To Sell or Not to Sell

Cameron1590_2

Hello MSEs,

I am in a very fortunate position and inherited a lovely small detached cottage close to the seaside. 

The property is let as a holiday let and earns approx. £3k profit per year (pre-tax).  

Our main home has an outstanding mortgage of £145k (currently at 4%) but the deal ends in June 2024. 

We don’t really use the holiday let (maybe one or two weekends a year) and have wondered whether we’d be better off selling it and clearing our mortgage. The holiday home is worth ~£200k and is mortgage free. 

I think logically it probably makes complete sense as at the moment our mortgage is £620 per month (£7440 a year) and would give us more financial freedom vs the income received from the holiday let. 

Just wondering if I’m missing something obvious in my crude calculations? 

Thanks,

C

JGB1955

Sounds a very sensible plan to me - 

•  At the moment the cottage nets between £1,800 and £2,400 p.a. (40%/20% tax). 
•  That works out at 0.9%/1.2%.
• Your new mortgage will be at a substantially higher rate.
• The £200,000 could earn up to £12,000 p.a. (gross) if in Fixed Rate Bonds.  (£9,600/£7,200, ignoring PSA)
•  You could be £7200/£5400 better off p.a. if you pay off the mortgage.  That's a lot of holidays paid for!

However....

•  Take into account the CGT you will have to pay upon sale.

Brie

Sell the cottage, pay off the mortgage, bank anything left over.  The money you're NOT paying towards a mortgage can be put towards a lovely holiday at the seaside a couple of times a year and you won't be tied to one location.