Interest only to repayment

[whatever1980]

Husbands first house was bought on interest only mortgage. Excellent tracker rate at one point mortgage was £50 a month. Bought for £87k He took out an extra £10k however for damp proofing and other repairs.

We then met and married and bought a house and he rented out old house. House was in £30k negative equity for years. Again mortgage very low.

7 years left on this house. Still full £97k owing. He kept some rent in savings - about £10k. Long term tenants just moved out and have been carrying out repairs.

Trying to decide now whether to

sell now and potentially lose about £5k as not valued at £97k but higher than was for years

Keep for 7 years remaining on mortgage and keep saving rent and hope when hand house back to mortgage company at end of 7 years it is full value

Or switch to repayment mortgage and start paying £97k over 20 years. Rent would just about cover mortgage. Still tax etc to pay. Concerned that although mortgage company has valued house at £120k local estate agents sat £94k at most. So would be getting a mortgage for more than value of house.

Looking for long term investment something to leave kids but this just isn't making sense to me now to swap to repayment.

Rent cover mortgage but still be taking loan for more than house worth

Any thoughts please?

Can you challenge their valuation? Contact a mortgage advisor. There fees are quite small £100-£250 and most only require the fee if you want them to go ahead with a mortgage application.

He must have made money from the rental over time so I'm not sure viewing it as a £5K loss is realistic
If you sell now there won't be any capital gains tax to pay
So I vote for sell

If you are on interest only do you "hand back to the bank?" I didn't think that was how it worked and the expectation is you pay it off somehow so would have to sell the property.

I don't really have any advice, I sold my rental last year as the changes to tax and raise in interest rates meant it wasn't really worth it longer term for the return I was getting- and the stress it was causing me.

Sell

If you would only just cover the mortgage with the rent, then up keep and tax will mean that keeping the house is loss making. No point in that.

If you have 10k of rent in savings then selling now will be at a slight profit based on valuation, maybe break even with costs. No CGT.

I would sell and start again.

Wow what a mess.

Am concerned you think you can just hand back to the bank in 7 years. You can't - if you don't pay them back you'll have to remortgage. And if you don't they'll repossess it, sell for peanuts in an auction and still come at you for the remaining balance. Oh and you'll have a CCJ against you for the privilege.

Why on Earth haven't you paid anything off, or saved the rent or taken out some other repayment vehicle? Esp given repayments we're so low?

So you either change to repayment, or sell. And that will depend on rental yield - more than 8-10% - keep renting (assuming you're happy to be landlords). Less - sell.

If you sell now for less than the mortgage owing do you have savings to make up the difference? The £5k you mention will need to be paid to mortgage company.

It's not a case of just handing the house over to the mortgage company at the end of the mortgage term. You will need to sell it or the mortgage company will repossess and likely sell at a lower amount and you will still need to pay off any remaining mortgage balance. I would get financial advice.

Thanks all - sorry - I shouldn't have used the phrase 'hand it back to the bank' I do know we have to sell it and make up the difference.

We have savings to make up the difference but obviously would prefer less difference the better.

The rent was used for years for income as illness meant I suddenly had to leave work unexpectedly.

Absolutely agree it's a mess. We did well out of the house for years and it's finally back up near to purchase price.

Was just trying to work out before put it on market should we try to keep it. We could put £20k against it but so far mortgage company are saying may not need to put anything into it. However this means I think mortgage payments higher. May prefer to put money in so lower repayments and rent definitely cover all if repayment

If switched to repayment I'd have no stamp duty or big conveyancing fees which I would if bought different house.

It's the mortgage company's value of the house v local estate agents which is concerning me also fact we'd be taking out a loan for more than estate agents say it is worth but less than what bank says it is worth

I'd sell and be shot of it.

My husband is selling his now as it should sell at a break even or small profit. Tax is likely to hurt if we hold on to it. I'd consider it not a loss when you've used income from it to live, so sell before it's a millstone.

You haven't said what the yield is. That will tell you if it's a good rental investment or not. I suspect it isn't - you're not getting £1000 pcm for it are you? This needs to be a business decision.

Thanks everyone much appreciated confirms what I thought.

Rent likely to be around £500

Mortgage likely to be £625 at moment