Sell then rent?

[Nomorediy]

Me again! This forum is fantastic so I’m making full use of it.

I’ve sold the small terrace house (STC) I panic bought after divorce 8 years ago and thanks to the happy accident of interest rates being low enough at the time to renovate it nicely, I’ve made some profit and increased my equity base.

My buyers are FTBs and need to complete before the March 31 stamp duty deadline.

But while I now have theoretically enough money to buy a decent sized 3 bed here in St Albans I can’t find one I like. (The best I’ve seen is bang next to a pub.)

I don’t want to panic buy again. Renovating and adding to the mortgage to turn sth I don’t love into sth better will be far more expensive than it was a few years ago.

So I’m thinking it could be best to sell then rent for a year. Renting will cost more than my current mortgage but the interest on my equity in savings accounts will make up the difference.

What will the main downsides be?

The competition for rental properties is likely to be brutal. We rented recently whilst we were renovating our house. Getting a rental was extremely challenging. When we gave notice (in April) the number of viewings was crazy - 14 in a single day. That’s was with the rent being increased by £209 per month from what we’d paid.

I’m potentially in the same situation - can’t find anything I like enough, although it seems a lot is coming onto the market now, as I got about 5 or 6 new property options on email yesterday.

Assume your buyers have already started the conveyancing process?

Can you put your stuff into storage and stay with family or friends short term? Or see if there’s an Air BnB you could take for a few weeks? This maybe what I do, also as I am able to port my current low interest rate mortgage up to 6 months later.

We’ve done it, in order to ensure the ale goes through. Renting is definitely tricky now, but you would be in a good buying position. We were able to secure a six month let and moved into the house we bought at the end of the six months.

If I were doing it again, I’d go for a small rental and put everything else in storage. We had a bigger rental, but boxes everywhere because we didn’t want to unpack anything not needed.

We are just about to do this. We've agreed to exchange and complete even though we've not found anything. Aiming to rent for no more than 6 months tbh. We may need to buy soon to avoid being priced out.

The main downside is likely to be the quality of the house compared to what you are used to, even if the rent is higher than your old mortgage.

It could feel like a step backwards. But it’s not a bad business strategy in this sort of market.

I think it could be a good time to do this, as long as you keep up to date with your local market. You would be in a great position to buy if you did see anything suitable. The market for property in the SE in general has been slowly falling and is likely to continue to do so so it may be helpful financially too.
Are you living alone without children to take into account? Do you need to stay in St Albans? If you are living alone and somewhat flexible in terms of area, you could potentially rent somewhere small and cheaper while you wait to buy.

In St Albans? Def rent. Lots of 2 bed flats if you can manage with less space for a while. I bet you’ll buy something within 6 months so you won’t need to rent for ages. Might even be able to get some of that rent cost back by being a fast and focused buyer so get some £ off a future buying price

As competition for rentals is so high LL can take their pick of the applicants and are unlikely to choose someone who is only planning to rent for a year or less. They will prefer longer term tenants so you might struggle to get a rental unless you pretend you are looking for long term.
I offered 6 months rent up front when I applied for my place so that might make you more attractive to LL although some do say that is a red flag so who knows. Good luck

Personally I wouldn't do that apart from the disruption rent is very high and in effect it's money you would never get back.
I would just be open with the buyers and tell them you haven't found anywhere to buy yet and they will have to wait until you do . If you lose the sale I'm sure you will find another buyer and the market is picking up now with house prices rising.

How much is your redemption penalty on mortgage ?

Thing is in St Albans good 3 bed houses go fast and hold their value. Which is why op hasn’t found one yet. They then get sold to renters, sometimes local, often London. It pays to be quick even if the op takes a hit on some rent months

Thanks all. All this feedback has helped me think.

Renting is more of a financial risk than I realised

I put a total eg £600k in a house, inc mortgage, and prices rise 5% in a year I make £30k but if I put £300k equity in the bank and earn 5% interest I make £15k and it’s taxed. So the q is would being able to move quickly as a renter secure enough of an asking price discount to counter up to £15k appreciation loss, tax, extra cost of renting and early mortgage payment penalty. Would the perfect house make itself available to justify moving twice plus the above? Who knows?

Gets me back to buying a good enough for now house asap and extending it as necessary.

'I put a total eg £600k in a house, inc mortgage, and prices rise 5% in a year I make £30k but if I put £300k equity in the bank and earn 5% interest I make £15k and it’s taxed.'

This only happens if house prices actually rise 5% in the next year. If they fall by 5%, the answer is different. In any case, this is all theoretical unless you actually sell after a year.
If you haven't found anything to buy yet and are determined to sell to your FTBs, you may need to find something temporary/ stay with family if you have that option in any case.

I may be best served to offer my buyers a 5k discount if we miss the stamp duty deadline?

Direct costs of sell then rent would be about this much upfront (2x removals, small early mortgage payment penalty, circa £500 pcm extra cost of rent vs current mortgage).

Possibly ... but I wouldn't offer it. Just be prepared for them to ask and if they do, think about agreeing or offering to go halves.

We have just done this as our sale was dragging on and we needed to relocate for a schools deadline.

Getting a rental place was a nightmare, I cannot tell you how many places we offered on but we're not selected. Now we pay the most astonishing rent for the most run down house....

I don't regret it ultimately since our sale would have been nightmarish in a long chain and our kid has a school place now but still. Not for the faint hearted.

I don’t have a school deadline luckily. But do have a kid in a great school, so rentals near the school are super expensive and scarce. The cost of renting my current living space or just a bit less would be at least £500 PCM more and even more for a 6 month rental.

I think it’s probs best all round to get the good enough for now house near school I’ve viewed and renovate it when my horrible 2023 mortgage can be refinanced more cheaply in 6 months time.

I appreciate I could be quids in from renting if house prices fall but they don’t tend to in good school catchments in St Albans. As another poster said here, a 3 bed house near a school you’d want your child to attend will hold its value. We for sure won’t have the same manic price rises as we saw in 2020-21 but there’s a chaotic shortage of secondary school places that will last a few years so renting close to school is big money. I work full time so don’t have the option of renting in Hatfield and driving them in.

Seems like lots of houses are coming on now so you might get lucky 👍

That would definitely be worth considering, yes, especially if you think it much cheaper in total. I'm sure there will be a lot of re-negotiating on price amongst people who just miss the SDLT deadline.

Could you tell buyers you need more time and offer to pay some of their rent which they may need due to delayed purchase or some compensation? This would save you having to move and put furniture into storage until find house?

that seems a sensible conclusion

bear in mind that short term rentals are rare and expensive.
The norm for a rental is to be tied into a tenancy agreement with a set notice period meaning it is common to have an overlap period where you are paying both rent on the rental and mortgage on the new purchase.
The overlap can be even worse if you are still in a fixed period of the tenancy and the landlord refuses to agree mutual early termination. Fixed means fixed in respect of having to pay the rent for that period.

That’s a great tip thank you

One thing that has occurred to me is that if I can’t complete by March 31 my buyers will have to pay the increased stamp duty on their next purchase anyway. So perhaps it’s not mandatory for me or rush into rental. A discount for them on my sale can be passed along my chain. Am I missing anything?

My friend who’s very good with property said it’s better to relist the house after the stamp duty hike than rush into a rental Id be locked into for 12 months. In this area family homes near schools are in high demand so it’s a landlord’s market.

I wish I had family close by we could stay with but that’s not an option. An Airbnb could be I suppose.

Well you could look in to renting in the next 3-4 weeks and if you don’t find anything that works for you then stay put. Most people I know have found places - the issue for some is pets. If you have those then you can get turned down for places.