Letting vs Selling early

AWWWWW97

Hello 

I have a 1 bed flat thinking about selling up early and moving back in with my mum (low rent)  My reasoning is to save so I can find a house closer to family and own a property freehold instead of leasehold with a garden. Currently I cant save enough to achieve this goal whist staying in this flat. 

If I do sell, I will lose nearly 10k in mortgage repayment fees & the real-estate/surveyor fees. I have a 5 year fixed rate mortgage that ends in 2029. 

My other thought would be to rent out my property for the next 5 years but I am on a residential mortgage so this may not be possible. Due to my high mortgage rate, I think I would only make 100 profit from renting and this doesn't include the costs of tax and initial fees to let the flat out.

My question is do you think it would be worth letting out my property and let it increase in value, and wait to sell when I have less of a mortgage repayment fee or take the loss and start from the beginning. 

Thanks

MEM62

The main issue with renting is that almost everyone underestimates the costs and responsibilities of being a landlord.  It not a rent and forget situation - you are running a business.  Does your £100 also include a contribution to your sinking fund?  You would be amazed at how much you spend on repairs with a poor tenant. 

I would either sell or stick it out.   

AWWWWW97

Yes this wouldn't include anything for sinking, I would have to use my personal savings for such expenses.

Thanks for taking the time to five advice. 

jimjames

If you're not including tax then you're unlikely to be making any money at all. You are taxed on the income received regardless of actual profit but do get a tax credit for 20% of the interest paid so could owe more in tax than you actually make especially if it moves you into a higher tax band.

Some very simplified numbers
Rent £10,000
Interest £8000
Profit £2000 (no account for insurance or maintenance)
Tax £2000 (20%) or £4000 (40%) minus interest tax credit £1600

So despite a profit of only £2000 you could owe tax of £2400 as a 40% taxpayer giving net loss of £400 before even looking at other costs. That doesn't necessarily mean you shouldn't do it but go with eyes open. You'll still have estate agent fees when you sell but would avoid early redemption costs.

Olenna

Many mortgages are portable so is selling up and moving closer an option? 

What about taking in a lodger (if you have standalone lounge) and don't appear to mind not staying alone. The key benefits being tax and they're much easier to get rid of if it doesn't work out than a full tenant.

Beddie

Sorry to read that you've quickly fallen out of enjoying your flat, I guess you only bought it last year.

As above, I think renting is a bad idea. You have to tell the lender and they may either refuse, or put the interest rate up. And flats are getting harder to sell - it may be worth the same or less in 2029.

Also, as mentioned above, you could port your mortgage to another property. You'll save on leasehold costs and only pay a partial redemption fee if the new loan is smaller than now.  Check the terms with your lender. If that doesn't look feasible then you'll have to weigh up the costs of selling against how much you can save being back at home with your Mum. You do sound like you want to get out.

Good luck with whatever you decide to do.

Bigwheels1111

You are forgetting capital gains tax as well.
I had rented my house out for 9.5 years.
No real hassle as was my brother in law and family.
My mortgage was paid off so no issues there.
Your mortgage rate might double, for buy to let.
That is if anyone will give you one.
All the insurance costs will be at least double, boiler cover, cp12 gas safe certificate etc.
When I sold I was a carer so my income was only 4k ish. So I was able to use 8.5k of my unearned income to
set aside capital gains, the limit was 10k ish 4 years ago.
Now it’s a lot lower.
My bill was 10.5k.

If you sell now it could cost You a lot less.

Hoenir

AWWWWW97 said:

I think I would only make 100 profit from renting

That allows no for contingencies . Too marginal too be worthwhile. 

DeepSporran

Bigwheels1111 said:

……..

When I sold I was a carer so my income was only 4k ish. So I was able to use 8.5k of my unearned income to
set aside capital gains, the limit was 10k ish 4 years ago.

……,

Assuming you are referring to the personal allowance for income tax (currently £12570) then you cannot use this to reduce capital gains tax. You can only use the separate CGT allowance (currently £3000, but was as much as £12300 a few years ago).

Bigwheels1111

DeepSporran said:

Bigwheels1111 said:

……..

When I sold I was a carer so my income was only 4k ish. So I was able to use 8.5k of my unearned income to
set aside capital gains, the limit was 10k ish 4 years ago.

……,

Assuming you are referring to the personal allowance for income tax (currently £12570) then you cannot use this to reduce capital gains tax. You can only use the separate CGT allowance (currently £3000, but was as much as £12300 a few years ago).

All I know is my accountant lowered what I owed by using my earnings.

HMRC were happy with it.

Main point was sell up now. Take the smaller hit.