Keep my rented flat for my pension or sell for new home?

[MindfulMarzipan]

Need a bit of advice for anyone who has attempted this and its paid off/failed.

I have a flat in a market town that I currently rent out. Take home pay £400 monthly after tax. I've lived there for two years but got a job offer I couldn't turn down, I always hoped to return but it looks like that's not going to happen.

I'm currently living with family. Managing okay but longing for my own home.

February next year the flat will be paid off. I'm wondering if I should sell it and use the money as a deposit for my next house. Or keep renting it out and see it as a top up for my pension.

It would take me another 3 years of living with my family to scrape together another deposit. Not much room for luxuries like holidays. I'd also be eligible to pay a second home tax.

Has anyone done this? Is it worth the fees and stress in the long run. I'm single and have a chronic illness and one day might not be able to work, so there is an appeal of an appreciating asset. But I'm also worried about tenancy gaps as since I could be covering two properties council tax bills if the other is empty.

I am 35 and I'm in the 20% tax band rate.

Any advice would be appreciated.

I think if you want to buy another house that will eat into your profits as you’ll have to pay higher stamp duty. Personally, I would sell, use some of the money for a deposit on your new home and invest the rest in S&S ISA and pension, so that the money is working for you without the hassle of a buy to let.

You haven’t said how much the flat is worth and how much of a deposit you would need for your own house, those are important details. I have a buy to let and constantly wonder if I should sell up but for the moment my strategy is to keep it on an interest only mortgage and put all the profit into a S&S ISA with the view to using that to either pay off the mortgage, or sell up and add the equity to my investments. But not sure I would do the same in your situation.

If I sell my flat I might get £125000 for it and look for a house about £270000 range. If I kept my flat i would look at houses in the £160000-£200000 range. Aiming for a deposit at £30000 or more if I save carefully.

You need to work out if you can afford the extra stamp duty within your proposed budget. If you retain your flat you will effectively be buying a second property so be eligible for the higher rate of stamp duty. Does the monthly rent cover all costs relating to the flat including maintenance and repair and the service charges. Will you be able to increase rent at the same rate as the inevitable increase in service charges etc.

personally I think I would prefer to keep my mortgage as low as possible by selling the flat. At the moment it sounds like you have a good tenant but in the future you might no be so lucky and could end up costing a significant amount. If you have a void between tenants can you afford two sets of bills? Can get very stressful muddling 2 properties. With your health I think I would be trying to keep things as simple as possible I.e. 1 property I am living in not maintaining a 2nd one which is a rental.

100% sell and buy a home for yourself.

After all outgoings and squirrelling away a cushion for emergency repairs, the flat gives me £400 after tax. I could just about cover two properties. If I had a tenancy gap, it would be a stretch but doable.

But thank you for your answer. I think the stress might be too much and it might be better to sell. Lots of food for thought.

Have you considered CGT on any profit over a certain threshold (think it's £3k) if you have 2 properties and sell your non primary residence?

I would sell as soon as you are ready to buy a new property. If you are buying you are definitely not going to move back and I would want the security of smaller mortgage and option to invest in pension. When do you have to start paying CGT if you are no longer living there?

How about selling, still buying a lower value house and putting more into your pension or stocks and shares Isa's/ investments? That way you will have a tiny mortgage you could pay off sooner and not have to worry as much about interest rate uncertainty or having to give up work etc I think that way it's safer than all the hassle of being a BTL landlord when you don't know what's round the corner re stamp duty/ 2nd home issues/ renters rights etc. You could get an investment income too.

The stamp duty will be quite significant if you keep the flat.

I've been in your position and for various reasons kept my previous home as a rental, then bought another house. The difference in stamp duty between selling the rental vs not selling was £15.5k, so you need to decide if you can afford that. There's been a change in stamp duty rules (I think last year) and the extra is quite significantly higher than it used to be.

Another option though if you want to keep the flat as pension top up is remortgage that with a BTL mortgage. It sounds like you've got a decent amount of equity in it. A BTL mortgage usually requires 25-30% equity, which means you could easily release £30k for the deposit for your new house.