Rent? Sell? New mortgage?

Jackboy

Hi, I'm currently a homeowner (as a single person) with a circa £40k mortgage left on a very low (1.7%) interest rate until 2025.

I also have savings of a similar value.

I'm looking at purchasing a new home with my partner.

I was thinking of using £25k of savings to put down as a deposit on the new mortgage. Or would I be better off paying off the mortgage on the current property?

Are there any other options?

At the moment the plan is to rent out my current home for the next couple of years (I'm aware that I'd need to inform my current mortgage provider).

I'm in my early fifties if that makes any difference.

Any advice would be welcome...

Thank you

Mark_d

Paying off your current mortgage will allow you to put down a much bigger deposit against the home you're wanting to buy.  This would hopefully put you into a better LTV bracket and result in a lower interest rate.  I think this strategy would also be better in terms of capital gains tax from when you eventually sell your current property.

However you currently have a very low rate on your current mortgage and you would likely have a significant early redemption penalty.  I think you really need to crunch the numbers and decide if you want to get involved with property letting.

amanda1024

You’d need permission from your current mortgage lender, not just to inform them. They might say no, that you have to switch to a buy-to-let mortgage. There are also some upfront costs to being a landlord, which might make it less viable for a short period.

Also check the situation with stamp duty and second homes. That might tip the balance in favour of selling your current home when you buy the new one - plus I think you’d avoid capital gains tax.

You could even see if you can port your current mortgage to the new property. That way you’d be able to make the most of the low rate. 

Hoenir

Becoming a LL isn't for everyone. Is there any particular reason for holding onto the property. Pensions are a far more tax efficient way of saving for retirement. 

Jackboy

Mark_d said:

Paying off your current mortgage will allow you to put down a much bigger deposit against the home you're wanting to buy.  This would hopefully put you into a better LTV bracket and result in a lower interest rate.  I think this strategy would also be better in terms of capital gains tax from when you eventually sell your current property.

However you currently have a very low rate on your current mortgage and you would likely have a significant early redemption penalty.  I think you really need to crunch the numbers and decide if you want to get involved with property letting.

Thanks for the reply.

If I were to pay off my current mortgage I'd have no savings left for a deposit (although my partner would have £25k to put down)

I hadn't thought about capital gains tax, I'll look into that now...

Jackboy

amanda1024 said:

You’d need permission from your current mortgage lender, not just to inform them. They might say no, that you have to switch to a buy-to-let mortgage. There are also some upfront costs to being a landlord, which might make it less viable for a short period.

Also check the situation with stamp duty and second homes. That might tip the balance in favour of selling your current home when you buy the new one - plus I think you’d avoid capital gains tax.

You could even see if you can port your current mortgage to the new property. That way you’d be able to make the most of the low rate. 

Thank you, I'll have to have a look at the stamp duty rules as well as capital gains tax.

Thank you

Jackboy

Hoenir said:

Becoming a LL isn't for everyone. Is there any particular reason for holding onto the property. Pensions are a far more tax efficient way of saving for retirement. 

Not particularly. It's was the family home (before my children moved out) and I would like to leave it for them (eventually!) or for retirement as you've said. Plus there's the income it would generate.

I've got a few things to look at and think about now though.

Thank you