I don’t know if my flat is a good investment anymore- mortgage deal ending

FredAgain

I have a flat as an investment but my mortgage deal ends in November and I’m not sure it is a good investment anymore. 

In November my fixed rate deal ends and based on current calculators, it will go up by between £250 - £300 a month. Potentially more if the interest rates increase more by November. There is also £170 per month service charge I pay for the building. The flat is share of freehold. 

Once the mortgage increase happens, I am likely to make a loss each month on the flat, because costs will be more than the rental income I get. I’m really already at the highest rent I can charge my tenants. 

Up until now it has been a good investment because I make money each month, and the flat itself has increased in value. But I’m worried that come November, I will start losing money monthly, esp if repairs are needed. Also, in 2025, the reform bill will mean I will need to spend money to increase my flats EPC rating to rent it out, which I imagine will cost me a couple grand in insulation. This would all be fine if I was confident the flat will continue to increase in value and offset the losses, but, with property prices dropping a little this month, and interest rates rising again, I’m worried I’m on a sinking ship. I’m worried that nearer to 2025 my flat will lose value due to the EPC rating/new rules and general price drop. 

I currently support my family financially, I am not on the breadline and do have ample savings for emergencies, but I want to maximise my income and I’m not sure the flat will do that in the coming years. 

I’m wondering if selling now before prices drop and putting the money I’d get (30k ish, low equity) from it into savings is better. But I know there will be sales fees to consider. 

Long term it is very unlikely I will be able to afford a house, which my family need, and we cannot live in the flat - so it is purely a security investment really. Though my friend has said they believe that the flat will gain value and in 5 years I will have made more still on its value than I will lose. 

Sorry long post. Any advice is appreciated!!! 

_Penny_Dreadful

FredAgain said:

I have a flat as an investment but my mortgage deal ends in November and I’m not sure it is a good investment anymore. 

In November my fixed rate deal ends and based on current calculators, it will go up by between £250 - £300 a month. Potentially more if the interest rates increase more by November. There is also £170 per month service charge I pay for the building. The flat is share of freehold. 

Once the mortgage increase happens, I am likely to make a loss each month on the flat, because costs will be more than the rental income I get. I’m really already at the highest rent I can charge my tenants. 

Up until now it has been a good investment because I make money each month, and the flat itself has increased in value. But I’m worried that come November, I will start losing money monthly, esp if repairs are needed. Also, in 2025, the reform bill will mean I will need to spend money to increase my flats EPC rating to rent it out, which I imagine will cost me a couple grand in insulation. This would all be fine if I was confident the flat will continue to increase in value and offset the losses, but, with property prices dropping a little this month, and interest rates rising again, I’m worried I’m on a sinking ship. I’m worried that nearer to 2025 my flat will lose value due to the EPC rating/new rules and general price drop. 

I currently support my family financially, I am not on the breadline and do have ample savings for emergencies, but I want to maximise my income and I’m not sure the flat will do that in the coming years. 

I’m wondering if selling now before prices drop and putting the money I’d get (30k ish, low equity) from it into savings is better. But I know there will be sales fees to consider. 

Long term it is very unlikely I will be able to afford a house, which my family need, and we cannot live in the flat - so it is purely a security investment really. Though my friend has said they believe that the flat will gain value and in 5 years I will have made more still on its value than I will lose. 

Sorry long post. Any advice is appreciated!!! 

Is your friend’s name Mystic Meg? 

Where are you and your family living now if you want to buy a house? I’d always prioritise a home for me and mine over having investment properties. 

Some people are predicting interest rates will drop a bit next year. I take that with a pinch of salt as no one really knows. If you do decide to sell in November I’d start the eviction process in May/June. 

