Live mortgage-free or keep investment flat? (A bit long sorry!)

[threefeethighandrising]

I asked your advice on this a while back oh wise mumsnetters. Last time the advice was overwhelmingly to keep the flat. However the situation has changed a bit and I'm getting the feeling that this flat is actually a bit of a hot potato, so I'm back again.

Here's the background in a nutshell.

• I own a 1 bed flat in London.
  
• DP and I are full time (very!) mature students.
  
• we live in a rented flat in another town
  
• we rent the flat to a friend. As we are students, technically the the flat is our "home" address, the rented flat is our "term-time" address and our friend is actually our lodger, not a tenant. (We stay there when we're in London)
  

Our original plan was to keep the flat in London on until we complete our study (in 3 years from now), at which point we'll move to wherever our jobs are and then sell the London flat and buy a family house.

It occurred to me recently that's there's actually enough equity in the London house to buy a place near our uni and live mortgage-free. However the wisdom of MN helped me see that that wouldn't be the best decision financially. Basically because the London market rises more quickly than others it'd be stupid to take my money out of it before I need to.

However what's changed is that my nice upstairs neighbour to the London flat is moving out, and we got talking about the house. (There are 3 flats in the house). He owns a number of properties and says he's delighted to get shot of this one as it's caused him more problems than the others put together. The house is an old victorian one and it's true we've had a few problems. (Most recently burst pipes and ongoing problem with rodents getting in and chewing wires). I suspect this house could continue to cost us money in the future.

Also our other neighbours (a couple) are pleasant to talk to but impossible to deal with. An example of their thinking is that my nice neighbour asked them to cut back a plant that's blocking his light. They refused saying it gives him good feng shui!

I know they are not doing simple maintenance things like keeping the drains clear etc. They also have a creeper growing which is eating away the brick and they refuse to cut it. I'm fed up with dealing with them but more than that I think that their negligent actions could be damaging the house. Now the nice neighbour is moving out I won't necessarily have someone to help me deal with them.

Also I'm sick of dealing with the paperwork which goes with having a flat and a house with a freehold agreement (I do all the paperwork for it). The idea of having one place is appealing from this point of view too.

Also we're going to have to move into a new place (rented if we don't sell up) in a year or so anyway.

If you're managed to read this far thank you very much!

Do you think these new reasons tip the balance in the favour of selling up or would it still be such a bad idea financially to take my money out of the London market now rather than in 3 years time?

[HarrietJones]

Where are you going to be living long term?

[DonInKillerHeels]

We currently own two houses, not through choice, one in the London commuter belt where we now both work, one up North that we've been trying to sell for nearly 2 years. The London commuter belt house has gone slightly up in value; the one up north is on the market for 75% of its value at the top of the market and still not selling. The housing market outside the South-East is very depressed indeed and could stay that way for years.

You would be very very stupid indeed to sell your London flat now and buy something where you are living unless you are 100% sure that you want to both get long-term jobs in the town where you are currently studying (or if you are currently studying somewhere like Cambridge or Oxford where property market buoyancy is similar to London).

If you don't want the hassle of your current property, buy something simpler to deal with, like a two-bed freehold terrace, in London or somewhere thriving in the South-East if you can't afford a terrace in London.

We are in housing hell at the moment because I made a stupid decision to buy up north just before the crash when I should have put my money into my (then Dp's, now) DH's house in the south-east instead. The housing markets are not remotely comparable.

Take my experience as a cautionary tale - now is not the right time to sell a property in London unless you have a long-term plan to relocate for, say, 20 years, to where you are currently studying.

[HeidiHole]

Nope still don't sell!!

[CristinaTheAstonishing]

I think I'd just sell, put the money in Premium Bonds and save myself the hassle. The buy when more certain of future job locations.

[GreatNorksOfFire]

I have a few rental properties. I would advise to do anything but sell at the moment. Honestly, the market it depressed; it is likely to become even more so in the next few months. Sit tight for at least a couple of years and get the most capital you can out of it.

If the flat is mortgage free, you can always get a btl mortgage and offset this against your rental income. You could use this as a deposit for your home in years to come.

Do not sell. I honestly believe the minor annoyance of having to deal with paperwork will pay off big time for you in the future.

[threefeethighandrising]

Thanks for your responses everyone.

We don't know where we'll live long-term (except definitely not London).

The paperwork isn't the main problem, that's just an annoyance really.

The thing is that I think the flat is likely to be a bad investment over the following few years as I think that the negligent actions of the upstairs neighbours are building up to create problems which will be expensive in the future. Also the house is old anyway and it has been costing us money to put things right and I have a feeling this might continue.

If the flat is purely an investment, then doesn't it matter who my business partners (i.e. my neighbours) are. I really don't think they're at all reliable!

We're in the South-East (Eastbourne).

[threefeethighandrising]

If the market is going to be flat for the next few years then we're not going to loose out on that much are we? We're definitely going to sell in 3 years anyway, this isn't a long-term investment.

