Should I sell 2nd home?

wollsmeth

Hello,
Little bit of background first. About 20 years ago my wife and I were looking to buy our next home. We were going to sell the one we were currently living in to help fund the purchase the next house.
We were messed around a lot with potential buyers. In the end we decided not to sell it after my brother offered to rent it off me.
We agreed that he would pay £100 per week which would cover the mortgage. The mortgage cleared 5 years ago and he still pays the £100 per week. I'm aware I could have charged a lot more,but he's family.
Our dilemma is whether to sell it to pay off the mortgage on our current property or carry on as we are?
The house valuation is £180,000.
Outstanding mortgage on current property is £139,000.
We pay £1720 a month which includes a £500 over payment. Interest rate is 1.2% which finishes July 2026

What would you do?

Thank you for reading this.

Keep_pedalling

I would either get your brother to pay a more reasonable amount of rent or sell it. You need to factor in the amount of CGT you are going to need to pay on the increase in value.

MWT

Just as an opening comment, if the interest rate is only 1.2% why are you overpaying instead of putting the overpayment into an interest bearing account?

If we ignore the fact that your brother is living there then logically you would sell it, if not immediately, certainly before your fix expires given the low rental return.

Is your brother in a position to move out, or even just pay the market rent?

Hoenir

We agreed that he would pay £100 per week which would cover the mortgage. The mortgage cleared 5 years ago and he still pays the £100 per week. I'm aware I could have charged a lot more,but he's family.

I'd be concerned that the HMRC will ultimately detect this. Don't underestimate their powers. 20 years in cases of  deliberate tax evasion.  You are going to have declare a Capital Gins Tax liability when you sell it. 

FlorayG

My first question would be, is your brother happy and able to move out?

grumpy_codger

wollsmeth said:

Outstanding mortgage on current property is £139,000.
We pay £1720 a month which includes a £500 over payment. Interest rate is 1.2% which finishes July 2026

Mortgage currently costs you £139000*1.2%=£1668 p.a.

You get £5200 p.a. rent, but have to pay income tax on it.

IMO, it makes little sense to sell unless you expect this house price to drop before 2027.

And I agree, it makes no sense to overpay when you can get almost 5% interest on your savings.

ACG

Why not tell your brother you plan on selling it in July next year? It gives him a year to save up a deposit.