AskAsk

i would say that investment properties need to be held long term if you want to make money out of them.  often you have to subsidise the mortgage as the rent isn't enough to cover the mortgage, especially in the earlier years.  as time goes by, rents will increase and the mortgage payments will become less siginificant as rents increase over the years.

property value will innevitably go up over the long term, so unless something disastrous happens, you will get capital growth from the property over the long term.

so if you want to work out if the flat is still a good investment, you need to look over a 15 to 20 year period to work that out, and not just over the next couple of years.

[Deleted User]

Sell it to someone who wants to live there.

FredAgain

_Penny_Dreadful said:

FredAgain said:

I have a flat as an investment but my mortgage deal ends in November and I’m not sure it is a good investment anymore. 

In November my fixed rate deal ends and based on current calculators, it will go up by between £250 - £300 a month. Potentially more if the interest rates increase more by November. There is also £170 per month service charge I pay for the building. The flat is share of freehold. 

Once the mortgage increase happens, I am likely to make a loss each month on the flat, because costs will be more than the rental income I get. I’m really already at the highest rent I can charge my tenants. 

Up until now it has been a good investment because I make money each month, and the flat itself has increased in value. But I’m worried that come November, I will start losing money monthly, esp if repairs are needed. Also, in 2025, the reform bill will mean I will need to spend money to increase my flats EPC rating to rent it out, which I imagine will cost me a couple grand in insulation. This would all be fine if I was confident the flat will continue to increase in value and offset the losses, but, with property prices dropping a little this month, and interest rates rising again, I’m worried I’m on a sinking ship. I’m worried that nearer to 2025 my flat will lose value due to the EPC rating/new rules and general price drop. 

I currently support my family financially, I am not on the breadline and do have ample savings for emergencies, but I want to maximise my income and I’m not sure the flat will do that in the coming years. 

I’m wondering if selling now before prices drop and putting the money I’d get (30k ish, low equity) from it into savings is better. But I know there will be sales fees to consider. 

Long term it is very unlikely I will be able to afford a house, which my family need, and we cannot live in the flat - so it is purely a security investment really. Though my friend has said they believe that the flat will gain value and in 5 years I will have made more still on its value than I will lose. 

Sorry long post. Any advice is appreciated!!! 

Is your friend’s name Mystic Meg? 

Where are you and your family living now if you want to buy a house? I’d always prioritise a home for me and mine over having investment properties. 

Some people are predicting interest rates will drop a bit next year. I take that with a pinch of salt as no one really knows. If you do decide to sell in November I’d start the eviction process in May/June. 

My family and I are living in a house we rent, because we need 3 bedrooms, cannot afford to purchase a 3 bedroom place. So I wouldn’t say I’m prioritising an investment property over my family, rather I’m doing what I can, to support them. 

Thank you for your other input. 

FredAgain

[Deleted User] said:

Sell it to someone who wants to live there.

If you do not agree with the situation I am describing, I am not sure why you felt the need to reply to me 

Schwarzwald

You need to consider more factors than just monthly running costs.
expected asset appreciaton?
equity yield?
transaction costs to sell / buy into new asset class?
tax advantages?
what’s your alternate use of the equity? Stocks? Bonds? Savings account?

dimbo61

You will pay capital gains tax when you do sell.
If your going to lose money each month maybe time to look at your options 

Sarah1Mitty2

FredAgain said:

I have a flat as an investment but my mortgage deal ends in November and I’m not sure it is a good investment anymore. 

In November my fixed rate deal ends and based on current calculators, it will go up by between £250 - £300 a month. Potentially more if the interest rates increase more by November. There is also £170 per month service charge I pay for the building. The flat is share of freehold. 

Once the mortgage increase happens, I am likely to make a loss each month on the flat, because costs will be more than the rental income I get. I’m really already at the highest rent I can charge my tenants. 

Up until now it has been a good investment because I make money each month, and the flat itself has increased in value. But I’m worried that come November, I will start losing money monthly, esp if repairs are needed. Also, in 2025, the reform bill will mean I will need to spend money to increase my flats EPC rating to rent it out, which I imagine will cost me a couple grand in insulation. This would all be fine if I was confident the flat will continue to increase in value and offset the losses, but, with property prices dropping a little this month, and interest rates rising again, I’m worried I’m on a sinking ship. I’m worried that nearer to 2025 my flat will lose value due to the EPC rating/new rules and general price drop. 

