Keep or sell flat?

[NoPlanYet]

I'm after some advice about what to do with a flat I own (paying mortgage).

I'm trying to buy a house and can either sell my flat to fund the purchase or else keep the flat and rent it out.

Figures are:
Flat is worth 430Kish (London) and will sell quite easily. We have 160K left on the mortgage.

I'm moving out of London looking for my forever home. Budget up to 700K but I should be able to find what I want for closer to 600 I think.

I say I but actually I mean long term partner and I. We're not married but if it made any difference to anything we soon could get married. We're just not that bothered so haven't done it yet.
My salary (0.8 fte) is 44K. His (also 0.8fte) is 65K.

We'd rent the flat for 1400 pcm, management fees of 10% - already checked with a local EA

Not got much savings as we keep ploughing extra money into the mortgage. Prob got about 10k but can easily get hold of another 20K if cash is needed (loan from family business - business owned by my brother. No problem with borrowing)

Not sure what other info is relevant to this and working out what is affordable.

WWYD?

Can you afford the house if you keep the flat?

You earn about £110k between you. So you'll get perhaps 4 times that i.e. £440k. However the bank may well take off the other lending (160k).

I think you need to speak to the bank asap to find out what they'll lend. You might be in for a shock if you're expecting 6.5 time joint income.

Also bear in mind the massive cost of stamp duty, legal fees etc.

Where does your deposit come from if you don't sell the flat? If you remortgage it what will the repayments be?

Do you have the time or energy to be a LL? It's not easy money like some people think (I'm a LL).

As far as I can see you have no option but to sell the flat if you're looking to buy a £700k house.

We've been granted a mortgage of 450k which was not at the absolute max allowed (were buying and selling but it fell through. Twice. Hence investigating other options). So I know we're good to buy up to about 700.

Something which has confused me is a friend who owns somewhere worth about 460, similar equity to me, buying somewhere in the region of 700 amd keeping her place to rent out. She earns a bit more than me but her partner oy earns 30K so their joint at 1fte each is less than ours at 0.8fte.
The sums work for her apparently which I will admit surprised me. Anyway she's encouraging me to do the same and I wanted to sense check the figures with MN.
It does sound a bit dodgy doesn't it?

And to choughed no I don't really have time or energy to be a LL but I'd assume that's what I'm paying the EA their 10% for. I have 2 other friends who rent out flats they used to live in and they don't have any real dealings with it. Is this unusual?

I'm gathering info at the moment so thanks very much for all replies.

Re effort, it depends. You could have a brilliant EA, stable tenants and no maintenance issues. Or you could have crooked EAs, fires, floods, fraudulent tenants and collapsed drains. It's not for the faint hearted. I've been a LL for 10 years and have had all of the above. Speak to people you trust about their honest letting experience.

Also financially it's not prudent to have all of your assets in property, I would build up a cash ISA as well.

where doe the deposit come from though if its stuck in the flat?

You have £450k mortgage offered - fine although check that they will still offer that much knowing you have another £160k of debt.

So you will need at least five percent deposit (22k) plus stamp duty legal fees etc. That buys you a house worth circa £475k not £700k.

You can buy a £700k property but only if you sell the flat (unless there is other money you haven't mentioned).

Seems that in an attempt to cool housing prices the government is on a mission to make life (profit) virtually impossible for small/BTL landlords, starting with the changes to allowing mortgage interest to be tax deductible. This will seriously affect many landlords financial viability. Something to work into your calculations, along with allowing for possible void periods (say 2-4 weeks later), between tenants and approx 10% pa maintenance. IME all you will get from EA for 10% in London is finding tenants, lease renewals - ongoing management is usually closer to 17% and tbh not worth it. So factor in sometimes having to deal with, or help tenants deal with, maintenance issues. As pp said, this could be easy or could be a nightmare

All really good food for thought. Thanks v much for your experiences.

Small update having spoken to a broker today.

He advised us to:

Remortgage our flat to take out an additional £115k, move the flat to interest only mortgage.

This would give us a budget of £115+approx 5 times combined salary, less stamp duty and legal fees. So depending on the exact mortgage we could get somewhere in the region of £600-£650K for our onward purchase.

Onward purchase mortgage should be repayment.

This budget is considerably larger than many of you thought so I'm giving this info in case it is of interest to anyone - I was surprised we'd get this much but the broker assures me his sums are conservative.

We're still not sure whether we want to do this but it's good to know what our options are. I'm waiting for the full breakdown of what our monthly repayments would be etc.

Anyway there's the info I wanted to deliver.

Buy before April when there is an additional 3% stamp duty on buy to let.
Also if you're not married make sure you have a cohabitation agreement, deed of trust of the property, show at the Land Registry your % shareholdings each and make wills.

Also do respond to the new consultation on the higher stamp duties as the Government wants your views

www.gov.uk/government/consultations/consultation-on-higher-rates-of-stamp-duty-land-tax-sdlt-on-purchases-of-additional-residential-properties

Deo would the stamp duty increase affect me since I'm actually buying somewhere to live and just remortgaging somewhere I already own?

We own as the type which means we automatically own half each, we do have wills and also have some paperwork we drew up and signed and left with parents declaring our intention for the flat should we split so I'm fairly happy we're covered on these things. All money has been joint for a long time, we earn similar and so there isn't much scope for financial abuse. Plus I know everyone thinks this until it happens to them but he's really not that kind of guy- been together 11 years and not a whiff of anything other than decency from him. But thanks for your concern and advice, and I don't mean to dismiss your points, just reassure you we've thought about them.

I'll look at the con doc. I'm in 2 minds as tbh I dislike the idea of accumulating wealth from property and am tempted to say all 2nd home ownership should be banned / heavily taxed. But now I've failed to buy/sell all at once I am getting tempted by the lure of riches. Minor angst happening inside me...

Factor in all the expenses and remember the hefty capital gains tax bill you will get when you do eventually sell the flat.

You will be taxed at your marginal rate on all profits from the flat and will have to do a self assessment tax return.

Plus, being a LL is more than appointing an agent and then sitting back and collecting the rent.

No need for the property for profit angst, but make sure you're ready for all it entails.

NoPlan you need to read the various examples in the paper I linked to which are very helpful.From memory if you buy after 5 April then you are likely to be affected as you own somewhere so this will be a second property. If you plan to sell it however there are proposals in the consultation document that on that sale you then get a refund of the extra 3% stamp duty.

I am very against the new stamp duty changes but we are going to have to live with them.

Even on divorce they provide there may be extra stamp duty to pay unless you have a second home because of a court order. Plenty of couples foolishly don't bother with a court order so won't come under the exemption.

People who are unmarried and not civil partners however can have one property each as far as I can see so if you have 15 extended family members as many in my area of London do you presumably can just put a property into the name of each family member as long as they have no other and then don't pay the extra stamp duty. So if my children were all adult as they nearly are and didn't have their own properties already I could give them cash to purchase outright if I had it and they could buy a buy to let each and would not have to pay the new stamp duty.

Complex new tax rules like they are also bringing in for inheritance tax and rarely wise for the state. They shoudl be reducing tax instead, making the state smaller and simplifying the tax system instead.