BTL sale or not?

spooky12

Looking for some advise on what people would choose in this situation.

While in the panic of remortgaging our residential mortgage shortly after the shambolic mini-budget, we seem to be “lucky” enough to bag one thats only double our previous rate… So we naturally looked to all of our assets to see if we can make financial life easier, we own a BTL property that was my first home that nets us £5,500 per annum while rented, and is a very stable income.  

We have had an offer on that property that will leave us £84k in clear cash after all mortgages, expenses and fees have been paid, we are considering paying off a chunk of our residential mortgage with this cash, which is currently £238k 

So in short, in the current markets, is it better to have a larger residential mortgage of £238k @ 4% over 21years with a BTL in the background earning £5,500 P/A , Or a £154k mortgage @ 4% over 21years with no BTL ?

What is the more sensible thing to do?, the selling of the property makes no difference to our monthly income/outgoings, but due to the lower repayments, the biggest gain is the amount of interest we won't have to pay on our residential, compared to the income we can achieve over say 5 years. But is this a short sighted view of things?

All opinions welcome 

Gycraig

How long do you have left on your btl mortgage and how much will it net you when you remortgage based on current rates ?. 

I was going to rent my house out and buy a new one however with interest rates increasing the mortgage on new property jumped from 600 to 1080 and the mortgage on the one I’d rent out went from like 250 to 500. So 800 quid rose to 1600 a month and rents have barely moved.

capital growth may make it worth it long term but lots of landlords are selling up due to this, mortgages have basically doubled. If you have a loooonnnnggg fix on btl mortgage wait it out 

anselld

Well on headline figures the 84k equity would need to make you 6.5% in the bank to beat the BTL and it is only going to make 4% offsetting your resi mortgage so that would favour keeping the BTL. 

After that it is crystal ball time - if you think there will be longer term capital growth which could get you a better price in future, or the opposite. 

What about CGT liability on sale of the BTL?

housebuyer143

It's really down to how much the BTL nets you. You need to be stressing it at 7% to be safe at the moment, so if the figures do not work on that loan you have with the new higher rates, then you need to get rid of it before the time comes to remortgage.

silvercar

Have you planned for retirement? If you can cope with the short term extra mortgage costs then the idea of a mortgage free BTL income stream in retirement looks attractive. 

Stubod

...for me, I would take the money and run. Interest rates are getting higher, and property prices are getting lower??

Grumpy_chap

spooky12 said:

Looking for some advise on what people would choose in this situation.

While in the panic of remortgaging our residential mortgage shortly after the shambolic mini-budget, we seem to be “lucky” enough to bag one thats only double our previous rate… So we naturally looked to all of our assets to see if we can make financial life easier, we own a BTL property that was my first home that nets us £5,500 per annum while rented, and is a very stable income.  

We have had an offer on that property that will leave us £84k in clear cash after all mortgages, expenses and fees have been paid, we are considering paying off a chunk of our residential mortgage with this cash, which is currently £238k 

So in short, in the current markets, is it better to have a larger residential mortgage of £238k @ 4% over 21years with a BTL in the background earning £5,500 P/A , Or a £154k mortgage @ 4% over 21years with no BTL ?

What is the more sensible thing to do?, the selling of the property makes no difference to our monthly income/outgoings, but due to the lower repayments, the biggest gain is the amount of interest we won't have to pay on our residential, compared to the income we can achieve over say 5 years. But is this a short sighted view of things?

All opinions welcome 

I know what I would do, but what I would do is largely irrelevant.

There are two ways of looking at this:

Currently, you have a £238k mortgage on your home plus a BTL generating £5.5k income

If you accept the offer on the BTL, you will have a £238k mortgage on your home plus £84k in cash.
The question is what would you do then with the £84k?

• Would you use the £84k to but a BTL (or any other investment) that generates £5.5k income plus possible capital growth (or loss)?
• Would you use the £84k to reduce the £238k mortgage down to £154k?
• Would you use the £84k to spend on something frivolous or depreciating (holidays / cars)?

This is a money-saving site so not many people will recommend the spend option, and that does not seem to be in the OP's consideration as a viable choice for them

The other consideration is how the offer on the BTL came about.  Was this an unsolicited offer?  Is this at a premium above open market rate?

The largely irrelevant what I would do is to keep the BTL.

ProDave

It also depends on your age.  I am retiring early next year and moving from "accumulating" to "spending" so I would (indeed I want to) sell the BTL.

SusieT

You have good advice above, I am currently selling my BTL, but my situation will be different to you.  If you sell it you will need to look at CGT and it is possibly not going to co,mplete until the next tax year, so the allowance will be less. 
Also with the fact that you have just renewed the mortgage you could have a big early repayment fee charged on whatever you repay over any allowance. 

spooky12

Thanks for all the replies.

The BTL is currently fixed at 2.74% until 6/24. - it does have a ERC but that has been accounted for in the £84k.

We are not being charged CGT as we are under that threshold currently, Its a cash offer and should be completed before April when the CGT threshold is due to drop, fingers crossed.

Looking at current rates, if we needed to remortgage now its 5.29% which will net us £1,090 p/a. So stress testing at 7% will leave us - £375 p/a. So neither of these options are desirable!

I am due to retire in 7 years, and this was always going to be an income stream, but if I have to wait 3-5 years for it to start recouping its losses it will change my plans significantly.  

housebuyer143

spooky12 said:

Thanks for all the replies.

The BTL is currently fixed at 2.74% until 6/24. - it does have a ERC but that has been accounted for in the £84k.

We are not being charged CGT as we are under that threshold currently, Its a cash offer and should be completed before April when the CGT threshold is due to drop, fingers crossed.

Looking at current rates, if we needed to remortgage now its 5.29% which will net us £1,090 p/a. So stress testing at 7% will leave us - £375 p/a. So neither of these options are desirable!

I am due to retire in 7 years, and this was always going to be an income stream, but if I have to wait 3-5 years for it to start recouping its losses it will change my plans significantly.  

In this case I would sell it, as you are going to find yourself unable to remortgage at that current loan based on your rent with a different lender in future, that is not enough profit. Plus the rates are almost certainly going up be above 2.7% and then again your profit is slashed.

I personally would take the money now and either pay down your residential or invest it elsewhere.