I currently support my family financially, I am not on the breadline and do have ample savings for emergencies, but I want to maximise my income and I’m not sure the flat will do that in the coming years. 

I’m wondering if selling now before prices drop and putting the money I’d get (30k ish, low equity) from it into savings is better. But I know there will be sales fees to consider. 

Long term it is very unlikely I will be able to afford a house, which my family need, and we cannot live in the flat - so it is purely a security investment really. Though my friend has said they believe that the flat will gain value and in 5 years I will have made more still on its value than I will lose. 

Sorry long post. Any advice is appreciated!!! 

The time to sell was before rates started going up unfortunately, it will just be a headache now with low offers and down-valuations by lenders, if you give the tenant notice you might end up with an empty property and be in even more difficulty, the thing to concentrate on is getting your debt paid off as quickly as possible, could you raise extra money by taking on a second job for example?

FredAgain

Schwarzwald said:

You need to consider more factors than just monthly running costs.
expected asset appreciaton?
equity yield?
transaction costs to sell / buy into new asset class?
tax advantages?
what’s your alternate use of the equity? Stocks? Bonds? Savings account?

I have looked at transaction costs, CGT, tax etc, so I guess the thing I am struggling to get my head round is the potential expected asset appreciation- I think the high rates have me panicking rather than feeling confident in the long game. I am fairly young so am experiencing these particular issues for the first time!

FredAgain

Sarah1Mitty2 said:

FredAgain said:

I have a flat as an investment but my mortgage deal ends in November and I’m not sure it is a good investment anymore. 

In November my fixed rate deal ends and based on current calculators, it will go up by between £250 - £300 a month. Potentially more if the interest rates increase more by November. There is also £170 per month service charge I pay for the building. The flat is share of freehold. 

Once the mortgage increase happens, I am likely to make a loss each month on the flat, because costs will be more than the rental income I get. I’m really already at the highest rent I can charge my tenants. 

Up until now it has been a good investment because I make money each month, and the flat itself has increased in value. But I’m worried that come November, I will start losing money monthly, esp if repairs are needed. Also, in 2025, the reform bill will mean I will need to spend money to increase my flats EPC rating to rent it out, which I imagine will cost me a couple grand in insulation. This would all be fine if I was confident the flat will continue to increase in value and offset the losses, but, with property prices dropping a little this month, and interest rates rising again, I’m worried I’m on a sinking ship. I’m worried that nearer to 2025 my flat will lose value due to the EPC rating/new rules and general price drop. 

I currently support my family financially, I am not on the breadline and do have ample savings for emergencies, but I want to maximise my income and I’m not sure the flat will do that in the coming years. 

I’m wondering if selling now before prices drop and putting the money I’d get (30k ish, low equity) from it into savings is better. But I know there will be sales fees to consider. 

Long term it is very unlikely I will be able to afford a house, which my family need, and we cannot live in the flat - so it is purely a security investment really. Though my friend has said they believe that the flat will gain value and in 5 years I will have made more still on its value than I will lose. 

Sorry long post. Any advice is appreciated!!! 

The time to sell was before rates started going up unfortunately, it will just be a headache now with low offers and down-valuations by lenders, if you give the tenant notice you might end up with an empty property and be in even more difficulty, the thing to concentrate on is getting your debt paid off as quickly as possible, could you raise extra money by taking on a second job for example?

Thank you, I had not actually thought about the potential reality of buyers not being available and the fact the flat could be left void. Which of course would make for the biggest loss of money. Unfortunately second job not an option as I do a 45 hour week in a tricky role and I think taking on anything else would kill me off! 

I perhaps need to consider whether another fixed rate deal, locked in ahead of November, or staying with tracker would give me the best outcome for payments