice family home in the suburbs, but I think we are both conscious of the fact that we could wake up in 20 years time and regret selling two flats in inner London. Obviously, nobody knows where the market will go over that time, but I just wanted to see if there was a general consensus of opinion on a knowledgeable forum like this of either "What are you, crazy?! Don't sell property in London if you can find a way to keep it!" or "What are you, crazy?! Don't stretch yourselves to three properties unless you can make a profit on the rental income after tax!"

Hmmm...sounds like you are confusing an illiquid asset like property (that relies on sentiment, interest rates, credit availability, inner London not going completely Mad Max etc.) with a more liquid asset like a global equities tracker fund or something, the second one is a better vehicle for making 20 year bets IMO, certainly at this stage in the property cycle. The sweet spot for making good rental income is behind us for most landlords I fear.

Victim_Of_Fate

Crashy_Time wrote: »

Hmmm...sounds like you are confusing an illiquid asset like property (that relies on sentiment, interest rates, credit availability, inner London not going completely Mad Max etc.) with a more liquid asset like a global equities tracker fund or something, the second one is a better vehicle for making 20 year bets IMO, certainly at this stage in the property cycle. The sweet spot for making good rental income is behind us for most landlords I fear.

I think it's more that we both have parents who lived in modest homes in the suburbs and forewent the opportunity to buy second properties in middle-age for the sake of an easy life, only to wake up at 65 thinking "Why the hell didn't I buy that flat in Wimbledon when I had the chance?" Neither of us wants to regret selling a Zone 2/3 flat in 20 years' time if property prices continue to rise, but at the same time, neither of us has any particular aspiration to be a landlord. Personally, I'm erring on the side of just selling them both and buying a nice house to live in.

Pixie5740

Do the flats at least wipe their own faces in terms of net yield? How long until your rental income makes up for having to pay an additional 3% SDLT when you buy the home you'll live in?

Victim_Of_Fate

Pixie5740 wrote: »

Do the flats at least wipe their own faces in terms of net yield? How long until your rental income makes up for having to pay an additional 3% SDLT when you buy the home you'll live in?

Embarrassed to say, I'm not even sure what that means. Does that refer to the amount of rental income I would get as a percentage of my mortgage, versus the cost of the mortgage? Based on my current consent-to-let mortgage (which I would assume is cheaper than a BTL mortgage), the rental income would barely cover the cost of the mortgage, so actual rental profit would be minimal.

The only advantage would be keeping hold of a property which might rise in value, but the sense I'm getting is that most of you would advise against keeping a property in order to profit from increasing house prices alone?

MonkeyDr

My partner and I were in a similar situation. In the end we kept my flat and sold his, and bought a house together. We could possibly have just about taken enough equity out from both (with bigger mortgages) to use as deposit for our house, but things would have been tight.

Our thinking was:
- at low LTV the flat pays for itself after costs, with a decent margin in case of problems, so we don't have to worry about it too much from that point of view (you should know this for your flats, and take into account the new changes in btl tax)
- a good sized flat in a bustling and well-connected bit of London is likely to be a good asset in the long-term
- but keeping 2 would have meant that pretty much all of our savings / investments were in property, and very illiquid
- and keeping 2 doubles the hassle. I don't particularly enjoy being a landlord, or dealing with house maintenance at all, let alone in an extra property. Maybe you do.

There's no right / wrong / usual way to do it. I would start from thinking about where you actually want to live now, and can you comfortably afford to buy what you want there and keep one / both of your flats?

It really sounds like you can't, tbh. If rental income barely covers the cost of the mortgage, then you must be running at a loss each month after income tax, plus all the costs associated with letting. Although maybe your current mortgage is repayment and you could switch to an IO BTL one?

Kevie192

BTL mortgages usually require a 25% deposit and for the rent to be 145% of the mortgage payment.

Could you satisfy all of this and still have enough equity to remove in order to buy another house?

If not, then it's not really an option. I don't want to be unkind but you seem utterly clueless when it comes to finances which really isn't a good start at all. Do you think you can happily comply with all of the regulations around letting? What happens if tenants stop paying and you have to pay for 3 mortgages from your salaries for an extended period of time? Can you do that?

Victim_Of_Fate

Kevie192 wrote: »

BTL mortgages usually require a 25% deposit and for the rent to be 145% of the mortgage payment.

Could you satisfy all of this and still have enough equity to remove in order to buy another house?

If not, then it's not really an option. I don't want to be unkind but you seem utterly clueless when it comes to finances which really isn't a good start at all. Do you think you can happily comply with all of the regulations around letting? What happens if tenants stop paying and you have to pay for 3 mortgages from your salaries for an extended period of time? Can you do that?

Thanks, no offence taken. I'll happily admit to being fairly clueless - if I wasn't, I probably wouldn't be asking for advice on an internet forum I haven't posted on before. At the same time, I like to think I'm a fairly smart cookie, and will be able to understand the issues if they're explained to me, which is kind of why I'm here. Of course, we could just say "we don't know much about finances, so let's not bother learning and just buy one house to live in", but would that really be our best option?

Just to give you a quick summary of the finances around our two current properties:

Average mortgage: £180k
Average value of properties: £460k
Average monthly mortgage payment (repayment, consumer mortgage): £1k
Average monthly rent (excluding any taxes and fees): £1.3k
Total monthly income for both of us (after tax): £9.5k

So if a BTL mortgage would require the monthly rental income to be at least 45% higher than the mortgage, would it be a complete non-starter, or would we have options that you can think of? We are planning to go an talk to a financial adviser, but I had head that this forum was helpful in advising the financially clueless like us.