Sell ?

[selldontsell]

Current situation:
Own family home. Value £610k ish. A mortgage remaining of £380k at 3.49% repaying £1800. Mortgage deal ends 2027. With current interest rate available this would go up to 5% ish but obviously don't know what that looks like in 2 years.

Own a flat - we lived in it years ago and kept it on. Worth approx £220k . BTL mortgage 5% mortgage left £110k. It is very slowly increasing in value at a couple of £ k per year and we make no money month to month on the flat. Rent is £950 . Tbis is under market rate but she is a good tenant.

Should we sell and pay off chunk of mortgage on family home or sell and invest in stock market. Currently also have ~£140k in stock and shares ISA.

Our pensions are ok but not great. Looking at about £27k a year between us in defined benefit pension. Then a pot each of around £150k in DC. So we could put the flat money into a sipp.

Currently 41 & 43 years old . Combined household income £230k but that includes bonuses that aren't always guaranteed

Other info - we have school fees to pay as well. In reality don't have a lot of disposable income month to month. Bonuses pay for holidays and home improvements

Have never used a Financial advisor. Don't know who you know they are good or not

Difficult to say without knowing the rationale for selling the flat. Personally Id want to boost the pensions so I’d probably sell and put the money into the pensions but it sounds like you’re fairly well set up given your ages so not sure why you’re wanting to sell.

We think the money in the flat could work better for us elsewhere. It has gone up by £60k in 13 years. Could we have made more money elsewhere

You’ve got a lot of income to boost your retirement savings or pay down the mortgages - rather than sell now I’d be inclined just to start to shovel more into your pensions/investments. Do a deep dive into your monthly and yearly spending to figure out why you don’t have much disposable income. Put at least 50% of yearly bonuses to paying into pensions/investments for a few years.

If you’ve got a good tenant, I’d talk
to her and say you’re likely to sell up within a few years, and she would always be offered first refusal of the property. She may wish to buy.

Have you worked out what your capital gains tax bill will be if you sell?

As pp, I think the first thing to do is work out properly what you would see net from selling the flat. By the time you have negotiated on the price, paid legal and capital gains, it might not be as much as you would hope.
If you have good long term tenant, it's not a bad idea to have some investment in property. It's a buffer against stocks and shares tanking.

You really need some advice OP, re CGT, also how are you basing the value of the property? Is it a current valuation? The market isn’t as buoyant as it was, and you may not achieve the full value. If you have a decent tenant I would speak to them about what you are considering, bear in mind should they leave, you will be paying the CT, Bills in the meantime. You achieve a good income, are you really in need of £60k (that won’t be £60k once you have paid solicitors cost, Estate Agents fee and possibly lack of rental payments whilst the transaction go through). I have had a couple of friends move recently, both took between 4-5 months to go through. Lots to consider. Personally I would keep the property.

Bought the flat for £160k so the CGT will be about £10k.

We have thought is it best to keep so that we have diverse investments but then we flop back to sell. If interest rates don't drop our family home repayments is going to go up again.

We pay £2k/month for school fees. Plus £1800 mortgage plus normal other bills. We have about £1.5k disposable monthly but that needs to cover all clothes, Christmas, presents, birthdays, meals out, cinema, other social stuff, etc etc. which is plenty but doesn't leave a lot of additional extra. Plus we both work full time and we both work away from home - not at the same time obviously so we like to enjoy the fruits of our labour. I don't want to have to scrimp when sacrificing so much to make the money in the first place

As I understand it, CGT is due on the increase in value since purchase. Which is around 60k. Equity in property around £100k. cGT will be around 10k

You might find CGT is a bit more than that depending on the details of the ownership. Current rate is 24%

We sold in similar circumstances. CGT is the same now on unwrapped stocks and shares, but you can mitigate that by maxing out ISAs annually, or putting into a SIPP. We prefer ISAs as it's more accessible and we have school fees too (and then uni costs) so we'll need access to the money earlier. Our flat was in London and it wasn't making much in gains at all, the market is very flat here but investments have done well in shares (albeit with higher risk options). It's not worth the hassle of renting out with all the costs and regulations.

We've opted not to pay off the mortgage as investments have done better than the money we'd save by overpaying (though we still overpay the max allowed every year, out of income).

CGT on the flat will be reduced a bit as it was formerly your home, and you get an allowance of £3k a year each (so could be £6k depending on ownership), and you can deduct EA and legal fees, so the tax may not be much at all - just use the calculator on the gov website.

@persip great advice thank you. I checked the calculator and based on my figures I think we will owe £8.7k. It is owned in husbands name only and he bought when zero stamp duty was due. But it is less than we had thought.

May consider keeping for another 2 years until the market picks up . Will get one more estate agent view and then make a decision

When will the flat be paid off? I'd be inclined to keep it and pop the rent up a bit.

Later in life when it's paid that's a passive income and a nest egg is needed.

Do you have a FA? You maybe able to make more on your savings.

@creamsnugjumper probably 12 -15years . Maybe quicker once kids go to state secondary school

In which case I'd keep the flat, it will be a great income exactly when you need it, you could wrap i

That's an extra say £1250-£1500 pcm.

I'd also be looking at your critical covers, life insurance and maybe get some trusts set up and advice on inheritance, as you will be falling into the IHT brackets with your assets.

I think if I were in your situation I would look to sell that flat at some point in the next 2 years (noting that it could take 6 months or more to sell it...) and then use that money mostly to pay off some of the mortgage before remortgaging, with a bit put aside for a rainy day.

Then, with your monthly mortgage payments so much lower, I would put a little extra each month into the pension.

Why this way round? (1) if you lose your job you can always ease up on the pension payments, but if you'd put the 100k in a pension it's stuck there and you still have your big mortgage to pay and (2) investing 100k in a pension all in one go isn't really possible or necessarily advisable: you'd be over the Annual Allowance and if you mis-timed your investment you might put the whole lot in the day before a stockmarket crash. Better to spread it out.

I was puzzled by your comment that you were keeping the flat so you would have "diverse investments"? It's a 220k asset that's 100% correlated with your other biggest asset i.e. your 610k family home. It would be more diverse spread across almost anything except property I'd have thought. Not saying you have to do that, but I'm just not convinced by diversity as the argument to keep it.

So long as the tenant is in residence thats fine but the next tenant is an unknown risk.

Property is a risky and illiquid investment

My suggestion would be to get it on the market priced for quick sake as soon as the tenant gives notice

Thanks everyone. We might hold on to it for another few years. Maybe sell before house up for renewal