[GreatNorksOfFire]

Sit tight, really. Unless you are utterly desperate and destitute, you would be crazy to sell in the current market.

You're in a fortunate position - use it to its full potential.

[threefeethighandrising]

Sorry to be dense by is it really that crazy?

The flat is worth about £240 (asking price) in the current climate I think. How much is it likely to rise in the next few years? not much surely? If we have to spend 1000s on work then maybe it's not such a good investment after all?

[threefeethighandrising]

£240k obviously!

[carriedababi]

why not sell, save the money in the bank or in bonds.
carry on renting then in 3 years you have 240k to spend on/go towards a house.

[Eurostar]

No one can say what will happen to the market. Now is not necessarily the worst time to sell in London. There's little on the market because so many people are sitting it out, able to due to tiny interest rates, waiting with possibly misplaced optimism for the market to improve, so there are far less buyers but also far less choice. There's nothing to suggest the market will improve in the next 3 years. At the moment mortgages are cheap, interest rates are likely to be higher in 3 years so that doesn't mean more people will be able to afford mortgages. It would be suprising if easy credit conditions returned in 3 years, which is what is needed for house prices to rise.


Anyway, what are the figures? Estimate the expenses over the next 3 years compared to the net rental income. How does that compare to the safe (unless the banks go under and the guarantee scheme doesn't pay) and hassle free 4% or so you would get with 3 year bond at the moment?

[Eurostar]

Now I see the price, the other thing that is important is that you are close to the stamp duty threshold. Unless that moves, you are always going to be in competition with people who are selling at the £250k level, so unless the place is very special, people are likely to choose a place that doesn't cost them extra £ in stamp duty. There's a bit of a "dead zone" between 250 and 300k at the moment which means your place is hardly likely to shoot up in value unless changes are made in the threshold levels.

[blueyonder41]

And, if you sold the flat, unless you used the money to buy another place, wouldn't you have to pay CGT on any profit. If its not a good time for you to commit to buy another property, if you have made money on the flat it wont be a good idea to sell it.

[Eurostar]

No, there would be no capital gains as it has remained their principle private residence, OP explained this in first post.

[blueyonder41]

Ah, sorry, I thought you were only exempt if you used it to buy another PPP.

[threefeethighandrising]

DP thinks more banks collapsing is a real possibility so I can't see us putting everything into b

[threefeethighandrising]

Oops! I was going to say bonds are out. Thanks for the idea though :)

[threefeethighandrising]

Good point about the stamp duty, thanks.

[Parietal]

I guess you have 3 options. (1) do nothing, (2) sell and buy a flat in your current town, or (3) sell and hold on to loads of cash.

I wouldn't do 2 - It sounds like you aren't going to be in current town long enough. 3 is not a great idea because interest rates are v low so your cash earns v little right now.

So if you can bear it, I'd hold on a few more years.

[Eurostar]

Option (3) is only not a great idea if net rental income, after tax and maintenance is larger than what would be got after investment of the cash in a non risky vehicle. This, at the moment, is 3 year fixed savings paying around 4%.

Some more banks may go down but if you split your savings over 3 of the part public owned institutions below the guarantee level (about 85k I think), you are unlikely to lose...and if you do...if say Lloyds or RBS or Northern Rock go under and can't pay their depositors any deposits, house prices would likely drop like a stone anyway as we would be in total chaos with no one able to raise mortgages.

If you want 100% rock solid government backed investment, you can go into NS&I fixed interest bonds, much smaller interest over 3 years, about 2.25% but this may still be more than net profit if you are about to have to shell out thousands for maintenance work.

The other advantage to consider about selling now is that you can sell at your leisure. No pressure, no need to accept any "cheeky" offers, you can wait until someone comes along who really wants that location and offers asking.

[northerngirl41]

Can you not get in a factor/management company to manage the upkeep? That way they deal with the annual gutter clearances, garden maintenance, rodents etc. It might cost £200/year each, but it's well worth it in terms of headaches and also in terms of selling the flat on - no one wants to be the one always whinging on about maintenance on the property and chasing other people for their share.

I'm thinking in 3 years that you may get jobs in London and not be able to get back on the property ladder if you downsize outside of London?

[threefeethighandrising]

We're definitely not coming back to London. If there was a chance you're right it'd be daft to cOnsider it, but it's not on the cards.

[threefeethighandrising]

Nice idea about a property company I wish it were that simple! We've already spent 1000s dealing with the damage the rodents make. It's not about setting traps. They're not in our homes they're in the walls. They're causing untold damage and to fix it we have to take down ceilings. Everytime we kill then more come back. We've done lots of work trying to secure the house against them but still they get in. It's an ongoing war which I hope we win soon, but no property company will do it for us. Nor can they cut down the destructive creeper as the basic problem is our neighbours don't agree to it!