To sell or rent out first home?

[Hotcoffeeneeded9864984]

Hi all,

I bought my first small 3-bed terrace on my own in Dec 2020 for 130000. I have since done a lot to it and it's in a great area, so it is now been valued at 160000. I think it would even go at 180000 at a push. I have also since met my partner and had a son, so we are hoping to move into a larger property when the 5 yr fixed rate term is up in Dec 25.

My query is this, I would really like to keep hold of the property as in investment for the long-term and rent it out at about 850pm. However, I would need to release equity from the house to use as a deposit for our next home and I've been told by my broker that I would only be able to release around 18k.
This doesn't seem like enough, as most of the houses we are looking at are anywhere from 200k-300k (the property market seem sky high at the moment), so I am wanting to know, am I better off just selling the property and using what would be a decent chunk to put down on our next home. My partner has his own savings to also add in. This would mean that we actually have enough to put down and our repayments aren't unaffordable. The deals I have seen so far look as though repayments can be around 1k a month on properties of that price, even with a decent deposit. Or should I try everything I can to hold onto it, so that I have it as a nest-egg for the future.

Any insight would be very much appreciated. Thanks

Have you factored in things like stamp duty on a second home and all the costs and hassle of being a landlord? Personally I’d just sell it.

I was an accidental landlord back in 2008.

The bottom line I suggest is what happens of the property 'goes wrong' Tenants dont pay, cant let it etc etc

If you can cover the mortgage thats fine but if you cant?

You need equity from the house as a deposit for the bigger family home.

It seems like it's a really bad time to be a landlord right now if you do the most rudimentary research into it.

I would aim to put your house on the market in 2025.

Sell it and rub! Accidental landlord and had the worst 2 years trying to evict/sort/sell!

*run!

Why do you want to keep it? Sentimentality rarely makes good financial sense.

Any new borrowing against the property would be on BTL rates. You also have to pay tax on the income and the mortgage interest isn’t fully deductible anymore. Finally, when you eventually sell you will pay capital gains tax on any increase in value and that tax rate could be anything by then. I would sell.

You can't afford two properties, so sell it, but make sure your investment in the new property is properly documented.

Hmm I wouldn't. We are renting a house out but only because we own it outright. If we had a mortgage and it HAD to be covered by the rent I wouldn't risk it. We've been very lucky with our tenants, they keep it beautifully and paid a whole year's rent in advance, but it doesn't often go like that!

I do the tax returns of many ordinary people (not those with huge property portfolios) who let a house and honestly they rarely make enough to make it worth it. There are so many outgoings and hassle and then they have to pay 20% tax at least on what profit they make.

Tenants expect a house to be perfect and so they should as they pay for it to be but little things you generally put up with in a house you own they will want fixing.

Also if you then decide to sell in the future you will have capital gains tax to pay. Not to mention the 3% surcharge stamp duty in the house you are going to buy now.

I wouldn't do it but thats me.

Oh really! What made it the worst? Were they not paying the rent? See this is something I have just assumed will be ok. Most likely being naive here.

I’d like to keep it long term, thinking more than 15/20 years in the hope that it will give me income, pay off the mortgage and then also potentially go up in value by that time.

Yes I hadn’t quite thought about keeping the tenants happy. Plus the tax on the income.

Whatever you decide to do with the house, do ensure that any financial contribution you make towards the next purchase is ring fenced. Get proper legal advice from a property solicitor especially because you're not married.

I'll say what I said on another thread:I wouldn't keep property to rent out. It is not a "passive investment" at all and imho you are exposed to many risks for a not very spectacular return. There are laws to protect your investment but a creaking court system to enforce/uphold those laws do they might as well not exist. Of course if you break the law there are penalties which are much easier to enforce on you. Add to that if you complain, you're always the bad guy, nasty landlord even if you've dealt fairly and legally with the tenants
I would also add to make sure you've a good legal agreement and take advice if you are putting more into the property than your partner without being married. Don't give away your equity

I wish everybody would stop calling it renting, or renting out. The correct term is letting, which is why you get the phrases "house to let", and "letting agent".

There are so many pitfalls. Unless you are really aware of your legal obligations and how you can be affected if tenants cause problems, then I would advise against it.

You need to have a lot of cash available to fix any problems that occur whilst letting and you won't make money on income alone. It will be the increase in value of the property that makes money but that will also be heavily taxed when you eventually sell. You have to weigh up if it's worth the hassle and legal obligations which you would be signing up to.

Most BTL mortgages require a 25% deposit/equity. You also need the rent received to cover the BTL mortgage payment comfortably, otherwise it will effect what you can borrow on your residential mortgage.

You don't say how much you have in equity and deposit savings nor what price bracket you're house hunting in, but if the broker is saying you can only release £18k, it doesn't sound as though you have enough.

It would be strange if you could do all that a few short years after being an average FTB, TBH.

Is it that you are buying jointly and want to keep some of your equity to yourself for safety? You can easily get a deed of trust to ring fence your deposit contribution and outline what shares you each own, as POs have said.

Hi,

I'd be looking at houses that are around 200-280k.

The house is worth say 160k now, and my mortgage is 109k. Does that mean that I have 50k equity in the house? My partner has 20k to put towards the house and I have 5k saved. I'd be happy to put more in and ringfence.

The reason I'd like to keep the house is the hope that in the long-term, say 15/20 years, that a good amount of the mortgage would have been paid off and the value would have gone up, so we'd have something to perhaps keep or give to my son.

However, this would greatly limit the deposit I'd have for a new larger home, if I can only release 18k. Plus it sounds as though 'letting it out' brings a lot of agro and challenges with it.

Thanks for replying all.

You'll have to pay 3% more for stamp duty on your new home too, if you already own one. So need to factor that in.
Also, being a landlord is a job. There are lots of rules you need to follow, and various things to need to have to make the rental agreement legal. So make sure you follow all the rules and know exactly what you're doing

you sound fun