AIBU to sell my rental property to reduce our mortgage?

[YellowDaffodil25]

If you had a £800k mortgage on your residential property, and a debt free rental property valued at £350k, would you sell the rental property and use the proceeds to pay off part of your residential mortgage? Coming to the end of a 5 year fix on the residential property so will see a big jump in the interest, and therefore monthly mortgage repayments. The rental property is currently empty and would need maybe £40k investment before it can go back on the market, but would probably achieve a 6-7% yield pre tax. Have always seen rental property as an additional income stream/pension income for the future but with interest rates where they are, and the headache that now comes with being a landlord, AIBU unreasonable to cash up the rental and pay off part of the residential mortgage?

Will your increased mortgage be affordable? What are your earnings/outgoings? How old are you?

I think that is a crazy big mortgage to have whilst you’re sitting on that kind of money in your other property that you could free up. I also think spending £40k to get it up to standard is a ridiculous amount to spend on a home you don’t live in.

Combined household income of £130k (gross). The increase in interest is going to make it tough to manage on a monthly basis along with other commitments. Early 50s

We did because it is too much hassle being a landlord now.

If I had such a large mortgage I would definitely do it.

Your mortgage is well over 6 times your income which is abnormally high. Usually 4.5 times is the most recommended. Especially as you have under 20 years to repay.

you need to work out what your monthly payments on the residential will come down to after the lump sum, and if you can afford that after the loss of rental income

What’s your remortgage rate? I’m guessing around 5% if that’s the case and you’re looking at a 6% rental yield I’d sell the property and pay down the mortgage. With additional investment, the risks that come with renting and just the hassle it isn’t worth it for the 1%

An 800k mortgage in my 50s?! Jesus, I’d sell the rental property without a second thought.

I wouldn't want that size mortgage at your age, too many risks of job insecurity, ill health, and your careers are not going to have the same salary increases. I'm surprised you were able to get a mortgage on that joint salary

Lower your mortgage and pay into a pension which has tax benefits and could also have higher ROI. House prices won't increase as they have been because the multiples of salary to mortgage are unaffordable

Definitely sell it

most of my friends in their 50s have paid off or almost paid off their mortgage. Seems rather a lot of debt

In your 30's I'd keep, in your 50's I'd definitely sell, but overpay that mortgage once it goes down. People can lose great jobs in their 50's and find nobody wants them again.

Will be between 4 and 5%. Once you take into account tax on the rental income, it’s not even 1-2% is it…

Our household income was a lot higher when we took the mortgage out, circumstances changed. Sorry for the drip feed, didn’t want to be too outting in the first post - the £130k is one income

I’d be selling the higher value one and be moving into the mortgage free one.

I couldn’t close my eyes at night with a mortgage of that size. Def sell the rental. Your mortgage payment will be half your joint take home pay which in my opinion is way too high.

If you had had 350k in a S&S ISA the last few years it would be worth far more now..like far far more.

6/7% is absolute rubbish for that much work being a landlord. By the time you’ve paid tax and all that..even worse.
Id invest half and use half to bring your mortgage down.

If you are in a higher rate tax bracket, bring asmall landlord doesnt make sense.

Definitely sell it unless there's a reason not to. Since you thought your salary would be "outing", I'd imagine there's a lot more detail you'll be drip feeding into this thread so people might have better advice when you've given the full picture.

There's Capital Gains Tax to be paid on the house that you don't live in so it makes sense to sell the smaller one. CGT is due on any unearned income, ie, the amount by which the asset has risen in value since you bought it.
https://www.gov.uk/capital-gains-tax

Doesn’t sound like you have much choice? One of ours is about 650k and it’s over 4k a month on a repayment mortgage (about 17 yrs remaining I think). You won’t be able to afford the repayments on an 800k mortgage, unless I’m missing something?

Yep you need to sell the rental and pay off some of your mortgage. That mortgage is massive for your age and income. It doesn’t make sense having an asset just to service a massive debt.

I sold my BTL last year. We are mortgage- (and hassle-) free now.

If I were you, id consider moving into the rental property and selling or renting out the bigger house. (In present market and with the renters rights bill, id be more inclined to sell). Be mortgage free, and have a stash of cash and look to retire ASAP. Did you really want to work for another 15-20 years just to pay for a house when you could have a different lifestyle without the burden of mortgage payments? Not to mention, it sounds like you don't have a big buffer for unexpected eventualities.

Absolutely! I would paint a decent chunk- whatever takes your LTV under a low interest rate. Then put the rest in s&s isa’s & GIA which have interest of 6-10%. The Rebel Finance School have a course beginning tomorrow. Financial advice to empower you.

You need tax advice OP