Live mortgage-free or keep investment flat?

[alicethehorse]

We own a flat in London, which we rent to a friend.

We're currently living in a rented flat near our college while we study as mature students (not in London).

The plan was to sell the flat and buy a family house wherever we get work after college (in 3 or 4 years time). DS will be 5 or 6 then. We hadn't planned to buy till then because I assumed a mortgage company wouldn't touch us with no jobs! (And you need a new mortgage for a new place, right?)

However I've realised that we could actually afford a flat round here from the equity on the London flat - i.e. we could sell up in London and pay cash here. We could live mortgage free and rent a room to a lodger too.

This is very tempting.
I'd love to have our own place here. I find running two places a headache, and more time consuming that I had appreciated. (Have just spent lots of time and money doing unplanned but very necessary work on the London flat).

However, the flat in London is in an area where prices are rising despite the recession. It is an area which is being gentrified at an alarming rate. Financially speaking the wise thing to do would be to leave our money in the flat in London as long as possible. Am I mad to consider jumping ship early? We'll never move back to London. We have no idea where we'll be working after uni, but it'll hopefully be somewhere we stay for a good long while.

(I'm a regular mumsnetter by the way, but feel uncomfortable talking about this openly so I've namechanged).

I do appreciate this is a nice problems to have! But I would really appreciate any advice, my head is going round in circles over this!

TIA

If you have a lot of equity in your flat, couldn't you increase the mortgage on it and use the extra to buy a flat where you are?

nooka - is the agent managing your house and "helpfully" suggesting that his people do the work? I would be very about it until you get some independent quotes.

"OP - you refer to the person living in your London flat as your "lodger" but isn't s/he actually your "tenant"?"

Technically he's our lodger (I think).

Our London flat is still our permanent address. We are studying and our college addresses is our "term time" address (this is normal for students).

Our lodger is an old friend. We have no tenancy agreement. When we go back to London we stay in the flat, with our friend there too.

I thinks that qualifies as a lodger?

"If you have a lot of equity in your flat, couldn't you increase the mortgage on it and use the extra to buy a flat where you are?"

Can't get a mortgage as a full time student unfortunately! (as far as I know)

I think I'm resigned to keeping the flat. I actually enjoy the whole house hunting process (sad I know )

Nooka thankfully I don't have to deal with agents. And also our lodger is a builder so I know the flat is being well looked after.

I agree with lalalonglegs by the way, I'd take what the agent says with a pinch of salt and get another quote. What a pain!

Sorry I was going to say ... I actually enjoy the whole house hunting process and I think this was clouding my judgment somewhat!

We're here for another 3 years probably.

Personally, I'd sell. In fact I have. You can't put a price on quality of life and we found the stress which accompanied dealing with tenants far outweighed the benefits. With the proceeds we'll have a small mortgage on the place we buy which will be eliminated in about ten years. It will allow us a fantastic quality of life in the interim, and the possibility of amassing some decent savings which open up the possibility of buying in London again further down the line. The question you also need to ask is do you think your flat will rise another 28% in next few years to compensate for CGT? And when calculating you need to bear in mind the costs absorbed in maintenance.

Talk to a mortgage broker about a buy-to-let mortgage that won't be entirely dependent on your income.

CGT only comes into effect if the property is not classed as your main residence, which I assume the OP has on her owned home. Although I would be having a chat with the IR (I have recently) because there is a set period you can sell within if it is NOT classed as your main residence for tax purposes.

3 years is the band for selling the house. But as you and OP highlighted it's still her main residence as uni res is temporal.

We've just been faced with a similar dilemma and decided to sell our flat in London.

But that's because where we are going is likely to be our "forever" place and with the equity in the flat plus lower house proces up North we can have a tiny mortgage and a nice house. We were also swayed by horror stories from friends who rent their flats out and have tennents who don't pay/ ruin things/ stay 6 months only/ sublet to others.......

I think in your case because you don't know where you will be living long-tern and you have a good lodger I would keep the flat on.